How can India leverage its demographic dividend to enhance labour productivity and per capita income?

Understanding the demographic dividend: India has one of the youngest populations globally, with a large working-age cohort. Leveraging this requires transforming this demographic advantage into productive human capital. Mechanisms: Skill development: Reorienting higher education towards industry-relevant skills rather than examination-focused training.Investment in capital deepening: Supplying new workers with sufficient physical and technological capital to avoid capital shallowing.Technology adoption: AI, digitisation, and modern manufacturing practices can enhance productivity across sectors. Example: The services sector, which contributes 54.6% of GVA with only 29.7% of employment, presents opportunities to absorb younger workers if productivity-enhancing measures are implemented. Policymakers can focus on regional flexibility, leveraging new labour codes to match workforce allocation to industry needs efficiently.

What are the challenges India faces in increasing investment rates to support higher productivity?

Investment requirement: Higher labour productivity and per capita income necessitate an increase in investment rates by 2–3 percentage points of GDP, facilitating capital deepening and modernisation. Challenges: Private investment scars: The 2008 global financial crisis caused long-lasting caution in private sector investments, slowing growth in capital formation.Energy transition: Industries must spend on capital expenditure rather than operating expenditure to reduce the carbon footprint.Resource mobilisation: Mobilising sufficient domestic and foreign capital while ensuring financial stability can be complex. Way forward: Government initiatives to incentivise investment, public-private partnerships, and improving the ease of doing business can help overcome these challenges and accelerate productivity-driven growth.

Critically analyse the sectoral productivity differences in India and their implications for policy.

Sectoral disparities: India’s workforce is unevenly distributed across agriculture, industry, and services. Agriculture employs 46.1% of workers but contributes only 14.7% of GVA, reflecting low productivity. In contrast, services employ 29.7% but contribute 54.6% of GVA, and industry employs 24.1% contributing 30.8% of GVA. Implications: Low agricultural productivity necessitates structural reforms and modernisation to free labour for higher productivity sectors.Services productivity growth is complex due to heterogeneity in skills, but presents opportunities for absorbing educated workers.Industry must be strengthened to create entry-level jobs for unskilled workers, maintaining inclusive growth. Policy measures: Focused training, adoption of AI and technology, and flexible labour codes across states can address these sectoral productivity gaps, ensuring balanced and sustainable economic growth.

Illustrate how India could learn from China’s labour productivity model to achieve per capita income targets.

China’s model: China maintained a one-for-one correlation between real per capita income and labour productivity, leveraging industrialisation and structured skill deployment. Lessons for India: Focus on manufacturing-led growth to absorb unskilled workers efficiently.Invest in skill development aligned with industry demand, enabling faster productivity gains.Align wage growth with productivity to maintain competitiveness and living standards. Application in India: By adopting a similar productivity-per-income correlation, India can accelerate growth while improving living standards. Policy interventions could include incentivising labour-intensive industries, supporting regional industrial clusters, and enhancing technology adoption to ensure that the demographic dividend translates into measurable productivity improvements.

Give examples of policy measures that can accelerate labour productivity in India’s services sector.

Services sector productivity: The services sector contributes a majority of GVA but employs fewer people proportionally, highlighting the need for productivity enhancement. Policy examples: Flexible labour laws: The four labour codes on wages, industrial relations, social security, and occupational safety provide states with flexibility in hiring and restructuring, facilitating productivity improvement.Skill and vocational training: Reorienting education to equip students with life skills, digital literacy, and industry-relevant expertise.Technology adoption: Leveraging AI, cloud computing, and digital platforms to enhance efficiency in IT, finance, and other service industries. Case study: States like Karnataka and Maharashtra have implemented skill-mapping programmes and digital governance frameworks that enhance service sector efficiency, creating a model for nationwide replication.

Boosting Labour Productivity to Achieve Viksit Bharat Goals

Q: What is the significance of labour productivity in achieving India’s Viksit Bharat 2047 vision?

