India Can Boost Growth By 0.5 Points By Adding Factory Jobs, IMF Says

India can boost its economic growth rate by as much as 0.5 percentage points by driving more workers from agriculture to manufacturing, according to researchers from the International Monetary Fund. 

The estimates are based on the assumption that 5% of agricultural workers can be absorbed in manufacturing, the researchers said in an IMF working paper this week. To do that, the government will need to undertake a number of economic reforms to increase the supply of jobs in manufacturing, they said.

“India needs to create productive, well-paying jobs in labor intensive sectors for its growing population,” IMF economists Cristian Alonso and Margaux MacDonald wrote in the paper. “This could accelerate sustainable, inclusive growth and raise wages for India’s workers.”

India has been posting relatively strong growth rates of more than 7% in recent years, and although employment has grown, it’s largely been in lower productivity sectors. 

Half of India’s workforce have low-paying farm or construction jobs, according to the IMF researchers. The agriculture sector still accounts for the highest share of workers even though there has been a decline in farm jobs by 17 million between 1995 and 2019, they said in the report. In addition, the services sector hasn’t been able to grow formal, and high productivity jobs needed to raise economic growth, they said. 

Manufacturing has remained sluggish and has added only 15 million jobs between 1995 and 2019, according to the researchers. Shifting India’s farm workers to factory jobs would require additional reforms on land use, promoting larger firm sizes, hiring more female workers, and re-skilling the workforce, the IMF researchers said.