Growth-Employment Disconnect in India | 24 Jun 2025

While India's inflation dropped to a comfortable 2.8% in May 2025, unemployment simultaneously rose from 5.1% to 5.8%, exposing a troubling disconnect in economic priorities. The agricultural sector's improved performance relative to other sectors helped control food inflation, but this sectoral rebalancing has not translated into broader employment generation. To address this, India needs to complement its economic growth with a stronger focus on employment generation, ensuring that the benefits of growth are more widely shared and that job creation becomes a central pillar of future policy.

What are the Key Strides of India in Curbing Unemployment?

• Key Skill Development Initiatives: India has made significant strides in upskilling its workforce through initiatives like Skill India and Pradhan Mantri Kaushal Vikas Yojana (PMKVY). 
  • These programs aim to provide sector-specific skills to millions, thereby increasing employability, especially among youth and women.
  • The Pradhan Mantri Kaushal Vikas Yojana (PMKVY) has trained over 13.7 million candidates, highlighting the scale of effort to reduce unemployment.
• Make in India and PLI Initiative: The Make in India program and Production-Linked Incentive Scheme has been a cornerstone in creating job opportunities by promoting domestic manufacturing and attracting foreign investment. 
  • This initiative has helped revitalize the manufacturing sector, generating millions of jobs in areas like electronics, textiles, and automobiles. 
  • For instance, employment in the manufacturing sector increased from 57 million in 2017-18 to 62.4 million in 2019-20, reflecting the positive impact of this initiative.
• Promotion of Digital Literacy and Infrastructure: Through the Digital India campaign, the Indian government has focused on enhancing digital literacy and infrastructure, especially in rural areas. 
  • This initiative aims to bridge the digital divide, enabling citizens to access online education, job opportunities, and government services. 
  • As part of this push, the Pradhan Mantri Gramin Digital Akshara Abhiyan aims to make six crore rural citizens digitally literate, thereby empowering them to participate in the modern economy.
• Public-Private Partnerships for Job Creation: India has increasingly turned to public-private partnerships (PPPs) to generate employment in high-potential sectors like infrastructure, renewable energy, and healthcare.
  • These collaborations facilitate the creation of sustainable jobs while also attracting private investment. 
    • The National Infrastructure Pipeline (NIP), with an investment target of Rs. 111 lakh crore, aims to create millions of jobs across multiple sectors.
• Targeted Job Creation Schemes for Youth: In the Union Budget 2024-25, the Indian government introduced targeted schemes to address youth unemployment, allocating Rs. 2 lakh crore for skill development and job creation over five years. 
  • These initiatives include incentives for first-time employees, support for job creation in manufacturing, and schemes to improve job quality and working conditions. 
  • By focusing on youth employment, the government aims to provide better opportunities for the emerging workforce.
• Evolving Labour Market Reforms: India has undertaken significant labor reforms aimed at improving employment conditions, simplifying labor laws, and promoting formalization of the workforce. 
  • The Code on Wages, Industrial Relations Code, and Social Security Code aim to enhance job security, ensure fair wages, and promote social security for informal sector workers. 
    • These reforms aim to transition more workers into formal employment, improving job quality.

Note: Despite key recent strides in employment generation, the disconnect between economic expansion and job creation remains a significant challenge for the country.

What are the Factors Contributing to the Disconnect between Growth and Employment Generation in India?

• Shift Toward Capital-Intensive Growth Model: The Indian economy's shift towards capital-intensive sectors, especially in manufacturing and services, is limiting job creation. 
  • As capital deepens, it often replaces labor, reducing the need for workers. For instance, while India’s capital stock grew by 74% between 2014-23, employment only rose by 36%, leading to a higher capital-labor ratio. 
    • This mismatch highlights that growth isn't generating commensurate jobs, especially in labor-intensive sectors.
• Increased Informalization of the Workforce: The growth in India's informal sector is not conducive to stable, formal employment creation. 
  • A significant portion of India’s workforce remains in informal, low-wage, and insecure jobs. 
  • Despite GDP growth, informal employment continues to rise, absorbing workers with limited benefits and job security. 
  • The informal sector now constitutes around 80-90% of India's workforce. This sector’s expansion reflects job creation but fails to improve quality of work or wages for many.
    • Also, as per Economic Survey 2023-24, 57.3 per cent of the total workforce is self-employed, and 18.3% is working as unpaid workers in household enterprises.
• Mismatch Between Skill Development and Market Needs: India's skill development initiatives, although vast, often do not align with the evolving demands of the labor market. 
  • The skills imparted through programs like Skill India and PMKVY frequently fail to equip workers for the higher-end job market, especially in the digital and industrial sectors.
  • Despite efforts, the unemployment rate rose to 5.8%, pointing to skill mismatches and an insufficiently skilled workforce.
    • The Pradhan Mantri Kaushal Vikas Yojana (PMKVY) has trained 13.7 million candidates, but only 18% or 2.4 million were successfully placed in jobs
• Slow Growth in the Manufacturing Sector: Manufacturing, historically a key job generator, has not experienced the level of expansion needed to absorb India’s growing labor force.
  • The focus on services and technology-led growth has shifted attention away from manufacturing, which typically creates more jobs. 
  • Despite the Make in India initiative, the manufacturing sector employed 62.4 million people in 2019-20, a modest increase from 57 million in 2017-18. This slow growth reflects an inability to create large-scale employment in the sector.
  • Also, the MSE sector holds great potential for job creation, but it needs more stable policy support to ensure long-term success. 
    • About 25-30% of newly established MSEs fail within five years, indicating the challenges faced by this vital sector.
• Agricultural Dependency and Limited Diversification: A large segment of India’s workforce remains dependent on agriculture, which is highly seasonal and does not provide sustainable employment. 
  • According to the PLFS 2022-23, 45.76% of India’s workforce is in agriculture, but this sector is unable to generate enough stable employment due to its low productivity and seasonal nature.
• High Expectations for Government Jobs: A large number of individuals in India still hold a strong preference for government jobs, viewing them as secure and stable career options. 
  • This aspiration sometimes creates a gap between the types of employment available in the market and the expectations of the workforce. 
  • While the private sector has expanded, the number of government jobs has not kept pace, which can lead some individuals to focus their efforts on pursuing these roles, potentially missing out on other opportunities in the broader economy.

