Bridging the Gap Between Growth and Employment in India

India has continued to register robust economic expansion, with its GDP projected to grow at around 7.4% in FY 2025-26, reflecting strong domestic demand and investment momentum. However, the labour market response has been uneven, as official data from the Periodic Labour Force Survey (PLFS) 2023-24 shows only a modest decline in the overall unemployment rate to about 3.2%, with significant variations between rural and urban areas. While labour force participation and worker population ratios have improved, many workers remain in informal or low-quality employment. This divergence between strong GDP growth and relatively subdued job creation highlights concerns about jobless growth, where economic output rises faster than employment opportunities.

What is the Current Growth Performance of Various Sectors of the Indian Economy? 

• Primary Sector 
  • Agriculture and Allied Activities : The agriculture sector in India has shown robust growth, averaging 5% annually from FY17 to FY23.  
    • Strong performance in livestock, dairy, fisheries, and horticulture has offset climate-related risks in crop production.  
    • Government focus on irrigation, agri-infrastructure, digital agriculture, and value chains is expected to enhance future productivity, diversification, and farm incomes. 
  • Mining and Quarrying: Mining and quarrying support India’s industrial and infrastructure expansion by supplying key raw materials such as coal, iron ore, limestone, and critical minerals.  
    • Recent improvements in output reflect rising demand from construction, power, and manufacturing sectors. Policy reforms in mineral auctions, exploration, and critical mineral strategy position mining as a strategic enabler of long-term growth and energy transition. 
    • For instance, India is the 2nd largest Aluminium producer, among top-10 producers in refined copper and 4th largest iron ore producer in the world. 
• Secondary Sector:  
  • Manufacturing Sector: Manufacturing has emerged as a key growth pillar, recording strong growth of around 9.9% in recent quarters, according to PIB data.  
    • The sector spans labour-intensive industries (textiles, garments, food processing), capital-intensive industries (cement, steel, automobiles), and technology-driven sectors (electronics, pharmaceuticals, engineering goods).  
      • For instance, MSMEs contribute 30% to India's GDP and over 45% to exports. They are the second-largest employer in India after agriculture. 
    • Initiatives such as PLI schemes, Make in India, and supply-chain diversification are strengthening India’s manufacturing competitiveness and export potential. 
    • For instance, the PLI scheme has attracted investments of over ₹1.76 lakh crore, driving growth in output, exports, and jobs. 
  • Construction and Infrastructure: Construction continues to be a major growth and employment generator, driven by record public capital expenditure on roads, railways, ports, housing, and urban infrastructure.  
    • The sector is estimated to grow by 9.4% in FY 2024–25, reflecting strong infrastructure momentum and significant multiplier effects across cement, steel, transport, and related services. 
    • This sector is crucial for crowding in private investment and regional development. 
  • Electricity, Gas, Water Supply and Renewables: The electricity, gas, water supply and other utility services sector, contributing about 2.1% to GVA, recorded moderate but steady growth at constant prices in FY 2025–26.  
    • This expansion has been driven by rising energy demand from households, industry, and services, alongside continued investments in grid modernisation and transmission infrastructure.  
    • Rapid capacity addition in solar, wind, and other renewable energy sources has strengthened energy security, reduced dependence on fossil fuels, and supported India’s climate commitments. 
• Tertiary Sector:  
  • Trade, Transport, Tourism and Communication Services: Trade, hotels, transport, communication and services related to broadcasting are estimated to grow by 7.5% at constant prices in FY 2025–26, reflecting the strong revival of consumption-led services.  
    • This growth has been supported by a 7.0% rise in real Private Final Consumption Expenditure (PFCE), expansion of logistics and warehousing, improved transport infrastructure, and higher digital connectivity.  
  • Financial, Real Estate and Professional Services: Financial, real estate and professional services are estimated to record a robust 9.9% growth at constant prices in FY 2025–26, emerging as one of the strongest drivers of tertiary sector expansion.  
    • This performance has been underpinned by sustained credit growth, increasing formalisation of the economy, fintech-led financial inclusion, and rising housing and commercial real estate demand.  
    • Alongside a 7.8% growth in Gross Fixed Capital Formation (GFCF) , these services play a crucial role in mobilising capital, facilitating investment, and improving productivity across agriculture, manufacturing, and services, thereby reinforcing overall GDP growth. 
  • IT, Digital Services, R&D and Knowledge Economy: India’s IT, digital services, R&D and knowledge-intensive activities continue to strengthen the services sector, contributing significantly to the buoyant services-led Real GVA growth of 7.3% in FY 2025–26.  
    • Expansion in software and IT-enabled service exports, rapid adoption of digital public infrastructure, growth of startups, and rising research-oriented services have enhanced high-value output and skilled employment.  

