From Growth to Jobs: Addressing India’s Employment Paradox

Image Source: Financial Times

Introduction

India’s economic growth has often been celebrated, yet a paradox persists — expansion does not always translate into employment. Despite strong GDP growth, unemployment and underemployment remain significant challenges, particularly among youth, women, low-skilled workers, and the informal sector. This phenomenon, known as jobless growth, highlights the gap between economic expansion and the generation of meaningful employment opportunities.

To support employment generation, the government launched the Employment Linked Incentive (ELI) Scheme on July 1, 2025, with an outlay of ₹99,446 crore. The scheme provides fiscal incentives to employers, particularly in the manufacturing sector, to encourage the creation of new jobs.

Jobless growth is evident across rural areas and smaller towns, where industrial activity is limited, as well as in urban centres, where high-skill jobs are concentrated in sectors such as IT and finance. Addressing this issue requires strategies that link economic growth with employment generation, focusing on skill development and opportunities across both formal and informal sectors.

About the Employment Linked Incentive (ELI) Scheme

Launch Date: July 1, 2025
Total Outlay: ₹99,446 crore
Objective: Support employment generation, enhance employability, and extend social security across all sectors, with special focus on the manufacturing sector.
Job Creation Target: Over 3.5 crore jobs in two years, of which 1.92 crore will be first-time employees.
Eligible Period for Jobs: August 1, 2025 – July 31, 2027

Scheme Structure:

Part A: Incentive to First-Time Employees

Targets employees registering for the first time with EPFO.
Benefit: One-month EPF wage up to ₹15,000, paid in two installments.
- 1st installment: After 6 months of service
- 2nd installment: After 12 months of service and completion of a financial literacy program.
Employees with salaries up to ₹1 lakh are eligible.
Portion of the incentive is kept in a savings instrument to encourage financial literacy and habit of saving.
Expected to benefit approximately 1.92 crore first-time employees.

Part B: Support to Employers

Covers generation of additional employment across all sectors, with special focus on manufacturing.
Employers receive incentives based on employee salaries (up to ₹1 lakh):
- EPF wage up to ₹10,000 → Incentive up to ₹1,000/month
- EPF wage ₹10,001–20,000 → Incentive ₹2,000/month
- EPF wage ₹20,001–1,00,000 → Incentive ₹3,000/month
Incentives paid for two years per additional employee; extended to 3rd and 4th years for manufacturing sector.
Eligibility: Employers must hire minimum 2 additional employees (for <50 employees) or 5 additional employees (for ≥50 employees) for at least 6 months.
Expected to incentivize creation of 2.60 crore additional jobs.

Payment Mechanism:

Part A: Direct Benefit Transfer (DBT) via Aadhar Bridge Payment System (ABPS).
Part B: Paid directly to employers’ PAN-linked accounts.

Key Outcomes:

Encourage first-time workforce entry.
Promote job creation across sectors, especially manufacturing.
Contribute to formalization of the workforce and extend social security coverage for millions of young workers.

Data and Trends

1. Employment Trends by Social Group (2022–2023)

Scheduled Castes (SCs):
- LFPR: 51.6%
- WPR: 50.7%
- UR: 1.8%
Scheduled Tribes (STs):
- LFPR: 43.2%
- WPR: 41.8%
- UR: 3.2%
Other Backward Classes (OBCs):
- LFPR: 42.9%
- WPR: 41.5%
- UR: 3.3%

These figures indicate a steady increase in employment participation among SCs, STs, and OBCs, with a corresponding decrease in unemployment rates over recent years.

2. Labour Force Participation Rate (LFPR) – June 2025

Rural Areas (15 years and above):

Male: 78.1%
Female: 35.2%
Overall: 56.1%

Urban Areas (15 years and above):

Male: 75.0%
Female: 25.2%
Overall: 50.4%

All India (15 years and above):

Male: 77.1%
Female: 32.0%
Overall: 54.2%

Youth (15–29 years):

Rural: Male 62.0%, Female 20.5%, Overall 41.1%
Urban: Male 58.9%, Female 20.6%, Overall 40.8%

3. Worker Population Ratio (WPR) – June 2025

Rural Areas (15 years and above):

Male: 74.1%
Female: 33.6%
Overall: 53.3%

Urban Areas (15 years and above):

Male: 70.2%
Female: 22.9%
Overall: 46.8%

All India (15 years and above):

Male: 72.8%
Female: 30.2%
Overall: 51.2%

Youth (15–29 years):

Rural: Male 53.5%, Female 17.7%, Overall 35.5%
Urban: Male 49.1%, Female 15.3%, Overall 33.1%

4. Unemployment Rate (UR) – June 2025

Rural Areas (15 years and above):

Male: 5.1%
Female: 4.4%
Overall: 4.9%

Urban Areas (15 years and above):

Male: 6.4%
Female: 9.1%
Overall: 7.1%

All India (15 years and above):

