Mumbai: The country needs to raise its labour productivity growth to 7.3 percent to attain a GDP growth rate of 9 percent, India Ratings and Research (Ind-Ra) said.
"As the long-term average annual increase of labour force in India is 1.7 percent, India will have to raise its labour productivity growth to 7.3 percent to attain the GDP growth of 9 percent," the rating agency said in a report.
The country's labour productivity grew 4.2 percent in 2014-15, and to attain the double-digit growth of 10 percent, labour productivity growth will have to be nearly doubled to 8.3 percent, it said.
Ind-Ra believed this is possible because such levels of labour productivity growth have been achieved in the past.
India's labour productivity grew at an average annual rate of 5.52 percent during the decade beginning 2000 against 3.05 percent during 1990s, it said.
During the high growth phase of FY05-FY08, it grew at 9 percent. However, the country is now facing a productivity lag with average labour productivity falling to 3.84 percent during FY11-FY15.
The report also discussed projections of The Conference Board, a global, independent business membership and research association.
It said The Conference Board's projection for India suggests a continuation of the low labour productivity trends even in FY16.
This poses a concern for economic growth, market expansion and profit growth. Longer and sustainable labour productivity growth critically depends on how much businesses invest in innovation, knowledge and intangible capital, and how committed governments are to structural reforms, it said.
Structural changes to factor, product and labour markets are the most critical components of enhancing productivity and competitiveness in the long-term, it said.
The rating agency said sooner the policy issues relating to land acquisition, goods and services tax and labour market reforms are settled, the better it is for economic growth.