Delivering Mass Prosperity: Formal Jobs and Skill Development in India

Many Indians feel a surge of emotion when hearing Pandit Jawaharlal Nehru’s famous ‘Tryst with Destiny’ speech, but there’s a consensus that India missed its economic tryst with destiny. Even 77 years after independence, poverty in India affects 300 million people. They lack access to opportunities, with some delivering newspapers they’ll never read, cleaning cars they can’t afford, or helping build schools their children won’t attend. There is a wide gap in delivering economic independence which is the measure of true freedom. While independence liberated India from British rule, freedom lies in giving individuals the power to make life-changing choices. For those who are unemployed or unskilled, this freedom remains out of reach.

Why India still struggles with poverty

The reasons behind India’s poverty are complex. The old explanation of the ‘Hindu rate of growth’ proved inadequate after economic reforms in 1991, which saw India’s growth rate soar from 2% to 7%. Clearly, India’s economic challenges are not cultural but structural. The solution lies in fostering job creation, entrepreneurship, and skill development. Unfortunately, the reforms of 1991 focused mainly on financial markets, neglecting critical areas like land, labour, and capital.

India’s entrepreneurship landscape seems promising at first glance. Half the workforce is self-employed, and the official unemployment rate is 4.2%. However, most Indian enterprises are ‘dwarfs’—small businesses that stay small—rather than ‘babies’ that grow into larger, more productive enterprises. Small businesses in India make up 80% of manufacturing but employ fewer than 50 workers. As a result, productivity levels are low, with a 22-fold difference between the top and bottom firms. The majority of workers in these small businesses are classified as the working poor, earning just enough to survive but not enough to break free from poverty.

The real problem: Lack of formal jobs

India’s problem is not the lack of jobs but the scarcity of formal jobs that offer sustainable wages and opportunities for growth. Most jobs are in the informal sector, where wages are low and benefits are scarce. Nearly 40% of India’s workforce falls into the category of working poverty. Sardar Vallabhbhai Patel once said, “The best time to plant a tree was 30 years ago. The second-best time is today.” For India, this means reforming its job market to enhance workforce productivity and improve skill development.

Entrepreneurship skill development in India: Overcoming barriers

India has 63 million enterprises, but only a fraction are formal. Out of these, only 7 million have tax registrations, and a mere 1.2 million contribute to employer pension plans. The lack of formal structures stifles enterprise growth. Most Indian businesses remain small, contributing to the high level of informal employment.

Several challenges hamper the growth of entrepreneurship in India, including difficulties in land acquisition, rigid labour laws, and underdeveloped capital markets. India’s urbanization is far behind where it should be for a country of its size. India has only 45 cities with populations over 1 million, compared to China’s 375. This disparity in urban infrastructure leads to inequality, especially in job hubs where wages fail to reflect the rising cost of living.

The role of capital markets and Labor law reform

India’s capital markets are not deep or liquid enough to support entrepreneurship. Regulatory hurdles, unpredictable tax regimes, and insufficient venture capital funding are just a few of the barriers. Labour law reform is another pressing issue. Over the last 25 years, all net job creation in India has occurred in the informal sector. Flexible labour regulations are essential to foster formal employment and improve job quality.

The skills mismatch: India’s workforce crisis

India faces a significant skills gap. While school enrollment has improved, the quality of education remains poor. Many students are not acquiring the skills needed for today’s workforce. In this new era, class 10 education is the new class 8—what was once considered basic knowledge is now insufficient.

The labour market is also plagued by a mismatch between what employers need and the skills candidates possess. Employers are willing to pay a premium for skilled candidates but are unwilling to invest in skills training. Meanwhile, candidates are more interested in paying for jobs than acquiring skills, leading to a failure in skill development financing. Without access to skills training, many Indians remain trapped in low-wage jobs, unable to improve their circumstances.

Key policy reforms for India’s job market

The Indian government has taken steps to address these challenges through initiatives like GST, Make in India, Digital India, and labour law reforms. However, decentralization remains crucial. States must be empowered to adapt policies to local conditions. Two specific reforms could significantly improve India’s business environment: First, replacing the 17 different registration numbers enterprises currently need with a single Aadhaar number; second, implementing a single electronic interface for all government permissions and registrations.

Improving India’s skill development framework

India’s skill development ecosystem needs a comprehensive overhaul. The government must consolidate the mandates of the National Skill Development Corporation (NSDC), the National Skill Development Agency, and other relevant bodies. Apprenticeships should be expanded. If India had the same proportion of apprentices as Germany, the country would have 15 million apprentices, providing much-needed hands-on experience to the workforce.

The Pradhan Mantri Kaushal Vikas Yojana (PMKVY) is a promising initiative, especially with its focus on recognizing prior learning. The proposed National Skill Development University would further bridge the gap between formal education and skill training, ensuring that students are prepared for the modern job market.

Conclusion: From economic independence to individual freedom

India has made progress in nation-building and social justice, but poverty reduction remains a significant challenge. The solution lies in creating opportunities through education, employment, and employability. The government’s role is to create the conditions for spontaneous growth, allowing entrepreneurs and skilled workers to thrive.

With millions of young Indians entering the workforce every year, India is well-positioned to complete its journey from national independence to individual freedom. The country’s future depends on addressing its structural challenges in job creation, entrepreneurship, and skill development.

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