Definition and significance: Labour productivity measures the output produced per worker and is a critical determinant of economic growth, living standards, and per capita income. India’s context: As of 2024, India’s per capita income stood at approximately $2,695, while the goal under Viksit Bharat 2047 is to reach $15,000–$18,000. Achieving this target requires a substantial increase in labour productivity, from its current level of around $3,000 to much higher levels comparable to global benchmarks. Policy implications: Higher labour productivity enables the workforce to generate more value without necessitating a proportional increase in employment. It also ensures that the demographic dividend is leveraged efficiently. For example, replicating China’s model of a one-for-one correlation between real per capita income and labour productivity could accelerate India’s structural transformation, aligning income growth with living standards improvements.

Q: Why is increasing female labour force participation crucial for India’s productivity agenda?

Current scenario: India has a significant gender gap in labour force participation. In 2023, female participation was 33.23% compared to 80.9% for males, with 264 million women outside the workforce. This represents a large untapped potential. Importance: Mobilising this reservoir of skilled and semi-skilled women can act as a major accelerator for economic growth and productivity. Social and childcare barriers need to be addressed to ensure women can enter and remain in the workforce effectively. Example: Policy measures, such as flexible working hours, skill development programmes, and enabling infrastructure, can help integrate women into sectors like services, IT, and manufacturing. Increased female participation would raise overall labour productivity, support inclusive growth, and contribute directly to per capita income growth, bringing India closer to Viksit Bharat objectives.

NITI Aayog's Suman Bery emphasizes the need to enhance productivity and women's participation to reach $18,000 per capita income by 2047.

Surya

•February 25, 2026•5 mins read

Bery urges productivity push to achieve Viksit Bharat 2047

Not Started

1. Labour Productivity and Per Capita Income

India aims to achieve a per capita income of $15,000–$ 18,000 by 2047 under the Viksit Bharat framework. Currently, per capita income stands at $2,694.7* (2024, World Bank),highlighting the significant gap to bridge. NITI Aayog Vice Chairman Suman Bery emphasized that achieving this target requires a substantial increase in labour productivity from present levels of around *$ 3,000.

While India’s labour productivity trajectory is positive, it has been overshadowed by China’s achievements, where a near one-to-one correlation exists between real per capita income and labour force productivity. Replicating such productivity gains is critical to improving living standards and ensuring sustainable economic growth.

Higher labour productivity directly correlates with improved living standards, per capita income growth, and enhanced global competitiveness. Neglecting productivity could constrain India’s long-term structural transformation.

2. Leveraging the Demographic Dividend

India’s demographic profile presents both opportunities and challenges. While the working-age population is growing, integrating this workforce into productive employment without depressing per capita productivity is critical. Labour force participation, particularly among women, remains suboptimal.

India has 183 million women in the workforce, while 264 million women remain out of the labour force. Female labour participation stood at 33.23% in 2023, compared to 80.9% for men. Mobilizing this untapped talent, addressing social and childcare barriers, and creating enabling employment opportunities can accelerate productivity and inclusive growth.

Impacts:

Increased female participation can significantly boost aggregate output
Better gender parity contributes to social and economic development
Unlocks a skilled and semi-skilled labour pool for emerging sectors

Integrating women and underutilized populations into the workforce enhances productivity, economic inclusiveness, and social equity.

3. Investment and Capital Deepening

Bery stressed the need for higher investment rates to complement labour productivity growth. Capital deepening ensures that a growing workforce has adequate tools, technology, and infrastructure to maintain efficiency.

Private investment growth has lagged since the 2008 global financial crisis, creating a need to raise the gross domestic investment rate by 2–3 percentage points of GDP. Additionally, transitioning to low-carbon and energy-efficient industries requires capital expenditure rather than operating expenditure, further emphasizing the importance of investment-led productivity enhancement.

Adequate investment ensures that labour force expansion translates into higher output per worker, preventing capital shallowing and sustaining long-term economic growth.

