India’s low productivity trap: Prosperity and economic transformation require a complete change of mindset
Abstract:
The report on Periodic Labour Force Survey 2017-18 has now been released. Critics of Prime Minister Narendra Modi had made much of the leaked estimate of unemployment rate of 6.1%. Hoping to turn voters against him, they repeated ad nauseam that unemployment rate had turned the highest in 45 years. But with their blinkered vision, they failed to see that the flip side of unemployment rate is employment rate, which stood at a hefty 94%. For most voters, unemployment was not an issue.
But the survey does point to a difficult road ahead for India. It reveals that the transition of workers out of agriculture into industry and services has continued to move at a snail’s pace. Agriculture’s share of employment, which had fallen rather slowly from 58.5% in 2004-05 to 48.9% in 2011-12, fell yet more slowly in the following six years to 44.1% in 2017-18.
The fact that 44.1% of workers employed in agriculture produce only 15% of GDP means that output per worker in this sector is less than one-fourth of that in industry and services combined. With output per worker in industry and services itself low, per-worker output in agriculture is truly tiny.