Why has India’s Growth Trajectory Not Translated Into Adequate Employment Generation?

• Structural Shift Towards Capital Intensity: Growth is increasingly driven by "machines over men" as manufacturing and infrastructure projects adopt high-end automation to remain globally competitive.  
  • India has skipped the traditional "manufacturing-first" development phase, moving straight to a services-led economy which is inherently less labor-absorptive for unskilled workers. 
  • Even with continued services-sector expansion (Services PMI, Dec 2025), hiring remained subdued due to cost pressures and efficiency-led strategies. 
    • Services employment is concentrated in low-end, informal segments and business surveys show expansion without commensurate hiring due to cost and productivity pressures.  
    • Consequently, services-led growth sustains macro momentum but has limited capacity to create mass, stable jobs for moderately skilled workers. 
• Informalisation and Poor Job Quality: India’s labour market stress is obscured by moderate headline unemployment, even as job quality remains weak.  
  • The ILO–IHD India Employment Report 2024 notes that about 82% of the workforce is in the informal sector and nearly 90% is informally employed, lacking contracts, social security, and protection.  
  • Much of employment growth is in necessity-driven self-employment and casual work, such as petty trade and gig activities, marked by low wages, income insecurity, and limited mobility, weakening the link between growth and inclusive development. 
• Skill Mismatch and Paradox of Learning Without Livelihoods: Rising educational attainment has not been matched by sufficient creation of formal, skill-appropriate jobs, resulting in graduate underemployment and youth frustration.  
  • The ILO–IHD India Employment Report 2024 shows that educated youth (secondary level and above) among the unemployed increased from 35.2% in 2000 to 65.7% in 2022.  
    • According to the India Skills Report 2025 , while employability is rising, still only 54.8% of Indian graduates are considered "job-ready" for their respective industries. 
• Regional Divergence and Weak Urban Job Engines: PLFS (Periodic Labour Force Survey) data on usual status employment and regular wage/salaried jobs show a clear spatial concentration: states such as Maharashtra, Tamil Nadu, Gujarat, Karnataka, and Uttar Pradesh together account for a disproportionately high share of regular formal employment, while eastern and central states record much higher self-employment and casual labour shares.  
  • This indicates that metros and industrial cluster cities generate relatively more stable jobs, whereas smaller towns lacking manufacturing density, MSME formalisation, and urban infrastructure, remain weak employment absorbers despite a growing workforce. 
• Regulatory Cholesterol and "Dwarfism" of Firms: Complex compliance requirements and stringent labor codes (even with recent 2025 reforms) discourage small firms from hiring enough people to cross the "threshold" into large enterprises.  
  • This "regulatory cholesterol" forces businesses to stay small or "dwarf," where they lack the scale to provide job security, training, or competitive salaries to their employees. 
  • Due to this, Micro enterprises account for over 99% of the total number of Micro, Small, and Medium Enterprises (MSMEs) in India. 
• Premature De-skilling in the Gig Economy: The "Quick Commerce" and gig-platform boom is acting as a "labor sponge," absorbing millions of youth, but it offers "dead-end" jobs with zero skill progression or social security.  
  • This creates a workforce that is "employed" but "under-productive," trapped in roles that will eventually be replaced by drone delivery or AI-driven logistics, leading to future joblessness. 
  • According to government estimates, the number of gig and platform workers could rise to about 23.5 million by 2029-30. Research shows that youth entering the gig economy after school experience "skill atrophy," becoming less likely to transition into formal office roles later. 

What Measures Can be Adopted to Improve Job Creation While Supporting the Growth in India ?  

