A growing economy should not merely create jobs; it should ensure that each job opens the door to a better one.
India’s unemployment rate is only 3.1%. That should not reassure anyone who cares about the quality of India’s growth. In 2025, agriculture still accounted for 43% of employment, while manufacturing accounted for only 12.1%, according to the latest Periodic Labour Force Survey. Regular wage or salaried employment was 23.6%, while 56.2% of workers remained self-employed. Average daily earnings of casual workers rose about 5.4% in 2025, a modest increase in purchasing power that does little to alter the consumption constraints facing low-income households. India is creating work. It is struggling to create enough work that changes a worker’s economic trajectory. India does not have an unemployment problem so much as an upward-mobility problem.
The Wrong number
For decades, the obvious employment question was whether Indians had jobs. But employment is only the beginning of the economic story. A software engineer, factory technician and delivery rider are all employed. Their productivity, earnings potential and ability to accumulate wealth are radically different. India therefore needs a different employment metric: how many workers move from low-productivity activities into higher-productivity, better-paid work each year. A job is not an economic outcome if it cannot make the next job better.
The Productivity gap
India’s transformation is visible in GDP but less so in the distribution of work. Agriculture’s share of employment fell from 44.8% in 2024 to 43% in 2025. Manufacturing rose from 11.6% to 12.1%, while construction accounted for another 12%. The output gap is revealing. In 2023-24, manufacturing generated roughly 14% of India’s GVA, while agriculture, forestry and fishing accounted for about 18%. Manufacturing therefore produces a large share of national output with a much smaller share of workers. That is not an argument against agriculture. It is an argument for productivity. When workers move into more productive factories, logistics companies or formal services, output and wages can rise together, deepening household consumption. India does not need fewer agricultural workers because agriculture matters less; it needs fewer workers trapped in agriculture because their productivity is too low.
The Factory Floor matters
The most successful Asian economies built this transition through industrialisation. South Korea moved workers from agriculture into factories where productivity and wages rose together. China later repeated the process on a vastly larger scale, making manufacturing an engine of exports, productivity and middleclass formation. India took a different route. It developed globally competitive services before creating manufacturing employment at comparable scale. Software platforms and multinational research centres generate high-value jobs, but cannot absorb workers at the scale required by India’s demographic structure. The Annual Survey of Industries puts the gap in perspective: the factory sector employed about 19.5 million people in 2023-24. India did not run out of jobs; it ran short of jobs that make workers more valuable. The objective is not manufacturing instead of services. It is productive employment at scale, wherever it can be created.
Pli’s next challenge
The Production Linked Incentive schemes cover 14 sectors, including electronics, pharmaceuticals, automobiles, textiles and food processing. By March 2026, they had attracted more than Rs2.4 lakh crore of investment, generated over Rs15.2 lakh crore in exports and supported more than 14.15 lakh direct and indirect jobs. These numbers show that industrial policy can influence where capital flows, but also reveal the scale of the challenge. Fourteen lakh jobs matter, yet remain small relative to a workforce exceeding 600 million. PLI must therefore be judged by employment intensity, wage growth, supplier development and worker productivity. Electronics offers the clearest example. India has rapidly expanded mobile phone assembly. The next step is deeper domestic capability in components, engineering, design and supplier networks, where productivity gains can create better-paid employment. Industrial policy should be judged by how many workers it moves up the value chain, not merely by what factories produce.
The scale Trap
The obstacle is not always a shortage of investment. It is often the difficulty of scaling firms that could employ workers productively. Land acquisition remains cumbersome in many states, while labour rules and their implementation vary across states. GST has encouraged formalisation, but compliance can still weigh heavily on small firms. These are not bureaucratic footnotes. They affect productivity. A manufacturer may have orders but lack land, finance, skilled workers or approvals to expand. Firms that cannot scale cannot exploit economies of scale or offer sustained wage progression. The policy objective should be simple: make scaling easier than staying informal.
Services can be a ladder Too
Manufacturing should not become an ideological substitute for services. Global Capability Centres, financial services, engineering, healthcare and logistics can create high-productivity employment. A GCC employing skilled engineers creates well-paid jobs, transfers knowledge and generates demand around it. Yet it cannot directly employ the millions entering India’s labour market. Artificial intelligence makes this urgent. AI may raise output without creating equivalent numbers of middle-income jobs. India cannot assume faster GDP growth will automatically recreate the employment ladder provided by earlier technological transitions. India should therefore track how many workers move into substantially higher-productivity, higher-wage employment each year. That would be a better measure of whether growth is becoming prosperity.
The demographic Test
India therefore needs ecosystems around productive firms: technicians around engineers, suppliers around manufacturers, logistics firms around exporters and skilled service providers around formal businesses. The aim is to spread productivity rather than concentrate it.
The next Job matters
India needs labour-intensive manufacturing in textiles, footwear, food processing, furniture and electronics assembly. It needs apprenticeships tied directly to employers, and productive small firms that can scale, formalise and enter larger supply chains. Most importantly, policy must reward productivity, not employment in isolation. Did productivity rise? Did wages rise? Did workers acquire skills that command higher wages elsewhere? The best jobs policy is not the one that creates the most jobs; it is the one that creates the most upward movement. India’s demographic dividend is often described as a numbers game. It is not. A young population becomes an economic asset only when workers become progressively more productive. Otherwise, demographics simply increase the number of people competing for low productivity work. India has shown that it can create growth, build infrastructure, attract investment and produce sophisticated companies. Its next challenge is to turn those gains into mass upward mobility. The measure that matters is not whether a worker is employed today, but whether that worker is more productive, better paid and more economically secure five years from now. India does not need a job for every worker nearly as much as it needs a better job after every job.
*Prof. Vikas Singh is a Professor at IIM Nagpur and Visiting Faculty at the Indian School of Business (ISB), and writes on business, policy and India’s economic transformation.
