New Delhi: India’s economic rise has been remarkable, but its labour market tells a more sobering story. One where growth surges ahead while job creation stumbles behind.
A new study released today by the National Council of Applied Economic Research (NCAER) — titled ‘India’s Employment Prospects: Pathways to Jobs’ — adds weight to this growing concern. The report offers a candid evaluation: the country’s ability to productively employ its expanding workforce is falling short, even as it moves toward becoming the world’s third-largest economy.
India needs to overcome bottlenecks to increasing both the quality and quantity of workforce participation and labour productivity, says the report as it underlines the role of skilling and small enterprises as key drivers of job creation in the country.
NCAER Vice Chairman Manish Sabharwal framed the challenge succinctly at the report’s launch, noting, “India is on track to become the world’s third largest economy, and while its per capita GDP currently ranks 128th, this highlights valuable opportunities to prioritize employment and inclusive growth.” Those opportunities, however, hinge on whether India can generate not just more jobs, but better ones. Jobs that are secure, skilled and productive.
The report warns that recent increases in employment stem largely from self-employment, much of it driven by necessity rather than entrepreneurial zeal. “India’s self-employment dominance is due to economic necessity rather than entrepreneurial dynamism,” observed Farzana Afridi, who authored the report. “Just like small farmers, most of the small enterprises function at subsistence level. India must confront the reality that its employment future is tied to the productivity of its smallest enterprises,” she wrote.
Most unincorporated household enterprises operate with low levels of capital, limited technology adoption, and meagre productivity, making them ill-equipped to absorb India’s growing working-age population.
The study’s analysis of small enterprises is particularly striking. It finds that access to technology and credit serve as powerful levers for job creation. As Afridi noted, “Enterprises using digital technologies hire 78% more workers as compared to those not using tech. Even 1% increase in access to credit increases expected number of hired workers by 45%.”
These findings reinforce a broader pattern across India’s informal sector, where most enterprises are own-account operations that hire few or no workers. Yet when these units transition into hired-worker enterprises — especially in manufacturing — the employment dividends are substantial.
Structural Barriers
On the demand side of the labour market, the report highlights structural barriers that prevent manufacturing industries from realizing their full job-generating potential. Labour intensity has declined across major manufacturing sub-sectors such as textiles, garments and electronics. In contrast, services sub-sectors like education, health and finance demonstrate rising labour intensity and the capacity to absorb more workers.
Simulations show that if manufacturing grows at 8.2% annually and services at 9%, India could sustain an overall 8% GVA growth rate — consistent with the vision of Viksit Bharat. In this scenario, manufacturing and services together could add over 3.5 lakh workers annually, with spillover effects magnifying job creation across supply chains.
These multipliers are especially pronounced in labour-intensive sectors. The study projects that moderate growth in gross output within key sub-sectors could result in 53% more jobs in textiles, garments and related industries by 2030, and 79% more jobs in trade, hotel and related services.
As Dr. G C Manna, senior advisor at NCAER, emphasized during the discussion, the report “highlights the key sectors with strong potential for driving employment growth.” Aditya Bhattacharjea, visiting professor, Institute for Studies in Industrial Development, noted that the analysis “places India in an international context and highlights areas where the country has unique opportunities for improvement and stronger alignment with global benchmarks”.
India’s transition to a skilled workforce has been sluggish. Only 4% of workers received formal vocational or skills training in 2024. Manufacturing remains low-skill intensive, while services continue to dominate medium-skill employment growth. (Photo by Sujith Devanagari on Unsplash)
Yet the supply side of the labour market presents an equally critical challenge. India’s transition to a skilled workforce has been sluggish. Only 4% of workers had received formal vocational or skills training in 2024, even as technological shifts and AI adoption heighten the need for medium- and high-skill capabilities. Manufacturing remains low-skill intensive, while services continue to dominate medium-skill employment growth.
The report’s simulations show that “increasing the share of skilled workforce by 12 percentage points through investment in formal skilling could lead to more than a 13% increase in employment in labour-intensive sectors by 2030”. Even a more conservative rise — nine percentage points — could generate up to 9.3 million additional jobs by the end of the decade.
The findings also lay bare the weaknesses of India’s vocational education and training (VET) system: under-utilized capacity, outdated curricula, vacant instructor positions, and an entrenched perception of vocational training as a fallback option.
Despite policy efforts, these structural flaws undermine training quality and limit the ability of VET graduates to access formal, well-paying jobs. India spends only 3% of its total education budget on vocational training, far below the 10-13% spent by countries like Germany, Singapore and Canada.
Reforms Roadmap
The NCAER report offers a roadmap for reform. It calls for integrating VET into early schooling as envisioned under the NEP 2020, fast-tracking a national credit framework to allow upward mobility between vocational and academic tracks, improving training quality through stronger industry partnerships, and expanding public-private models that leverage both public infrastructure and private expertise.
On the demand side, it urges a reorientation of production-linked incentives toward labour-intensive industries, along with policy support for sectors such as tourism, health and education that can generate broad-based employment.
Taken together, the report underscores a hard truth: India’s economic ambitions cannot be met without a strategy that places jobs at the centre of growth. That means enhancing the productivity of small enterprises, expanding credit and technology access, reforming vocational education, and targeting high-multiplier industries.
The path to a $7 trillion economy is not merely a question of output; it is a question of whether India can convert growth into meaningful, secure and future-ready employment for its millions.
(Cover photo by Smartworks Coworking on Unsplash)