Emerging and developing economies need to leverage potential of the services sector to drive productivity growth, RBI Deputy Governor Michael Debabrata Patra said on June 11.

“Investing in information and communication infrastructure, securing reduction in trade costs like those associated with shipping, logistics and regulation and supportive business-enabling reforms could help to engage the private sector in partnering in this endeavour,” Patra said at the Sixth Asia KLEMS Conference at Lonavala.

In addition, raising labour force participation rates, especially among women and older workers, could also boost productivity, but this will require investments in workability, retraining and acquisition of new skills in step with changing technology, Patra said.

Given that multiple factors could be at work, a multi-pronged approach woven into a comprehensive policy intervention is needed to reignite and sustain productivity growth, he added.

The policy response has to be powered by technological capital deepening, accompanied by long-term investment in research and development to nurture a competitive innovation ecosystem, skill development through sustained educational attainments and training, and building up the physical infrastructure, Patra said.

The central bank, which has been fighting high inflation, has hiked the repo rate by 250 basis points since May last year but chose to pose in the June 6-8 meeting. The Monetary Policy Committee, which is led by the central bank, also continued with the ongoing policy stance of withdrawal from accommodation.

Patra added that central banks need to have a deeper understanding of the productivity trends in order to judge the position of the economy on the business cycle so as to fashion appropriate policy responses that ensure sustained non-inflationary economic growth.In turn, this will promote financial market confidence and the overall flow of finance in the economy, the deputy governor added.