Among other economic challenges facing India, none is more strategic than the sheer productivity divide, within its very own workforce. Even as the government is pointing to the high rate of employment generation, it has been the aspiration of the country to emerge at a scale of a $36 trillion economy by 2047 and the only way forward to meet that is bridging this widening gap between the formal and the informal sectors.
The Stark Productivity Gap
The nub of the problem is a eight times productivity difference. A formal worker in the industry produces a yearly Gross Value Added (GVA) of about 12 lakh as opposed to the 1.5 lakh a year by an informal worker. This lack of productivity plagued the country especially since 91 percent of Indian laborers work in the informal market and depresses the average income of the country thus not reflecting its potential true economic value.
Why Wages do not Reflect Growth
Economic theory declares that pay must increase with productivity. In India this connection is lost. Huge availability of informal labour and extensive unemployment rate bring down wages in all groups. This is seen in the agricultural sector where almost half of the work forces are employed yet only contributing 18 per cent of GDP, this clearly indicates extreme disguise unemployment in the sector and also to an extent that the marginal productivity is zero in a very large proportion.
The Way Ahead Formalisation and Skills
Narrowing this gap would need a two-fold strategy:
1. Rapid Formalisation: A transfer of workers into the formal sector is not an option. Formal jobs provide security, stability and the chance to develop. Scheme such as e-Shram, ESIC, and EPFO should have universal coverage. It is vital to offer incentives to induce small businesspeople and gig platforms to join the formal chain, including easier rules and tax holidays.
2. Filling the Skills Gap: Only 4.7 percent of the Indian workforce is formally skilled, in sharp comparison to more than 50 percent in mature economies. It is important to scale up organizations such as National Skill Development Corporation (NSDC) and Industrial Training Institutes (ITIs). Up-to-date curricula should be revised so that they incorporate digital, AI and green technology skills under robust industry-academia liaisons.
Joining Pay with Performance
To directly relate incomes to output, innovation in wage systems can be accomplished. Performance-based forms of compensation can be adopted by organised sectors. Even the publicly provided schemes such as MGNREGS can have productivity-related bonuses that would neither affect the workforce rights. Output can be measured objectively using digital tools such as AI and IoT, and platforms such as ASEEM can be used to maintain integrated digital profiles to keep track of a worker, his/her skills, wages, and career development.
Capturing the Demographic Dividend
The large youthful market is potential goldmine of India. Yet unless a transformation of the structure of economic life can result in making it more productive, and fair in the distribution of its proceeds in wages, then this dividend threatens to transform itself into a burden of increasing populations, and a fecundity that brings with it inequality and strife. Sustainable growth can only be achieved when economic growth is transferred to increasing wages of the immense majority taking the country out of the low-income trap.
Month: Current Affairs - August 23, 2025
Category: current affairs daily