By Rajiv Bajaj & Pankaj Bansal

“Productivity is not everything but in the long run, it is almost everything”
—Paul Krugman, economist & author, Age of Diminished Expectations

As India approaches its centenary of independence in 2047, the vision of what India@100 might look like is a topic of great anticipation. Will we rise as a global superpower, fulfilling our potential, or remain in pursuit of the developed economies?

While there are multiple levers driving our nation’s progress, one often remains overlooked despite its monumental impact: Labour productivity (LP). While job creation frequently dominates discussions about growth, it is productivity—the efficiency with which these jobs contribute to economic output—that defines the long-term prosperity of a nation. 

LP is the economic output (gross domestic product, or GDP) per hour worked and its growth means getting more from the work our workforce does. 

Why LP matters

Considering the impact this lever has on prosperity; it is said to be the most consequential determinant of long-run economic growth. Rough estimates suggest that a 1% increase in LP yields an equivalent increase in GDP per capita, which thereon contributes to higher income and spending capacity.

A strong focus on productivity levels is especially needed now as the world faces the many challenges of a new geo-economic era. 

Productivity growth is the best antidote to the asset price inflation of the past two decades, which has created about $160 trillion in “paper wealth” and even larger amounts of new debt. Without a surge in productivity, we could be headed for a Japan-style wealth reset or a period of sustained inflation. 

Second, we need to fund the net-zero transition and keep improving living standards if we are to achieve sustainable inclusive growth. Closing the empowerment gap and the net-zero investment gap requires the equivalent of 8% of global GDP annually, which will be very hard to achieve without rapid productivity growth.

LP growth addresses critical challenges like asset price inflation, sustainable development, and economic inclusion. For India, which boasts impressive annual productivity growth of 5.6% largely fuelled by capital investments (second only to China), the potential is vast. 

As much as 70% of India’s productivity growth is attributed to growth in capital stock per worker that grew by close to four times. While this growth is impressive, a lot more has to be done as globally, India’s capital stock per worker is still less than half of China’s and less than a third of Central and Eastern Europe. 

The key question, however, is how to further fuel this growth. 

While tangible capital investment, in the form of tools and technology, has a role to play, the quality of human capital—their education and abilities to perform a task efficiently—has a more significant impact. And if India wants to be the Talent Capital of the World, in both services and manufacturing, a lot of work would need to be done to enhance LP.

Driving productivity and job creation

A productive workforce is the cornerstone of economic growth, with productivity directly tied to the effectiveness of jobs performed. While skilling is a key enabler, its ultimate purpose is to fuel productivity and generate meaningful employment opportunities.

In India, building a workforce capable of addressing the challenges of the modern economy requires a holistic approach that balances three critical factors:

Basic competencies: Foundational abilities like communication and financial literacy that ensure individuals are equipped to contribute meaningfully to society.

Job-specific expertise: Core technical and vocational knowledge needed to perform tasks effectively.

Future-ready capabilities: Skills that evolve every decade or so in response to technological advancements, enabling adaptation to new roles and industries.

While developed economies often have institutionalised systems to address these areas, emerging economies like India must tackle all three simultaneously.

India’s demographic advantage and global workforce potential are well-recognised, but the key to unlocking this lies in translating skills into higher productivity and job creation. With the right focus on execution, we can ensure that every effort contributes not just to skill-building but also to raising productivity levels, driving economic output, and consequently increasing the GDP per capita.

At the same time, the formalisation of employment through structured staffing solutions plays a crucial role in ensuring workforce efficiency. A well-regulated staffing industry enhances job security, provides access to essential benefits, and ensures compliance with labour laws, all of which contribute to a more stable and productive workforce. Supporting the formal staffing industry can bridge employment gaps, reduce informality, and create pathways for skill development, ultimately aligning with India’s goal of sustained economic progress.

Getting the field ready

Like in almost all country-wide initiatives, the journey starts with the right policy in place. However, an interesting fact is that while policies and movies are alike in the way they garner attention and acceptance, the time it takes to decide their fate is different. A movie is declared a hit or flop within weeks, but at times, it takes decades for a policy to show results, especially in a country as spread out and diverse as India. Hence, instead of bringing more policies that may add complexities, the focus should be on creating a ground on which policies can be executed—swiftly and efficiently. We have already seen how the direct disbursement of the funds to the beneficiary’s accounts has reduced the fund leakage to less than 1% from almost 70-80% earlier.

We already have the New Education Policy, National Apprenticeship Promotion Scheme, Pradhan Mantri Kaushal Vikas Yojana and many more. The government is serious about enhancing productivity through skilling and has allocated almost Rs 1.48 lakh crore in the 2024 Budget towards education, employment, and productivity-oriented skilling programs. If we can devise an immaculate execution engine, the rest will follow. There are companies from across the globe ready to partner with India to nurture and enhance the country’s talent potential, provided there is a blueprint for execution available.

The way forward

True progress is not just about creating opportunities but ensuring they are impactful. By enhancing productivity, we empower individuals to achieve their fullest potential and collectively build a future-ready nation.

While the path to becoming a global productivity leader may be challenging, incremental changes, guided by focus and tenacity, will enable India to carve its unique story of growth.

The writers are respectively managing director, Bajaj Auto and Co-Founder: CaretCapital, Taggd & Board Member Karmayogi Bharat.

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