Aligning Growth with Jobs for a Sustainable Future
India’s economic story is one of impressive growth, yet a widening jobs gap poses a critical challenge. While the nation enjoys a demographic dividend and robust GDP growth, the pressing question is whether this expansion can generate sufficient, productive, and sustainable employment for its growing workforce. A recent Morgan Stanley report underscores the urgency of the issue. It estimates that India will need 7.4% GDP growth just to stabilise unemployment, 9.3% growth to accommodate higher labour participation, and a staggering 12.2% growth to meaningfully reduce underemployment. This raises the central question: Can India bridge the gap between growth and jobs? The answer depends on how effectively it can reorient its economic model—towards manufacturing, exports, and inclusive growth—while executing reforms at scale.
The Scale of the Challenge: Growth Without Jobs?
India’s workforce is expanding rapidly. As more young people enter the labour market and as women’s participation gradually rises, the economy must create millions of jobs annually just to maintain equilibrium. Yet the bulk of employment remains concentrated in low-productivity agriculture and informal work, often unable to generate adequate incomes.
This is where the warning signs of jobless growth become stark. Several economists argue that India risks a growth trajectory skewed toward capital-intensive sectors or high-end services, which, while boosting GDP, generate relatively few jobs. Official statistics show unemployment rates easing, but independent economists suggest that the true jobless rate may be nearly double the reported figure once underemployment and disguised employment are considered.
Much of the recent rise in jobs has come from self-employment or unpaid family work, not formal wage-based roles. This signals a structural weakness: growth is not translating into stable, productive jobs that can support a broad-based middle class.
Morgan Stanley’s projections underscore the scale of the challenge. Stabilising unemployment will require GDP growth of 7.4%, while higher participation rates could push the requirement to 9.3%. To meaningfully reduce underemployment, the economy would need to sustain a staggering 12.2% growth rate. In other words, incremental improvements will not suffice; shifting millions into more productive, higher-value roles demands economic expansion at an unprecedented scale
Manufacturing and Exports: The Engine for Jobs
Manufacturing and exports together hold the key to bridging India’s jobs gap, offering a clear path to absorb the expanding workforce. Manufacturing, in particular, generates a high employment multiplier effect—every factory job stimulates demand in logistics, transport, warehousing, and ancillary services. According to Bain & Company, sectors such as industrial machinery, electronics, and pharmaceuticals could grow at double-digit CAGRs, creating millions of direct and indirect jobs. The electronics sector alone, projected to expand to $604 billion by 2032, illustrates the scale of opportunity, especially if growth is anchored in strong domestic supply chains that can absorb a significant portion of India’s semi-skilled and skilled labour.
Yet India’s manufacturing share in GDP remains stagnant at around 17%, showing limited progress despite decades of policy focus. Persistent barriers—complex labour laws, land acquisition hurdles, high logistics costs, and uneven state-level policies—continue to blunt competitiveness and restrict the sector’s employment potential.
Exports are equally critical. Unlike domestic demand, which is constrained by income disparities, global markets offer virtually unlimited scale. India’s services exports, particularly IT and business services, have proven resilient, contributing significantly to foreign exchange reserves. However, to generate mass employment, manufacturing exports must accelerate. India’s share in global manufacturing exports remains modest compared with peers like Vietnam and China. To compete effectively, the country must reduce cost disadvantages, streamline trade logistics, and align with ESG and net-zero standards increasingly demanded by global buyers. Decarbonising industrial processes not only strengthens export competitiveness but also shields India from potential carbon border penalties, ensuring manufacturing growth translates into sustained, high-quality job creation.
Government’s Growth Agenda
The Indian government recognises the urgency of addressing employment challenges and has increasingly focused on manufacturing and exports as engines of job creation. Initiatives such as Make in India and Production-Linked Incentive (PLI) schemes aim to boost domestic production, attract investment, and expand high-value, employment-intensive industries. Complementing this, export promotion policies, infrastructure development, and incentives for manufacturing in Tier-2 and Tier-3 cities are designed to ensure that economic growth translates into meaningful jobs, regional development, and greater social inclusion. Finance Ministry officials argue that India is well-positioned to achieve 6–6.5% growth in the medium term, buoyed by resilient consumption and rising exports. However, as Morgan Stanley’s numbers show, this may not be enough to meaningfully cut underemployment.
- Production-Linked Incentives (PLI): Designed to boost domestic manufacturing in sectors such as electronics, pharmaceuticals, and semiconductors.
- Export ambitions: India aims to double its share of global trade to 4.5% by 2031.
- Capital spending: Public investment in infrastructure, from highways to digital corridors, has been scaled up to crowd in private investment.
- Electronics push: A new ₹229 billion scheme for electronics components alone is projected to generate nearly 92,000 direct jobs.
- Regional development: Incentives for setting up industries in Tier-2 and Tier-3 cities are intended to spread growth more evenly across the country.
Key Reforms to Align Growth with Jobs
Bridging India’s jobs gap requires targeted structural reforms to make growth employment-rich and inclusive:
- Labor-Intensive Manufacturing: Prioritise sectors like textiles, footwear, and food processing alongside electronics and pharmaceuticals to ensure employment intensity. India’s vast labour force can be effectively engaged, reducing reliance on automation and AI for job creation.
- Supply Chain Integration: Build stronger domestic linkages so that growth in exports translates into more local value addition and jobs. Strengthening local supply chains can create a resilient economy and expand opportunities across sectors.
- Skills and Education: Expand vocational training, industry partnerships, and reskilling programs for emerging industries like green energy and AI-driven manufacturing. As of July 2024, over 746,000 apprentices were training under the National Apprenticeship Promotion Scheme (NAPS) with more than 47,000 establishments engaged—far short of industry needs. Scaling apprenticeships and degree-apprenticeships is critical to close the skill gap.
- Infrastructure and Ease of Doing Business: Reduce logistics costs, simplify land and labor regulations, and ensure predictable policies for investors. Recent reforms—including deregulation, decriminalisation, and digitisation—aim to attract investment and foster job creation.
- Data Transparency: Improve labour force surveys and underemployment metrics to enable evidence-based policymaking. Enhanced data collection helps identify skill gaps, employment trends, and policy priorities.
- Empowering the Services Sector: Transition services from being mere providers to creators of products and intellectual property (IP). Encouraging R&D, supporting startups, and fostering innovation can help India develop proprietary solutions, diversify the economy, and generate new employment opportunities.
Is 12% Growth Feasible?
Sustaining 12% growth in a large economy is a tall order. Few countries in modern history have achieved it for more than brief periods. Critics argue that India’s institutional capacity, infrastructure, and capital accumulation may not support such a trajectory.
Optimists, however, believe India can “leapfrog” through digitalisation, supply-chain realignments, and green energy transitions. Coupled with structural reforms, India could realistically sustain 8–9% growth, which, while short of Morgan Stanley’s upper threshold, could still significantly improve employment outcomes.
The Morgan Stanley report delivers a clear message: moderate growth alone will not solve India’s jobs problem. To absorb its expanding workforce and reduce underemployment, India must pursue a bold strategy of manufacturing-led, export-driven, and inclusive growth.
The government’s policies are directionally aligned, but execution must improve, with sharper focus on labour-intensive industries, domestic supply chains, and employment-rich reforms. India’s demographic dividend will not last forever. The next decade is crucial. If India can bridge the gap between growth and jobs, it will not only secure prosperity for its citizens but also cement its role as a global economic powerhouse. If it fails, the risk of a jobless growth trajectory looms large.
