The research notes that India’s productivity gap with China has expanded by more than USD 30,000 per worker since 2000, underscoring a growing divergence in economic efficiency between the two Asian giants. It further states that Bangladesh now operates at productivity levels comparable to India, signaling stagnation in relative advancement within parts of South Asia.
While India’s per-worker GDP has increased more than threefold since 1995, the pace of productivity improvement has lagged behind several Asian peers. Vietnam has emerged as the strongest performer in the post-pandemic period, driven primarily by manufacturing-led foreign direct investment inflows.
According to the report, India’s labor productivity growth stood at an annual 5.3 percent during the 2000s, largely supported by the rapid expansion of the information technology and services sectors. However, this momentum slowed sharply to 3.4 percent in the 2010s due to multiple structural and policy disruptions.
The study identifies major economic shocks that impacted productivity growth, including the 2016 demonetization exercise, the implementation of the Goods and Services Tax in 2017, and the Non-Banking Financial Company liquidity crisis. These events disproportionately affected the informal economy and disrupted business continuity.
The report also highlights the severe impact of the COVID-19 pandemic, noting that India experienced a productivity contraction of 12.3 percent in 2020, the deepest among comparable datasets. This decline is attributed to the country’s high dependence on the informal sector, the vulnerability of migrant workers, and stringent lockdown measures.
Despite recent improvements in productivity growth, the gains remain uneven across sectors. The report observes a sharp divide between high-productivity services and relatively weaker manufacturing performance. It adds that excluding services reveals significantly slower productivity growth in goods-producing industries.
Government initiatives such as the Production Linked Incentive scheme and the China-plus-one investment shift are contributing to growth in sectors including electronics, pharmaceuticals, and auto components. However, the report emphasizes that these developments have not yet led to a structural increase in manufacturing’s share of the overall economy.
Logistics costs remain a critical constraint, with India’s transportation expenses estimated at 13 to 14 percent of GDP compared to 8 to 9 percent in China. Equirus identifies labor market rigidities and high logistics costs as key barriers to sustained productivity enhancement.
While India’s demographic advantage, strong capital markets, rising foreign investment, and expanding digital infrastructure provide a favorable long-term foundation, the report warns that capital expenditure and incentive-driven policies alone are insufficient. It calls for deeper structural reforms, particularly in transportation efficiency, commodity-related pressures, and land acquisition frameworks, to achieve higher productivity growth on par with advanced manufacturing economies.
The report concludes that India’s long-term fundamentals remain strong, but without comprehensive structural reforms, the country risks falling further behind high-productivity global peers.
About The Author
.jpg)
Comment List