India’s economic growth has created jobs primarily in low-productivity sectors, leading to challenges in labor productivity, income inequality, and the need for structural shifts in employment and skill development.
By R Gopalan & MC Singhi India’s planned development has tended to be investment-centric with less focus on employment. As a result, employment was to be derived as an outcome of growth and investment. This process has led to distorted outcomes. While growth has accelerated and is somewhat diversified, employment has remained concentrated in low-productivity sectors. Despite a subsequent shift to improving employability through training, skill development, and education, the workforce participation rate remained below 40% until around 2021-22.
It increased in the last three years to reach 43.5% in 2025. Employment generation received a momentum after 2017-18, although the overall number of workers actually declined in 2017-18 relative to 2011-12. The incremental workforce between 2017-18 and 2004-25 is estimated at around 156 million, higher than the number of job seekers. Contrary to an earlier assessment of an economy with jobless growth, India’s economy has grown with jobs, but the new jobs were largely created in low-productivity sectors (see table).
A banker’s perspective The existing sectoral job structure has two major outcomes. First, labour productivity is likely to remain low resulting in worsening inequality and widening gap in income levels. Second, labour reforms will have limited utility as a bulk of the incremental labour force would be self-employed, making labour legislation irrelevant for them. Due to low productivity, accelerating growth would remain difficult.
The sectoral employment and its growth also indicate that job creation in modern sectors in roughly the past eight years has been just around 20% of the total figures. Nearly 80% of jobs are mostly reversion to family occupation or casual work on public programmes with limited wages. PLFS data for 2023-24 reveals that self-employed workers draw under 70% of the annual income of an average salaried employee.
Public sector employment, despite low comparable wages relative to similar skill sets in the corporate sector, is preferred. There appears to be an element of economic rent here in excess of the nominal wages, which should be addressed. Corporate manufacturing may also need a similar kind of investment, as the observed low figure of Rs 43 lakh is an average, which conceals low investment requirements in the micro, small, and medium enterprise sector that dominates manufacturing.
Investment requirements in professional services and real estate are also misleading because of the inclusion of administrative support services where such requirements are close to the average of low-productivity sectors. What does this indicate for strategies of intervention? We need a structural shift in the job market. Nearly half of the existing workforce needs to move away from agriculture. A sector contributing under 20% of the gross value added (GVA) cannot sustain even half of that workforce.
Agriculture needs to move away from subsidy to sustainability and from subsistence to trade. In trade and hotels and construction, new skills and investment are required to increase productivity and employment. Services have share of over 50% in GVA and employ close to 30% of the workforce. Nearly 70% of them are in informal sectors, as housemaids, low paid teachers, small traders, and transporters.
Gig workers must be provided with social protection. Skill development for graduates using the private sector must be improved. Labour reforms are important but workers should first move to some kind a quasi-formal sector. Conditions for establishing labour-intensive industries in targeted areas could reduce migration. Migration is a suboptimal choice. We need to understand why low productivity has continued to dominate Indian economy.
Indian households are risk-averse. If we consider the overall wealth of households, only 20% is in investment and regular income-earning activities; the rest are in assets, not used as capital. We need to consider how to change this deployment. This unused capital, along with regulations and absence of scale, leads to low productivity. Nearly 80% of the workforce is engaged in units comprising less than 10 workers.
Such units require access to collateral-free capital, cluster infrastructure, marketing support, and state- and private sector-driven skill development to get past the last mile. Our steps to increase agricultural productivity must be more energised. Lastly, infrastructure cost to GDP is falling, but should reach the level of middle-income countries soon. The authors are former civil servants Disclaimer: The views expressed are the author's own and do not reflect the official policy or position of Financial Express.
