India’s Consumption-Led Growth May Falter Without Jobs—Is It Time to Rethink the Economic Playbook?
Over the past two decades, India has steadily climbed the global economic ladder on the back of rising incomes and the aspirations of a youthful population. Analysts once believed this momentum could soon make India the world’s third-largest economy by consumption, leapfrogging Germany and Japan. Yet beneath this headline-grabbing potential lies a sobering challenge: without meaningful job creation and rising real incomes, this consumption story may not sustain itself.
According to UBS Securities, India is on the verge of becoming the third-largest consumer economy. But even as this optimism permeates boardrooms and forecasts, a different reality is playing out on the ground—one marked by stubbornly high youth unemployment and limited wage growth. This dual threat is already showing signs of dragging down consumer sentiment and spending, particularly among young Indians who should be the torchbearers of this economic surge.
The Youth Engine Is Stalling
India’s greatest asset—its young population—is in danger of becoming its biggest liability. Nearly 53% of the country’s population will be between 15 and 49 years old by 2030, a demographic sweet spot that few other nations can match. However, high unemployment and underemployment are crippling this potential. A booming population without jobs doesn’t ignite consumption—it suppresses it.
In the short term, the government has attempted to jumpstart spending through income tax cuts for the middle class in the FY26 Union Budget. While this may offer some relief, the bigger issue remains unaddressed: Where are the jobs that can consistently lift incomes, confidence, and spending power?
Consumption Without Earning Power Is Unsustainable
The fast-moving consumer goods (FMCG) sector—often considered the bellwether of consumer sentiment—has shown signs of stress. Urban consumption growth, which stood at 7.5% YoY in late 2023, slumped to 1.9% in mid-2024 before recovering slightly. Smartphone sales, another consumer proxy, grew by a mere 4.1% in 2024 and shrank during the festive quarter—a season typically buoyed by heightened spending.
These are not isolated incidents. They reflect a broader malaise: stagnant or falling real incomes, rising inflation, and a lack of confidence in long-term economic stability. If people aren’t earning more, they simply won’t spend more—no matter how promising the demographic story may look on paper.
Are We Over-Relying on Consumption?
This raises a crucial question: Is it wise for India to pin its economic hopes on a consumption-led model? While consumer spending is a vital pillar of any economy, it cannot be the foundation alone—especially if it is not supported by productive, high-quality employment.
In contrast to India’s consumption-first trajectory, countries like China and South Korea rose through manufacturing-led growth. High-paying, export-driven job creation in factories and industrial clusters lifted millions out of poverty, created a skilled workforce, and gave rise to a prosperous middle class. This, in turn, drove consumption—but on the back of wealth creation, not credit or tax rebates.
Manufacturing: The Missing Link in India’s Growth Story
India has flirted with the idea of becoming a global manufacturing hub, but it has yet to deliver at scale. Challenges range from outdated infrastructure and excessive regulations to a shortage of skilled labor and inconsistent policy implementation. As Madhavi Arora, Chief Economist at Emkay Global, notes, there’s a glaring mismatch between the skills employers need and those job seekers possess.
This skill gap doesn’t just hinder employment—it actively undermines economic growth. If India fails to address this disconnect, it will not only dampen domestic consumption but also miss the chance to tap into global manufacturing supply chains looking to diversify away from China.
The Way Forward: Building, Not Just Buying
If India wants to secure long-term prosperity, it must reimagine its growth model. The goal shouldn’t be to just become the world’s shopping cart, but its factory floor too. That means investing aggressively in vocational training, modernising infrastructure, and creating an ecosystem that fosters innovation, productivity, and high-quality employment.
Strategic manufacturing in electronics, EVs, green energy, textiles, and pharmaceuticals can become engines of job creation and economic resilience. Jobs in these sectors would provide the kind of steady, rising incomes that can power sustainable consumption—and unlike tax cuts, they don’t come with an expiration date.
Time to Shift Gears
India’s demographic dividend is a finite window of opportunity. Relying solely on consumption-led growth, especially in a country where income disparities and joblessness persist, is a fragile bet. For India to truly rise as the third-largest economy, it needs to anchor its ambitions in building—not just buying. Manufacturing-led growth offers the best shot at creating high-paying jobs, enhancing exports, and unlocking real prosperity.
The question is: Will India seize that opportunity, or let it slip away?
