Opinion: India must make productivity a priority

Rising tariffs, stagnant productivity, and AI disruptions demand a Commission for Productivity and Employment Growth

By T Muralidharan

India faces a decisive economic moment. Rising tariffs and global protectionism, triggered by the Trump era and beyond, are reshaping global trade. Artificial intelligence (AI) is transforming the future of work, challenging the advantage of having the world’s largest workforce. India can no longer rely solely on cheap labour or domestic consumption to remain competitive. The only sustainable path is through productivity-led growth, paired with the creation of new employment opportunities.

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This is why India urgently needs a Commission for Productivity and Employment Growth (PEG). Such a commission should be statutory and independent, with a mandate not only to measure productivity but also to link it with employment creation, incentives for industry, and adoption.

Unlike the National Productivity Council and State Councils, which have remained ineffective due to weak mandate, limited data authority, and advisory-only role, this new body must be empowered to recommend sectoral reforms, incentive frameworks, and interventions for the AI-driven future of the workforce. Global experiences reinforce the urgency: Australia, New Zealand, and Japan all treat productivity as a top national agenda.

Need for PEG Commission

Fragmented efforts: India has multiple agencies — including NITI Aayog, ministries, and State planning boards — but none has a singular mandate to track, analyse, and own the national productivity agenda.
Stagnant productivity: India’s labour productivity growth peaked in the mid-2000s (reaching around 4.5 per cent during 2008-2016), but the long-term average across recent decades hovers at 4.3 per cent, with no sign of acceleration.
Structural mismatch: 42 per cent of Indian workers are in agriculture, which contributes only 15 per cent to GDP. Moving surplus labour into higher-productivity sectors requires systemic planning, not just incremental schemes.
Competitiveness gap: Analyses of the FY2023 KLEMS (Capital, Labour, Energy, Material and Service) database from the Reserve Bank of India reveal that nine out of 27 industries saw a decline in labour productivity in FY23, eight of them in manufacturing. This underscores India’s industrial competitiveness challenge.

The PEG Commission’s scope must include:

• Measuring and benchmarking productivity across sectors.
• Mapping global competitiveness and identifying priority sectors for India.
• Recommending fiscal and policy incentives for industry to adopt productivity-enhancing technology.
• Driving MSME technology adoption through zero-interest loans and targeted support.
• Preparing the workforce for AI disruptions, with re-skilling and job transition programmes.

Linking productivity reforms directly to employment creation and higher wages.
Productivity is not a threat to jobs in India — it is the only way to raise incomes and create better-paying, sustainable employment. A Commission for Productivity and New Employment Creation will be the bridge between demographics, technology, and inclusive growth.

A leaf from Australia
In August, the Australian government conducted a high-level Economic Reform Roundtable, with productivity as the core agenda. The event brought together business leaders, union representatives, senior bureaucrats, economists, and academics. The summit established a collaborative framework for reform, with the Cabinet taking the final calls and step-by-step measures to boost productivity, modernise the economy, and sustain competitiveness in an uncertain global landscape. This is how a small economy like Australia is preparing to overcome challenges.

Global Experiences
• Australia: The Productivity Commission (established 1998) is globally respected. Its independent reviews on competition policy, regulation, and infrastructure shaped reforms that added an estimated 2.5 per cent to GDP.
• New Zealand: Its Productivity Commission (2011) balances growth with well-being.
• Japan: The Japan Productivity Center (1955) drove post-war revival through workplace reforms, kaizen (building a culture of improvement), and innovation diffusion.
• OECD countries: Nearly all have productivity-focused bodies, often linked with innovation and competitiveness.

Why Now for India?

Demographic peak: Without productivity gains, the demographic dividend risks becoming a demographic burden.
Global supply chain realignment: The post-Covid China+1 strategy has opened a historic window, but competitiveness will depend on productivity-driven efficiency rather than cheap labour.
Tariffs and trade nationalism: Protectionist policies worldwide mean India must cut costs through productivity and not wage suppression to stay globally competitive.
Wage trap and skills mission failure: India’s wages are among the lowest in major economies, yet this has not translated into global competitiveness. Why? Because low wages depress skill investments — workers have little incentive to upskill when income gains are marginal, and employers under-invest in training when labour is cheap. This is one of the core reasons why the Skill India Mission has struggled. The only sustainable way to raise wages is to raise labour productivity.
China Case Study: During a period of rapid economic growth, China’s average real wage between 1992 and 2007 increased by 202 per cent. Decomposition analysis reveals 80 per cent of this wage growth to be attributable to higher pay for basic labour, rising returns to human capital.
AI revolution: Millions of Indian jobs face disruption, while new roles emerge. The PEG Commission must recommend re-skilling and AI transition strategically.
Technology & MSMEs support: MSMEs must be incentivised with zero-interest loans, subsidies, and sectoral support for digital adoption.
Fiscal & sustainability needs: Productivity is essential to grow export revenues and meet fiscal targets without stalling growth

Setting up a PEG commission
Institutional Design
Statutory & independent: To be created by an Act of Parliament, like the CAG or Election Commission, ensuring autonomy and independence
Mandate: Measure productivity, link reforms to employment, study global benchmarks, propose incentives and regulations.
Composition: Chairperson (eminent economist), members (labour, tech, AI, industry) with rotating state representation.

Functions & Powers
• Measure and benchmark sector-wise productivity
• Assess the impact of productivity on jobs.
• Identify priority sectors for India’s competitiveness.
• Recommend tax credits, subsidies, and grants for productivity and jobs.
• Support MSME tech diffusion through zero-interest loans and tech grants, cluster innovation centres
• Forecast AI disruptions, recommend re-skilling and labour reforms.

Working Model
• Annual Productivity & Employment Growth Report to Parliament.
• Sectoral Task Forces (MSMEs, logistics, AI, agriculture, healthcare, etc).
• Consultation platform with industry, states, and unions.
• Global Scanning Unit to track competitiveness.
• Technology Fund for MSME finance and grants.
• Tech backbone with Aadhaar, GSTN, EPFO, and MCA for real-time productivity measurement.

Why It Will Work

• Statutory, not advisory
• Links productivity with employment creation.
• Mandate to access data from multiple ministries.
• Authority to recommend incentives.
• Globally benchmarked, with political traction.

India’s future growth depends not just on employing more people but on making them more productive in the right sectors. A Commission for Productivity and Employment Growth will raise incomes, prepare India for AI disruptions, and secure competitiveness amid global tariff wars.

(The author is Chairman, TMI group)