India's Productivity Gap Widens
Analysis based on 6 articles · First reported Jun 13, 2026 · Last updated Jun 14, 2026
The report from Meritz Securities highlights India's widening productivity gap with China, suggesting that despite strong GDP growth, India has not achieved the manufacturing-led transformation seen in other Asian economies. This could lead to concerns among investors regarding India's long-term economic competitiveness and its ability to attract and retain foreign direct investment in manufacturing, potentially impacting investor sentiment towards Indian equities and bonds.
A research report by Meritz Securities titled 'Labour Productivity in Emerging Economies: Catch-up, Innovation, and now AI' reveals that India's labor productivity gap with China has widened by over USD 30,000 per worker since 2000. Despite strong economic growth, India has not achieved the industry-led productivity transformation seen in economies like China, South Korea, and Vietnam. The report attributes this to structural constraints and economic disruptions such as the 2016 demonetisation, 2017 Goods and Services Tax (India) implementation, Non-bank financial institution liquidity crises, and the severe impact of the COVID-19 pandemic. While government initiatives like the Production Linked Incentive Scheme and the China+1 investment shift are supporting some sectors, manufacturing's share of GDP has not structurally risen. Key barriers identified include labor market rigidities and high logistics costs. The report concludes that deeper structural reforms are needed beyond current capital expenditure and incentive schemes to sustain higher productivity growth in India.
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