Labour Productivity In Organised Sector On Decline, Says Ind-Ra

New Delhi, October 31: Labour productivity is the engine that drives and sustains growth. However, a recent report raises concern over declining labour productivity in the organised sector in India as it fell to 2.6 per cent and 2.9 per cent in FY17 and FY18, from 3.7 per cent during FY16-FY18, citing a need for structural reforms from both government and companies level.

India Ratings and Research (Ind-Ra)’s annual survey of industries published on Thursday further highlighted that though the average monthly wage of a worker in the sector rose to Rs 12,405 during FY16-18, from Rs 4,006 during FY01-FY05, the average wage growth has slowed down to 6.5 per cent over FY16-FY18, from 11.7 per cent and 8.1 per cent during FY11-FY15 and FY05-FY10. 

“Longer and sustainable labour productivity growth is dependent on investments in innovation, knowledge, and intangible capital by businesses, and governments’ commitments towards structural reforms. Ind-Ra, therefore, believes a lot needs to be done quickly both on the policy front as well as companies’ level,” the report cited Ind-Ra’s principal economist, Sunil Kumar Singha, as saying. 

According to Ind-Ra’s analysis of ASI data for the FY01-FY18, while capital intensity of the Indian organised manufacturing is rising, the output intensity has declined. “The turning point of output intensity nearly coincides with the global financial crisis as it fell sharply to 2.76x in FY10 from 3.10x in FY09, and has been unable to recover to more than 3.0x till FY18,” the rating agency said.

The agency is of the view that manufacturing process over the years has become more capital intensive, and the capital deployment has been less efficient in the post global financial crisis period. “This is also reflected in the return on capital (profit/invested capital) of organised manufacturing sector rising till FY08 and declining thereafter,” it said.