TFP, the growth fulcrum

Nobel Laureate Robert Solow identified capital, labour and technology as the three factors of production that shape the long-term growth trajectory of an economy. Technology is equated with 'efficiency', or 'total factor productivity' in economics. Improving efficiency means a given amount of labour and capital combining to drive up economic output.

Efficiency needs to play a pivotal role to propel India's average gross domestic product (GDP) growth to 6.7% annually - as forecast by CRISIL - till the end of this decade. We estimate efficiency improvements will contribute ~30% to the projected growth.

There are three drivers to efficiency, essentially: one, improvement in logistics/physical infrastructure; two, considerable progress in digital infrastructure; and three, economic reforms.