Analysis of Productivity Growth and Its Determinants in India

For the past decades, India witnessed a great development in economy and its GDP grew significantly. The key factor behind this is the productivity growth. This paper analyzes Indias productivity growth concerning its two determinants, capital accumulation and technical progress. This paper first analyzes the capital accumulation in India and finds that more plants and machinery have accumulated rapidly in India mainly due to the implementation of strict labor regulations and the deepening of the Indian financial market. Besides, the paper also discovers that Indias human capital accumulated through investments in education and healthcare. Regarding technical progress, this paper shows that India adopts new technologies from other countries to enhance production efficiency during this period, and that the government of India has also enacted new policies and set up research parks to encourage Indian firms and businesses to improve technologies through its Research and Development(R&D) process. Then, this paper investigates challenges faced by India for future development. The benefits of productivity growth from its initial capital accumulation diminish over time, and Indias human capital development is relatively slow compared to other developing countries such as Sri Lanka because of insufficient and inconsistent government support. Taking into account the development experience of other countries, this paper suggests that India needs to transform to more advanced technologies to sustain further growth, and that Indias government needs to be aware of the importance of public expenditure and expand its spending on human development sectors such as education and healthcare.