India has been making significant strides in terms of productivity growth over the past two decades. This growth has been driven by various factors such as the rapid expansion of high-value services, gradual efficiency-enhancing reforms, and the scale advantages of a large domestic market. However, in order to achieve its goal of becoming an advanced economy, India needs to continue to focus on increasing productivity. One way to do this is by better supporting innovation and removing barriers for businesses.
India’s productivity growth has been impressive, with the country’s GDP growing at an average rate of 7% over the past two decades. This growth has been driven by the services sector, which accounts for over 60% of India’s GDP. The IT and business process outsourcing (BPO) industries have been major contributors to this growth, with India becoming a global hub for these services. This has not only created job opportunities for millions of Indians but has also brought in foreign investment and boosted the country’s economy.
In addition to the services sector, India has also seen growth in its manufacturing sector, which has been aided by gradual efficiency-enhancing reforms. The introduction of the Goods and Services Tax (GST) and the implementation of the Insolvency and Bankruptcy Code (IBC) have streamlined the business environment and made it easier for companies to do business in India. This has not only increased productivity but has also attracted foreign investment, as India has become a more attractive destination for businesses.
India’s large domestic market has also played a crucial role in its productivity growth. With a population of over 1.3 billion, India offers a huge consumer base for businesses to tap into. This has given Indian companies a competitive advantage, as they can produce goods and services at a lower cost due to economies of scale. This has not only boosted the country’s productivity but has also made Indian companies more competitive in the global market.
However, in order to sustain this impressive productivity growth and achieve its goal of becoming an advanced economy, India needs to focus on supporting innovation. Innovation is the key to driving productivity growth, as it leads to the development of new and improved products and processes. This, in turn, increases efficiency and competitiveness, leading to higher productivity.
One of the ways to support innovation is by removing barriers for businesses. India has made significant progress in terms of ease of doing business, but there are still some challenges that need to be addressed. The World Bank’s Doing Business 2020 report ranks India at 63 out of 190 countries, which is a significant improvement from its rank of 142 in 2014. However, there is still room for improvement, especially in areas such as starting a business, getting construction permits, and enforcing contracts. Streamlining these processes and reducing bureaucratic hurdles will make it easier for businesses to operate and innovate.
Another way to support innovation is by investing in research and development (R&D). India’s R&D expenditure as a percentage of GDP is currently at 0.7%, which is significantly lower than the global average of 2.2%. Increasing this expenditure will not only lead to the development of new technologies and products but will also create job opportunities for skilled workers. The government can also provide incentives and tax breaks for companies that invest in R&D, encouraging them to innovate and contribute to the country’s productivity growth.
In addition to these measures, the government can also focus on improving the education system to foster a culture of innovation. This can be done by promoting STEM (science, technology, engineering, and mathematics) education and providing opportunities for students to gain practical experience through internships and apprenticeships. This will not only equip the future workforce with the necessary skills but will also encourage them to think creatively and come up with innovative solutions.
In conclusion, India’s productivity growth over the past two decades has been impressive, but there is still room for improvement. In order to achieve its goal of becoming an advanced economy, India needs to continue to focus on increasing productivity. Better supporting innovation, by removing business barriers and investing in R&D, will play a crucial role in driving this growth. With the right measures in place, India can continue on its path towards becoming a global economic powerhouse.
