India Ratings and Research’s (Ind-Ra) analysis of data of Annual Survey of Industries (ASI) indicates slowdown in labour productivity growth in the Indian organised manufacturing sector, which grew at an average annual rate of 3.7% during FY16-FY18 (FY11-FY15: 7.4%, FY06-FY10: 10.3%, FY01-FY05: 9.6%), however, it fell to 2.6% and 2.9% in FY17 and FY18, respectively. During the high growth phase of FY04-FY08, labour productivity grew 14.2%.

Longer and sustainable labour productivity growth is dependent on investments in innovation, knowledge, and intangible capital by businesses, and governments’ commitments towards structural reforms. Ind-Ra, therefore, believes a lot needs to be done quickly both on the policy front as well as companies’ level because productivity is the most powerful engine of driving and sustaining manufacturing growth, and making the sector globally competitive. Importance of labour productivity growth can also be gauged from the fact that globally labour productivity growth alone accounted for about two-thirds of the gross domestic product (GDP) growth during FY01-FY10, leaving only one-third to labour/employment growth.

Ind-Ra’s analysis of ASI data for the FY01-FY18 also reveals that while capital intensity (fixed capital/worker) of the Indian organised manufacturing is rising but the output intensity (value of output/fixed capital) has declined. Capital intensity has increased on a sustained basis during FY01-FY18, however, output intensity declined after FY06-FY10. The turning point of output intensity nearly coincides with the global financial crisis as it fell sharply to 2.76x in FY10 from 3.10x in FY09, and has been unable to recover to more than 3.0x till FY18 (FY05-FY09: average 3.23x). This broadly suggests that while manufacturing process over the years has become more capital intensive, the capital deployment has been less efficient in the post global financial crisis period. This is also reflected in the return on capital (profit/invested capital) of organised manufacturing sector rising till FY08 and declining thereafter.





Average monthly wage of a worker in the organised manufacturing sector rose to INR12,405 during FY16-18 from INR4,006 during FY01-FY05. Although there has been an increase in wages of these workers, the wage growth has slowed down lately. The average wage growth has been 6.5% over FY16-FY18 as compared to 11.7% and 8.1% during FY11-FY15 and FY05-FY10, respectively.

 

The profit and wage growth of organised manufacturing sector shows divergent trends since FY01 and only lately has begun to show convergence. This perhaps suggests that higher profitability does not mean that workers would be handsomely rewarded and vice versa.

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Analyst Names

  • Dr. Sunil Kumar Sinha

    Principal Economist and Director Public Finance
    India Ratings and Research Pvt Ltd DLF Epitome, Level 16, Building No. 5, Tower B DLF Cyber City, Gurugram Haryana - 122002
    +91 124 6687255

    Dr Devendra Pant

    Chief Economist and Head Public Finance
    0124 6687251

    Amit Jain

    Analyst
    0124 6687264

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    Namita Sharma

    Manager – Corporate Communication
    +91 22 40356121