4. Sectoral Productivity and Labour Codes

Agriculture employs 46.1% of India’s workforce but contributes only 14.7% of GVA, while services account for 54.6% GVA with 29.7% employment, and industry 30.8% GVA with 24.1% employment (PLFS 2023-24, MoSPI 2025). Accelerating productivity in services and agriculture is essential to achieve Viksit Bharat targets.

The four labour codes—wages, industrial relations, social security, and occupational safety—offer flexibility in hiring and restructuring, though implementation varies across states. These reforms provide a framework to enhance sectoral productivity by enabling efficient labour deployment and workforce adaptability.

Targeted sectoral productivity improvements coupled with flexible labour regulations enable structural transformation and sustainable per capita income growth.

5. Skill Development and Education Reform

To maximize workforce potential, India must reorient its higher education and skill development system. Current emphasis on civil services and government employment limits productivity-oriented skill acquisition.

Bery advocates for training programs focused on practical skills, life preparedness, and adaptability to emerging sectors such as services and AI-driven industries. Leveraging artificial intelligence can also enhance productivity by augmenting human capabilities, particularly in service-oriented and knowledge-intensive sectors.

"The scythe of AI is probably more likely to affect advanced countries’ labour markets before it is going to affect us." — Suman Bery

Modernising education and skill development aligns human capital with evolving economic needs, enhancing productivity and competitiveness.

6. International Labour Mobility and Policy Integration

Bery highlighted the potential of leveraging international worker mobility to supplement domestic productivity growth. While receptive global policies remain uncertain, strategic migration can provide opportunities for skill development, remittances, and knowledge transfer.

In conjunction with domestic reforms, international mobility forms part of a holistic productivity agenda, enabling India to achieve higher per capita income while maintaining inclusive growth.

Impacts:

Global exposure enhances workforce skills and innovation
Remittances support domestic consumption and investment
Facilitates alignment with global labour standards and practices

Integrating international and domestic labour strategies ensures maximum productivity gains and accelerates economic transformation.

7. Way Forward

Achieving Viksit Bharat by 2047 requires a multi-pronged approach: enhancing labour productivity, mobilizing women, increasing investment rates, reforming sectoral labour deployment, modernizing education and skill systems, and leveraging AI and global mobility.

"If Viksit Bharat is to involve improvements in living standards, there needs to be a direct correlation between per capita income, living standards and labour productivity." — Suman Bery

Coordinated policy actions across education, labour, investment, and technology sectors will enable India to achieve sustainable structural transformation and realize its long-term development vision.

Conclusion

India’s journey towards a per capita income of $18,000 by 2047 is contingent on substantial improvements in labour productivity, investment rates, and workforce participation, particularly among women. Integrating technology, flexible labour policies, and skill-oriented education reforms provides the pathway for structural transformation, inclusive growth, and the realization of Viksit Bharat 2047.

Quick Q&A

Everything you need to know

Definition and significance: Labour productivity measures the output produced per worker and is a critical determinant of economic growth, living standards, and per capita income.
India’s context: As of 2024, India’s per capita income stood at approximately $2,695, while the goal under Viksit Bharat 2047 is to reach$ 15,000– $18,000. Achieving this target requires a substantial increase in labour productivity, from its current level of around$ 3,000 to much higher levels comparable to global benchmarks.
Policy implications: Higher labour productivity enables the workforce to generate more value without necessitating a proportional increase in employment. It also ensures that the demographic dividend is leveraged efficiently. For example, replicating China’s model of a one-for-one correlation between real per capita income and labour productivity could accelerate India’s structural transformation, aligning income growth with living standards improvements.

