With employment levels lower than what they were 40 years ago, faster growth alone won’t do

India has emerged as one of the fastest growing major economies in the world. But being the fastest growing economy with low per capita income, low and stagnant youth workforce participation level and low growth in productivity is, at best, a cause for celebration at an election rally.

We still have around eighty crore people dependent on free ration. The household savings rates have declined and so have their financial savings rate. Real earnings have not been growing even for white-collar employees. We need credit to drive consumption growth. Yet, some leading economists continue to search for solutions in liquidity and lower interest rates without recognising the fundamental problem that we face.

The fundamental problem is that the reforms have not helped raise the quality of growth and the current incentive plans for production are not consistent with our economic and social reality. Our expectation that the reforms will bring all-round prosperity by unleashing animal spirits has not been met.

The solution lies in improving our capital productivity (value-added per unit of capital stock), which has been declining during the post-reforms period. In addition, we must increase the share of higher value-adding economic activity without destroying our ability to improve productivity for low value-adding activities.

This article reviews our economic performance and outlines the economic strategy that can help accelerate growth and improve the quality of our growth. The analysis is based on the KLEMS database maintained by the Reserve Bank of India.