India faces rising job gap despite economic growth

Source: The post India faces rising job gap despite economic growth has been created, based on the article “In India, labour needs as much focus as capital” published in “Indian Express” on 1st April 2025. India faces rising job gap despite economic growth.

UPSC Syllabus Topic: GS Paper3-Economy-employment

Context: India’s working-age population rose by 9 crore since 2017-18, but formal jobs increased only by 6 crore, creating an annual deficit of 50 lakh jobs. This growing mismatch, along with rapid technological advancements and rising capital-intensive production, has triggered discussions on employment challenges and workforce skilling.

Current Employment Situation in India

1. Rapid Population Growth vs. Job Creation: Since 2017-18, India’s working-age population has grown by about 9 crore, while formal sector jobs have increased by only 6 crore. This results in a job deficit of nearly 50 lakh annually.
2. Sectoral Shifts: Most of the recent employment growth is in self-employment in rural areas and informal services, not in the formal sector.
3. Capital Intensity Increase: Technological change has made even traditionally labour-heavy sectors more capital-intensive, reducing formal job opportunities.
4. Skill Mismatch: Less than 10% of the labour force has formal technical or vocational training, leading to poor alignment with the skill demands of modern technologies.

Reasons for More Capital-Intensive Production

1. Technological Advancements: Falling global prices of capital and machine-based technology make them more affordable than labour.
2. Cost Efficiency: Capital-intensive methods offer higher productivity at lower operational costs, making them attractive even without major productivity gains.
3. Decline in Labour-Intensive Production: There is a steady fall in labour-intensity across sectors, including those traditionally dependent on manual work.
4. Service Sector Growth: Value addition is highest in services, pushing the sector towards more capital-intensive operations.

Current Government Initiatives Addressing Job Creation

1. Production Linked Incentive (PLI) Scheme: Aims to expand high-value production, especially in electronics, IT hardware, and drones, which require highly skilled labour. Yet, the highest job creation has occurred in food processing and pharmaceuticals, showing a mismatch between funding and employment potential.
2. Employment Linked Incentive (ELI) Scheme: Encourages formal job creation through EPFO-based cash transfers and promotes initial skilling via internships. However, its long-term impact on sustainable employment and skilling remains uncertain.

State Governments’ Role in Job Creation

1. States are responsible for adopting flexible labour policies.
2. Such policies help lower the artificially high cost of labour.
3. This shift is essential for building Viksit Bharat, focusing on high-value manufacturing and a future-ready workforce.

Way Forward

1. Link production expansion with labour skilling for a balanced job market.
2. This dual approach addresses both demand and supply-side challenges.
3. Modify ELI to offer graded incentives based on certified skills and enhance on-the-job training.
4. Improve the performance of ITIs based on employment outcomes.
5. Labour law reforms can help reduce excessive labour costs and promote labour-intensive growth.

Question for practice:

Examine the factors contributing to the growing mismatch between job creation and the working-age population in India, and suggest measures to address this challenge.