India and China Lead Emerging Economies in Productivity Growth, Lifting Nearly a Billion Out of Poverty

India and China have led 28 emerging economies in productivity growth over the past 25 years, lifting nearly a billion people out of poverty, according to a report released by the McKinsey Global Institute on April 25, 2024. India's annual productivity growth rate of 5.6% is second only to China's, with the two countries responsible for nearly half of the global productivity gains witnessed between 1997 and 2022.

The report highlights that while advanced economies have seen steady but slow productivity growth, some emerging economies like China and India have made impressive progress. India's economy is thriving, and at this rate, it would take an average fast-growing economy like India 28 years to match the advanced-economy average productivity level of $34,000.

The development paths of these high-productivity emerging economies include boosting capital investment, effective urbanization, improving service and construction sectors, increasing manufacturing sophistication, and establishing an attractive business environment. India's early investments in digital infrastructure and workforce skills in the 1990s have enabled it to become a global IT leader, especially in software.

Why this matters: India's rapid productivity growth has helped lift more than one billion people out of poverty, showcasing the transformative power of economic development. As one of the fastest-growing large economies in the world, India's success story offers valuable lessons for other emerging economies seeking to boost productivity and improve living standards.

To maintain this momentum, the report suggests that India needs to continue investing in urbanization, infrastructure, service productivity, and higher-value manufacturing, supported by the right institutions and education system. The McKinsey Global Institute emphasizes that with the right strategies and investments, countries and companies can unleash a new wave of productivity growth, which is critical for economic success in the face of changing macroeconomic conditions, aging populations, and the need to harness digital technologies like generative AI.

Key Takeaways

• India and China led 28 emerging economies in productivity growth over 25 years.
• India's annual productivity growth rate of 5.6% is second only to China's.
• India's early investments in digital infrastructure and workforce skills enabled it to become a global IT leader.
• India's rapid productivity growth has helped lift over 1 billion people out of poverty.
• To maintain momentum, India needs to invest in urbanization, infrastructure, service productivity, and higher-value manufacturing.