Structural Change and Labour Productivity Growth in India: A Sectoral Decomposition Analysis, 1980-2019

Abstract

This paper aimed to trace the growth trajectory of labour productivity growth in India from 1980 to 2019. It evaluated economic growth and structural change. The study adopted decomposition techniques to comprehend how structural change influenced labour productivity. It enabled us to assess how different sectors were affected by reallocating labour inputs. A sub-period analysis was also done to analyse the effect of structural change across various sectors and study the contribution of sectors to aggregate labour productivity growth in India over different periods. Sectoral growth needs to be more consistent and balanced. The study concluded that India had benefited from the static structural change, that is, workers' movement to higher-productivity industries like manufacturing and construction. On the other hand, dynamic productivity gains, that is, the movements of workers to fast-growing industries that required very high productivity, were minimal or nonexistent. The services sector was predominantly responsible for the increase in value-added and output. It is challenging to sustain future developments without a strong manufacturing sector, mainly because of the slow rate of job creation in services, as it requires skills and expertise. Adequate policies facilitating the transfer of labourers from less productive to highly productive sectors are necessary to achieve growth-enhancing structural change.