Productivity differences explain in a large part the variations in incomes across countries. It is technology that plays a key role in determining productivity. For most countries, foreign source of technology accounts for 90 per cent or more of domestic productivity growth.

At present only a handful of rich countries account for creation of most of the world’s new technology. The pattern of worldwide technological change is thus determined in large part by international technology diffusion flows between countries.

With its bid to position itself as an economic superpower in the same league as China, it is not surprising that productivity growth in India is a hotly debated issue. There have been claims (Barry Bosworth and Susan Collins of the Brookings Institution, Washington DC) that TFP (Total Factor Productivity) growth in India is declining and that it had grown faster in 1993-99 than in 1999-2004.

At the other end of the spectrum is the view expressed by Tushar Poddar, an economist with Goldman Sachs who, in an update on the investment bank’s famous BRICs report, opines that, “The recent growth spurt was achieved primarily through a surge in productivity, which we believe can be sustained.”

Many Indian firms have achieved world-class productivity. The average is pulled down by sectors and industries that are either over-regulated or poorly managed. In a recent research paper, Chang-Tai Hseih of the University of California at Berkley and Peter Klenow of Stanford University say that if capital and labour are reallocated across factories so that the marginal productivity in labour and capital between them narrows to US levels, India’s TFP can rise 40-50 per cent, leading to surge in productivity and growth.

For that to happen, however, we need a fresh round of internal reforms, especially those that will help small and medium enterprises use capital and labour more efficiently.

There has to be a sense of urgency in this as the high rate of population growth is likely to strain considerably the labour productivity. The labour force is currently expanding at 2.4 per cent a year. By 2010, as much as 62 per cent of India’s population will be in the 15-59 age group.

While there has been great deal of improvement in labour productivity recently, the danger is of its dropping, with the surge in the labour force.

For sustained growth, productivity improvements seen in recent years in the services sector need to be realised in other areas also. FDI (Foreign Direct Investments) can make an important contribution to productivity growth.

International best practices can greatly help improve productivity. These practices range from improved design for manufacturing to improved supply-chain management and retail marketing to further automation.

It is believed that the greatest boost to productivity is derived from legislative reforms that enhance and reinforce competition. Yet, this is often the most difficult to accomplish as it requires making difficult choices and trade-offs involving conflicts between political expediency and economic necessity. Removing restrictions on land ownership and use, labour reforms, IPR protection, FDI limits, tariff and other forms of protection are all cases in point.

There is nothing to suggest that we cannot dramatically improve productivity through this route. Unless we push-start the process, the demographic change already afoot may convert an opportunity into a threat to economic growth and well being.

Many studies have linked the productivity growth with the revival and investment in information and communication technology by the companies. There is a close link between productivity and Information and Communication Technology (ICT). According to the Dataquest – IDC Megaspenders 2007 Survey, the growth rate of Information Technology spend by top enterprises is expected to be 26 per cent in 2007-08 taking the combined spending of Rs 8,974 crore.

Growing IT spending by Indian companies has also been facilitated by reduction in costs of inputs, both software and hardware, as the nature and pattern of IT adoption becomes more sophisticated.

India is not only smart in making Information Technology but smarter still in using it. We should not only use more IT per worker, but also to export it more effectively so that the productivity of IT capital is raised several fold.

Similarly, more than 100 million Indians use mobiles as a crucial productivity tool. Thus the advances in Information Technology and dramatic cheapening of computing power has led to a surge in productivity in many sectors.

Along with ICT, the investment in organisational innovations has also helped in productivity growth. These, along with change in work culture go a long way towards enhancing productivity growth and form the basis of “New Economy” and of the competitiveness of the Indian economy. Good governance certainly helps to create a conducive environment for productivity growth and its sustenance.

Productivity practitioners have also started shifting their focus from traditional concept of “Work Place Efficiency” to holistic outlook that encompasses Financial Performance, Ecological Sustainability, Customer Focus, Social Accountability and Mutual Trust in the society as the measure of TFP.

The emerging Knowledge Economy in India is expected to lead the Productivity Movement towards propagating and practising these new and innovative concepts of Productivity Propagation and Demonstration.

The sectoral dimension of productivity growth is also extremely important to address. There is an urgent need to step up investment and raise productivity not only in the manufacturing sector to make it more competitive but also to raise the productivity in the agriculture sector.

The fact that agriculture lagged behind in the sectoral distribution of growth is linked to the extent to which the arable land has been utilised, the distribution of agrarian capital and the concentration of land ownership among rural minority. To put an end to the exclusion from right to property, land redistribution is essential.

The single greatest challenge facing managers in the developing countries is to raise the productivity of farmers, knowledge and service workers.

This challenge, which will dominate the management agenda for the next several decades, will ultimately determine the competitive performance of agriculture and industry.

Even more important, it will determine the very fabric of society and the quality of life. The most pressing social challenge developed countries face, however, will be to raise the productivity of service work. Unless this challenge is met, the developed world will face increasing social tensions, increasing polarisation, increasing radicalisation, possibly even class war.

The economist sees capital investment as the key to productivity; the technologist gives star billing to new machines. Nevertheless, the main force behind the productivity explosion has been working smarter.

Capital investment and technology were as copious in the developed economies during the first 100 years of the Industrial Revolution as they have been in the next 100 years. It was only with the advent of working smarter that productivity in making and moving things took off on its meteoric rise.

Defining the task, concentrating work on the task, and defining performance: By themselves, these three steps will produce substantial growth in productivity — perhaps most of what can be attained at any one time.

The goal has to be to build responsibility for productivity and performance into every knowledge and service job regardless of level, difficulty, or skill. Continuous learning must accompany productivity gains.

(The author is a member of the Indian Revenue Service. The views are personal.)

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