By Sanjeev Krishan & Raghav M Narsalay
India is among the world’s youngest nations, and according to the United Nations Population Fund (UNFPA), it will continue to have one of the youngest populations in the world till 2030. This presents a huge opportunity to convert this demographic bulge into a demographic dividend by enhancing the productivity of our young labour force.
We’ve seen greater value addition associated with higher labour productivity — higher productivity creates more effective products or services, driving value across industries. Accordingly, a stronger focus on upskilling, combined with better allocation of resources, would accelerate our progress towards becoming one of the three largest economies.
To understand this in more detail, we analysed the growth in average labour productivity as well as growth in average value added (at constant prices) across manufacturing and services industries for the periods FY14-FY23 over FY04-FY13. We sourced data from the July 2024 edition of the KLEMS database published by the Reserve Bank of India.
Two seminal observations emerged from this analysis:
Manufacturing industries such as electrical and optical equipment and machinery, which experienced a higher average value add during FY14-23 over the previous decade in comparison to many of their peers were saddled with the lowest growth in average labour productivity.
Business services, which clocked the highest growth in average value add, bear the brunt of lower growth in average labour productivity during FY14-23 over FY04-13 in comparison to many of its peers including post and telecommunications.
Empowering the workforce within the services and organised manufacturing industries by making them more productive is therefore an imperative to power our GDP growth. In fact, PwC’s India Workforce Hopes and Fears Survey 2023 reveals that India’s workforce is actively looking for jobs that can help them do so. Employees are looking for jobs that provide a level playing field to learn, grow, and stay productive in a rapidly changing world.
To the advantage of employers, employees in India, as indicated by our survey, are very aware of the skills required to remain productive. Around 79% of Indian employees underlined that acquiring digital skills was extremely necessary over the next five years, compared to 57% of global respondents. Similarly, 61% of Indian respondents also agreed that adoption of green skills was imperative as against the global average of 39%. And this raises the question: what are some of the steps that the government and private sector must take to make our workforce in the organised manufacturing sector and services industries more productive?
Our journey must begin by addressing the fundamental issues of healthcare and education. A well-educated and healthy population is the foundation of personal and national productivity. Vocational training, skilling, and education at large can help individuals identify and acquire skills to be more productive and knowledgeable. Moreover, a focus on health will drive productivity and enable a more meaningful contribution towards value addition. A starting point could be increasing public health spending to a minimum of 6-7% of GDP. This will enable the healthcare system to provide better access to high-quality care and enhance overall health outcomes for the population.
Thinking out of the box is very important to create a future-ready workforce that can fully leverage the opportunities and technology is a huge catalyst. How about making the best use of falling artificial intelligence AI costs to drive the concept of “deemed schooling”? We could develop a nationally recognised pre-graduation curriculum beginning from grade 5 or 6 that can be accessed at any school through a smartphone. The syllabus could focus on topics such as innovation, life skills, entrepreneurship, and other formal subjects that the students can customise to their liking.
Moving from schooling to employment, employers need to be agile and innovative. With the pace of change, adopting a “just-in-time” approach rather than a “once-in-time” method could improve the skilling system. Many initiatives at workplaces impart a skill only once, and the onus of staying updated rests with the employees. Our experience shows that this leads to a dramatic reduction in productivity as the workforce spends a lot of time looking for these training programmes in the language they understand. On many occasions, the workforce is seen to rely on non-bankable sources in the public domain — thereby making them experimental rather than productive.
Additionally, a conducive work environment has a profound impact on productivity, especially in services, where human interaction and cognitive functions are crucial. A poor work environment, especially in terms of mental health, can impair cognitive functions such as memory, attention, and decision-making, which are crucial for problem solving and effective service delivery. Investment — both monetary and human — must be made towards creating a supportive work environment where employees feel safe, motivated, and encouraged to discuss any issues without fear of stigma.
Lastly, from an industrial policy standpoint, we need to institutionalise a productivity-linked income scheme, especially for the services industries. Under this, companies within any services industry exhibiting a distinctive increase in labour productivity, not through attrition but conscious skilling and training initiatives, or with the help of path-breaking R&D and innovation, must be awarded with tax benefits on sales/revenues. This will incentivise services industries to explore more innovative options to skill at scale, thereby helping the existing and prospective workforce to raise productivity.
As they say, opportunity never knocks twice —we have ours now and we need to knock it out of the park.
Sanjeev Krishan & Raghav M Narsalay, Respectively, chairperson, and partner and lead, Research and Insights Hub, PwC India.
Views are personal