India’s Labour Productivity Key to $18,000 Per Capita Income by 2047: NITI Aayog

India’s ambition to become a developed nation – “Viksit Bharat” – by 2047 hinges on a dramatic increase in labour productivity, according to NITI Aayog Vice Chairman Suman Bery. Speaking at the Business Standard Manthan Summit on Tuesday, Bery outlined the scale of the challenge: raising labour productivity from its current level of around $3,000 to approximately $18,000 to achieve a per capita income target of $18,000.

The target of a $30 trillion economy by 2047, as detailed in NITI Aayog’s ‘Vision for Viksit Bharat @ 2047: An Approach Paper’, requires a ninefold increase in GDP from its current $3.36 trillion and an eightfold rise in per capita income from $2,392 annually. This necessitates sustained GDP growth of 7-10% over the next two to three decades – a feat historically achieved by only a handful of countries.

Bery emphasized the need for a direct correlation between per capita income, living standards, and labour productivity. “If Viksit Bharat is to involve improvements in living standards, there needs to be a direct correlation between per capita income, living standards and labour productivity,” he stated. The challenge, he added, lies in integrating a growing population into the workforce without depressing overall productivity levels.

Leveraging India’s demographic dividend is intrinsically linked to this productivity agenda. The current per capita income, at $2,694.7 as of 2024 according to World Bank data, falls significantly short of the $15,000-$18,000 range envisioned for a developed India. Achieving this requires not just economic growth, but a fundamental shift in how efficiently the Indian workforce operates.

Bery suggested a potential rebranding of NITI Aayog as a “Productivity Commission,” drawing parallels to a similar institution in Australia. “One can’t have a modern society without a more affluent economy than what we have right now,” he argued, highlighting the urgency of the task.

The shift towards a 25-year structural transformation roadmap, embodied in the Viksit Bharat 2047 framework, represents a departure from the previous five-year planning cycles employed by the Planning Commission, which was replaced by NITI Aayog in 2015. Bery noted a “fundamental difference, both politically and technocratically, in thinking ahead 25 years as compared with five years.”

A significant component of improving labour productivity involves addressing the disparity in labour force participation rates between men and women. India currently has a female workforce of 183 million, but a much larger out-of-workforce population of 264 million women. The female labour force participation rate stood at 33.23% in 2023, compared to 80.9% for males, according to World Bank data. Bery called for increased female participation and the removal of barriers to entry, citing the potential of this untapped resource as a “big accelerator.”

Beyond workforce participation, Bery underscored the need to increase investment rates in India. He believes that sustained growth in the working-age population will require a corresponding increase in capital investment to prevent “capital shallowing” and promote “capital deepening.” Private investment, he noted, has been sluggish in the aftermath of the 2008 global financial crisis, leaving a “scarring” effect on the private sector.

He estimated that India needs to raise its investment rate by 2 to 3 percentage points of gross domestic product to support future growth. Bery highlighted the importance of capital expenditure over operating expenditure for industries transitioning to a lower carbon footprint.

While acknowledging the potential challenges posed by artificial intelligence (AI), Bery expressed optimism about its opportunities for India, suggesting that the impact on India’s labour market may be less immediate than in more advanced economies. “The scythe of AI is probably more likely to affect advanced countries’ labour markets before it is going to affect us,” he said.

Bery also suggested a re-evaluation of entry points for unskilled workers, potentially shifting focus from manufacturing to the services sector, which currently generates 54.6% of gross value added (GVA) with 29.7% of employment, compared to agriculture’s 46.1% employment share and 14.7% GVA contribution. However, he cautioned that accelerating productivity in the services sector is more complex than in manufacturing or agriculture.

To boost services sector productivity, Bery advocated for a state-level approach, leveraging the flexibility offered by the new labour codes – encompassing wages, industrial relations, social security, and occupational safety – though their implementation remains uneven across states. He also emphasized the need to reform India’s higher education system, shifting the focus away from preparation for government employment and civil services examinations towards broader skills development and “training for life.”