Decoding Total Factor Productivity - The Indian Story

Total Factor Productivity (TFP) is vital in the discussion of economic growth because it captures the efficiency with which the factors of production have been allocated in an economy. In addition to this, TFP is also considered as a measure of technological progress in the country. Thus, it is with this knowledge that the following research paper explores the links between TFP and macroeconomic variables like Gross Domestic Product (GDP), Employment, Labour Factor Productivity (LFP) and examines factors that affect TFP in an Indian context. In doing so, it was found that by boosting TFP, the GDP and LFP also register an increase. The link between TFP and employment is slightly complex and has been explained in the context of the advent of the gig-economy in India. Additionally, the research paper also studies the role played by research and development (R & D) in augmenting TFP and explains the link between the state of institutions and innovation, such that by encouraging R & D and strengthening institutions, India would have improved its state of innovation which could enhance TFP. To examine all the facts in a holistic sense, the links between TFP and the condition of human capital in India were drawn. These links and findings play a role to provide a perspective in policy decisions.