• Reorient Growth Strategy Towards Employment-Intensity: India’s growth strategy must explicitly incorporate employment as a core objective, not merely as a by-product of GDP expansion.  
  • Policymaking should prioritise employment elasticity of growth, encouraging sectors and technologies that generate more jobs per unit of output, especially in labour-surplus conditions.  
  • Integrating employment targets into industrial, infrastructure, and investment policies can ensure growth remains inclusive and socially sustainable. 
• Strengthen Labour-Intensive Manufacturing: Labour-intensive industries such as textiles, garments, leather, footwear, food processing, toys, and light engineering hold immense potential for large-scale job creation.  
  • Targeted incentives, simplified compliance, cluster-based infrastructure, and export facilitation can help these sectors absorb surplus labour, particularly from agriculture.  
  • Aligning PLI-type support with employment outcomes rather than only output can further enhance job creation. 
• MSME Expansion and Productivity Enhancement: MSMEs are the backbone of employment generation in India.  
  • Improving access to affordable credit, technology, digital platforms, market access, and skilling support can significantly enhance their capacity to generate jobs. 
  • Formalisation through GST, Udyam registration, and digital payments should be complemented with reduced compliance burden to prevent premature exit or informality-driven stagnation. 
• Promoting Infrastructure-Led Employment: Sustained public investment in infrastructure, housing, urban development, and rural connectivity can generate large-scale direct and indirect employment.  
  • Construction has high employment multipliers and supports allied sectors such as cement, steel, transport, and services.  
  • Timely project execution and decentralised infrastructure planning can maximise job creation across regions. 
• Agricultural Transformation and Non-Farm Rural Jobs: Improving productivity and incomes in agriculture through diversification, value addition, food processing, agri-logistics, and allied activities can create both on-farm and off-farm employment.  
  • Promoting rural non-farm enterprises, agro-processing clusters, and farmer producer organisations (FPOs) can absorb surplus labour while raising rural incomes and resilience. 
• Services-Led Job Creation Beyond High-End Skills: While IT and financial services drive growth, employment generation requires expansion of labour-absorbing services such as tourism, hospitality, healthcare, education, logistics, retail, and personal services.  
  • Investment in urban services, medical tourism, care economy, and local service delivery can create large numbers of jobs across skill levels. 
• Skilling, Reskilling and Education–Industry Alignment: A dynamic labour market requires continuous skilling, reskilling, and upskilling aligned with industry needs. Strengthening vocational education, apprenticeships, and industry-linked training programs can improve employability and productivity.  
  • Special focus is needed on digital skills, green skills, and future technologies to ensure workforce readiness without excluding low-skilled workers. 
  • Strengthen apprenticeships under NAPS to bridge the education–employment gap. Apprenticeships create earn-while-you-learn pathways, improve job readiness, and lower hiring risks for firms, especially MSMEs. 
• Labour Market Reforms with Worker Security: Simplifying labour regulations while ensuring worker protection, social security, and portability of benefits can encourage firms to expand employment.  
  • Effective implementation of labour codes, universal social security coverage for informal and gig workers, and easier hiring while safeguarding rights can reduce informality and improve job quality. 
• Promote Green and Care Economy Jobs: The transition to a green economy offers significant employment potential in renewable energy, energy efficiency, waste management, electric mobility, and climate-resilient infrastructure.  
  • Similarly, the care economy (healthcare, childcare, elderly care, and social services) can generate dignified and gender-inclusive employment while supporting long-term human development. 
• Encourage Formalisation and Urban Employment Ecosystems: Urban job creation can be strengthened by supporting manufacturing-service linkages, startup ecosystems, urban MSME clusters, and innovation hubs. 
  • Formalisation through digital platforms must be accompanied by incentives that lower the cost of compliance and encourage firms to grow rather than remain small. 
• Improve Data, Monitoring and Policy Coordination: Robust labour market data and real-time monitoring of employment outcomes are essential for evidence-based policymaking. 
  • Better coordination between ministries of finance, labour, industry, education, and skill development can ensure that growth policies are aligned with employment objectives at both national and state levels.

Conclusion:

India’s jobless growth reflects a structural shift towards productivity- and technology-led expansion, strengthening macroeconomic stability and global competitiveness. The challenge lies not in the absence of growth, but in aligning it more closely with employment generation. By promoting labour-intensive sectors, MSMEs, skilling and apprenticeships, and green and care economies, India can convert growth into quality jobs. This balanced approach advances SDG-8 (Decent Work), SDG-9 (Industry & Innovation) and SDG-10 (Reduced Inequalities) while sustaining high growth. 

Drishti Mains Question India’s growth in recent years has been driven by productivity gains rather than labour absorption.Discuss the structural reasons behind jobless growth and evaluate policy options to align high growth with decent employment.