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India's productivity problem
Dec 21, 2012

More than two thousand years ago, a famous Greek orator by the name of Demosthenes had said, "What a man wishes, that also will he believe." In other words, we often only see what we want to see. We tend to ignore facts that do not boost our hopes and wishes.

To quite an extent, this seems to be the case with how India's economic growth has been projected. Popular media images portray India in a highly optimistic vein. India, the second fastest growing economy after China... The country with the highest and growing youth population... And so on... But how long can you keep cheering an economy based on these fancy facts?

The problem is that this overoptimistic perception tends to distort several harsh realities plaguing India. For instance, the humungous size of our country's population has been one of the biggest challenges for over two decades. Nothing concrete has been done to deal with this rising challenge. On the contrary, as an article in the Economic Times aptly points out, the problem has been disguised as an opportunity by mere use of terms such as 'demographic dividend'. While papers and books on the subject may have earned economists some reputation, India's demographics have been pretty unproductive so far. Policymakers have been talking about creating 250 million skilled jobs by 2025. But in the last one decade, we have merely achieved 5% of that target.

On several major parameters, India ranks poorly when compared to the other BRIC economies. It is worth noting that the population of Brazil and Russia is just 16% and 18% of India's population, respectively. Yet both these economies, in terms of GDP, are bigger by 36% and 20% respectively. On the other hand, China's population is 10% higher than India. But the GDP is four times the size of India's GDP. Effectively, all economies have a much higher per capita income relative to India.

A part of India's growth is contributed by the growing population. This addition must be adjusted while considering long term growth prospects. Today's chart of the day shows that India's incremental per capita GDP is a paltry US$ 84. This highlights the problem of low productivity in our country. In fact, the article goes on to state that at current levels of productivity, for India to get where Brazil, Russia and China are today (in terms of per capita income), it will take 39, 43 and 24 years respectively.

The bottomline is that our policymakers really need to roll up their sleeves and focus on the big picture. There is a strong need for progressive reforms across all systems. Only then will India really be able to lay its claims on the so-called 'demographic dividend'.

Data source: The Economic Times

This Chart Of The Day was published in The 5 Minute WrapUp - A worrying fact about India that is being ignored

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