What Measures can India Adopt to Complement Growth with Employment Generation?  

• Fostering Labor-Intensive Manufacturing: To complement growth with employment, India must pivot towards labor-intensive manufacturing sectors like textiles, apparel, and food processing. 
  • By targeting these sectors, India can create substantial employment opportunities, reduce dependency on imports, and bolster self-reliant, export-driven growth.
  • This strategy involves scaling up small and medium enterprises (SMEs) and micro, small, and medium enterprises (MSEs), providing them with tax incentives, subsidies, and access to low-cost labor. 
  • Such sectors are more likely to generate mass employment due to their reliance on human capital. 
• Promoting Rural Entrepreneurship: A key measure is promoting entrepreneurship in rural India, which will stimulate local job creation and reduce migration to urban centers.
  • By simplifying access to credit, improving market linkages, and facilitating entrepreneurship training, rural communities can generate sustainable business models. 
  • Government support, coupled with an enhanced rural infrastructure network—such as roads, electricity, and internet connectivity—will drive rural economic diversification, ensuring that growth is geographically inclusive.
• Enhancing Public-Private Partnerships in Education: In today’s rapidly evolving job market, India must bridge the gap between education and employment through dynamic public-private partnerships (PPPs). 
  • By involving industries in curriculum design and offering joint training programs, India can align educational output with labor market demands. 
  • These collaborations will help develop a skilled workforce tailored to emerging industries like AI, automation, and data analytics, enabling better job placement for graduates. 
• Developing Green Jobs and Sustainable Industries: India must prioritize green jobs in sectors such as renewable energy, sustainable agriculture, and electric mobility to drive sustainable development. 
  • With global attention on climate change, India has the potential to emerge as a leader in the green economy by focusing on industries that provide high job yields while promoting environmental sustainability, such as solar power, wind energy, and waste-to-energy projects.
• Industry-Specific Job Creation Policies: India should implement sectoral job creation strategies tailored to high-growth sectors like healthcare, technology, and construction. 
  • Policies should focus on targeted incentives for businesses in these sectors to hire locally, upskill employees, and create resilient job markets. 
  • Offering tax relief and subsidized training programs can significantly enhance labor absorption in these sectors. 
• Accelerate Implementation of Labor Codes for Flexibility and Inclusivity: India must accelerate the implementation of its labor codes to ensure they are more inclusive and adaptable to the needs of today’s evolving job market. 
  • Also, greater flexibility in gig employment, contractual labor, and informal work can provide legal protections such as social security, healthcare benefits, and pension schemes. 
  • Simplifying the labor code to promote ease of doing business, while protecting worker rights, will encourage formalization of employment, making it more attractive for employers to create quality, well-paying jobs.
• Public Infrastructure Investment to Stimulate Employment: India can kickstart job creation by ramping up public infrastructure investments in key sectors like transportation, healthcare, and urban development. 
  • The focus should be on high-employment infrastructure projects that generate jobs for both skilled and unskilled workers.
  • Additionally, improving logistics infrastructure—such as roads, ports, and airports—will lower operational costs, making businesses more competitive and facilitating further job creation across industries.
• Facilitating the Transition from Agriculture to Non-Agricultural Jobs: India must ease the transition of workers from agriculture to non-agricultural sectors, such as manufacturing, services, and agro-processing. 
  • Providing upskilling programs tailored to sectors like construction, textiles, and renewable energy will help workers shift to more productive, higher-paying jobs. 
  • Focused training centers for rural youth, along with financial and infrastructural support for agri-based SMEs, can create jobs that align with market needs while improving agricultural productivity.
• Tax Incentives for Job-Creating Businesses: The Indian government can introduce tax incentives for businesses that focus on job creation, particularly in labor-intensive sectors like construction, agro-processing, and manufacturing. 
  • Offering corporate tax breaks, low-interest loans, and grants for SMEs that focus on creating jobs will incentivize business expansion and employment generation. 

This approach would not only increase formal sector jobs but also stimulate growth in underdeveloped regions, balancing the employment landscape.

Conclusion: 

India's economic growth must be better aligned with job creation to ensure that prosperity benefits the entire population. While strides have been made in skill development, manufacturing, and infrastructure, challenges like the shift toward capital-intensive growth and the rising informal workforce persist. To complement growth, India needs to focus on labor-intensive sectors, promote rural entrepreneurship, and invest in sustainable industries, creating opportunities for all.