Current scenario: India has a significant gender gap in labour force participation. In 2023, female participation was 33.23% compared to 80.9% for males, with 264 million women outside the workforce. This represents a large untapped potential.
Importance: Mobilising this reservoir of skilled and semi-skilled women can act as a major accelerator for economic growth and productivity. Social and childcare barriers need to be addressed to ensure women can enter and remain in the workforce effectively.
Example: Policy measures, such as flexible working hours, skill development programmes, and enabling infrastructure, can help integrate women into sectors like services, IT, and manufacturing. Increased female participation would raise overall labour productivity, support inclusive growth, and contribute directly to per capita income growth, bringing India closer to Viksit Bharat objectives.

Understanding the demographic dividend: India has one of the youngest populations globally, with a large working-age cohort. Leveraging this requires transforming this demographic advantage into productive human capital.
Mechanisms:

Skill development: Reorienting higher education towards industry-relevant skills rather than examination-focused training.
Investment in capital deepening: Supplying new workers with sufficient physical and technological capital to avoid capital shallowing.
Technology adoption: AI, digitisation, and modern manufacturing practices can enhance productivity across sectors.

Example: The services sector, which contributes 54.6% of GVA with only 29.7% of employment, presents opportunities to absorb younger workers if productivity-enhancing measures are implemented. Policymakers can focus on regional flexibility, leveraging new labour codes to match workforce allocation to industry needs efficiently.

Investment requirement: Higher labour productivity and per capita income necessitate an increase in investment rates by 2–3 percentage points of GDP, facilitating capital deepening and modernisation.
Challenges:

Private investment scars: The 2008 global financial crisis caused long-lasting caution in private sector investments, slowing growth in capital formation.
Energy transition: Industries must spend on capital expenditure rather than operating expenditure to reduce the carbon footprint.
Resource mobilisation: Mobilising sufficient domestic and foreign capital while ensuring financial stability can be complex.

Way forward: Government initiatives to incentivise investment, public-private partnerships, and improving the ease of doing business can help overcome these challenges and accelerate productivity-driven growth.

Sectoral disparities: India’s workforce is unevenly distributed across agriculture, industry, and services. Agriculture employs 46.1% of workers but contributes only 14.7% of GVA, reflecting low productivity. In contrast, services employ 29.7% but contribute 54.6% of GVA, and industry employs 24.1% contributing 30.8% of GVA.
Implications:

Low agricultural productivity necessitates structural reforms and modernisation to free labour for higher productivity sectors.
Services productivity growth is complex due to heterogeneity in skills, but presents opportunities for absorbing educated workers.
Industry must be strengthened to create entry-level jobs for unskilled workers, maintaining inclusive growth.

Policy measures: Focused training, adoption of AI and technology, and flexible labour codes across states can address these sectoral productivity gaps, ensuring balanced and sustainable economic growth.

China’s model: China maintained a one-for-one correlation between real per capita income and labour productivity, leveraging industrialisation and structured skill deployment.
Lessons for India:

Focus on manufacturing-led growth to absorb unskilled workers efficiently.
Invest in skill development aligned with industry demand, enabling faster productivity gains.
Align wage growth with productivity to maintain competitiveness and living standards.

Application in India: By adopting a similar productivity-per-income correlation, India can accelerate growth while improving living standards. Policy interventions could include incentivising labour-intensive industries, supporting regional industrial clusters, and enhancing technology adoption to ensure that the demographic dividend translates into measurable productivity improvements.

Services sector productivity: The services sector contributes a majority of GVA but employs fewer people proportionally, highlighting the need for productivity enhancement.
Policy examples:

Flexible labour laws: The four labour codes on wages, industrial relations, social security, and occupational safety provide states with flexibility in hiring and restructuring, facilitating productivity improvement.
Skill and vocational training: Reorienting education to equip students with life skills, digital literacy, and industry-relevant expertise.
Technology adoption: Leveraging AI, cloud computing, and digital platforms to enhance efficiency in IT, finance, and other service industries.

Case study: States like Karnataka and Maharashtra have implemented skill-mapping programmes and digital governance frameworks that enhance service sector efficiency, creating a model for nationwide replication.