Job Deficit in India, Challenges and Government Strategies

Explore the rising job deficit in India, its causes, impact on youth employment, economic growth, and possible solutions to address the unemployment crisis.

Table of Contents

Context: Formal jobs shrinking due to AI, automation, & rising capital intensity.

Job Deficit in India: Challenges of Job Creation in the Formal Sector

Technological Progress & Labour Intensity

There is a steady decline in the labour intensity of production due to increasing capital intensity in both manufacturing and services.
AI and automation are likely to accelerate this shift, further reducing demand for low-skilled labour.

Capital Intensity Increasing in a Labour-Abundant Economy

Demand-side Factors: Firms prefer capital-intensive methods to increase productivity and value addition at a lower cost.
Supply-side Factors: A lack of skilled labour makes firms more dependent on machinery.

Key Observations on Sectoral Trends

Services Sector: Increased value addition; higher share in GDP and GVA.
Manufacturing Sector: Stagnant contribution to GDP.
Agriculture: Declining GDP contribution.

Impact of Falling Capital Costs & Skill Shortages

Real wages have remained stagnant, but capital costs (machinery, technology) are declining due to global technological advancements.

Less than 10% of India’s workforce has formal technical or vocational training.
Many educated youth lack employment-ready skills.

Skill-Biased Technological Change

New technology reduces demand for low-skilled workers as firms opt for automated, high-productivity
Upskilling and re-skilling of workers are essential for employment sustainability.

Government Strategies for Job Creation

Production-Linked Incentive (PLI) Scheme

Objective: Expand production capacity and encourage high-value manufacturing.
Budget Allocation:
- Over 50% of PLI funds go to large-scale electronics, IT hardware, and drones.
- However, the highest job creation has been in food processing & pharmaceuticals.
- Mismatch: High budget allocation to capital-intensive sectors, while labour-intensive sectors receive lesser focus.
Constraints in PLI Implementation:
- The lack of skilled workers hinders job creation.
- The majority of India’s workforce has low or medium-level skills.

Employment-Linked Incentive (ELI) Scheme

Objective: Encourage formal sector hiring by subsidizing EPFO contributions for new employees.
Key Features:
- Targets labour-intensive industries.
- Reduces initial hiring costs for firms.
- The government bears some risk of hiring untrained workers.
Challenges in ELI Implementation:
- The subsidy period is short (2-3 years), raising concerns about long-term employment sustainability.
- Lack of data to track interns’ career progression.
- Uncertainty over whether firms will invest in upskilling workers post-subsidy.

Proposed Policy Recommendations

Better Integration of Production & Skilling Strategies

Align PLI and labour skilling policies to ensure job creation matches sectoral needs.
Address both demand- and supply-side factors to drive structural transformation towards high-value manufacturing.

Improving Inter-Ministerial Coordination

Ministries of Industry, Labour, and Skilling should work together to map:

Current and expected future labour supply.
Skill demand across sectors.

Reforming ELI Scheme for Sustainable Job Creation

Shift from flat incentives to graded incentivesHigher transfers for each additional level of skill certification.

Extend ELI to skilling institutions (e.g., ITIs) to improve:
- Employment outcomes.
- Skill quality is linked to future industry demand.
Addressing Labour Regulations: Labour laws increase hiring costs, pushing firms towards capital-intensive
- State governments must adopt flexible labour policies to encourage hiring.

Conclusion

India must simultaneously invest in quantity (job creation) and quality (skilling & upskilling).
A dynamic policy framework is critical to align job market trends with India’s vision for Viksit Bharat (developed India).
Policymakers must ensure a workforce ready for high-value industries as the nation moves up the global production value chain.