Male: 5.6%
Female: 5.6%
Overall: 5.6%

Youth (15–29 years):

Rural: Male 13.8%, Female 13.7%, Overall 13.8%
Urban: Male 16.6%, Female 25.8%, Overall 18.8%

Key Observations:

Gender Disparity: Female LFPR and WPR are significantly lower than males, especially in rural areas. Urban female unemployment (9.1%) is higher than rural (4.4%).
Youth Unemployment: Highest among urban females (25.8%) and urban males (16.6%).
Rural vs. Urban: LFPR and WPR are higher in rural areas, but unemployment is higher in urban areas.
Monthly Trends (April–June 2025): Slight decline in LFPR and WPR due to seasonal factors like reduced agricultural activity and extreme heat.

5. Structural Employment Challenges

Only 8.25% of graduates work in roles matching their qualifications.
Over 53% of graduates and 36% of postgraduates are underemployed in semi-skilled or elementary occupations.
Wage disparities are stark: Only 4.2% of graduates earn ₹4–8 lakh per annum, while nearly 46% earn less than ₹1 lakh in low-skill jobs.
Less than 5% of youth (15–29 years) have received formal vocational training.

These figures highlight structural inefficiencies in the education-to-employment pipeline and the limited impact of employer-centric incentives in generating meaningful jobs.

Types of Unemployment

India’s labour market experiences multiple forms of unemployment, reflecting structural, cyclical, and skill-based issues. The main types include:

1. Structural Unemployment

Arises from mismatches between skills and job requirements.
Example: Graduates in science or arts employed in low-skill or semi-skilled jobs.
Influenced by rapid technological changes, industrial automation, and regional disparities.

2. Cyclical (or Demand-Deficient) Unemployment

Occurs due to slumps in overall economic activity or weak demand in certain sectors.
Often temporary, linked to economic slowdowns, recessions, or seasonal fluctuations in agriculture.

3. Frictional Unemployment

Short-term unemployment due to job transitions, such as new entrants searching for work or workers relocating.
Common among youth entering the workforce and urban job seekers.

4. Seasonal Unemployment

Arises from seasonal variations in demand, particularly in agriculture, tourism, and construction.
Rural agricultural workers often face unemployment during off-seasons.

5. Disguised (Hidden) Unemployment

Occurs when more people are employed than needed, often in agriculture or informal sectors.
Workers appear employed but productivity per worker is very low.

6. Educated Unemployment

High incidence among graduates and postgraduates due to inadequate job opportunities matching their qualifications.
Reflects skill-job mismatch and limited formal sector employment.

7. Youth Unemployment

Predominantly affects 15–29 years age group, with higher rates among urban females.
Caused by lack of skill development, vocational training, and suitable job opportunities.

8. Underemployment

Workers are employed in jobs below their skill level or capacity.
Common among graduates and postgraduates forced to work in semi-skilled or elementary occupations.
Leads to low income, reduced productivity, and inefficient utilization of human capital.

Understanding these types of unemployment is critical to designing targeted employment policies and skill development programs to address the challenges of jobless growth in India.

Causes of Unemployment

India’s unemployment and underemployment are driven by multiple structural, social, and economic factors, contributing to jobless growth. Key causes include:

1. Skill Mismatch

Gap between education output and labour market needs.
Only 8.25% of graduates work in roles matching their qualifications.
Over 53% of graduates and 36% of postgraduates are underemployed in semi-skilled or elementary jobs.
Less than 5% of youth (15–29 years) have received formal vocational training.

2. Slow Growth of Formal Sector Jobs & Capital-Labour Asymmetry

Formal sector employment has not kept pace with labour force growth.
Labour-saving technologies and capital-intensive processes reduce job opportunities.
Many youth and women are absorbed in low-wage informal work with minimal job security.

3. Structural and Sectoral Issues

Heavy reliance on agriculture and low-skill services, which have limited employment elasticity.
Declining share of manufacturing in total employment, despite policy focus on this sector.

4. Education System Inefficiencies

Lack of job-oriented curricula and vocational training programs.
Insufficient focus on practical skills, apprenticeships, and industry linkages.

5. Gender Disparities

Female LFPR and WPR are significantly lower than males, especially in rural areas.
Cultural and social norms restrict women’s access to formal employment.

6. Regional Imbalances

Job opportunities concentrated in urban centres, leading to rural unemployment and migration pressures.
Some states/regions face chronic underemployment and disguised unemployment in agriculture.

7. Economic, Seasonal, and Demographic Factors

Cyclical slowdowns, natural disasters, and reduced agricultural activity lead to temporary unemployment.
Seasonal factors disproportionately affect rural and informal workers.
Rapid population growth and a large youth cohort increase competition for available jobs.

These combined factors result in underemployment, inefficient utilization of skills, and persistent jobless growth in India’s labour market.

Types of Employers in India

India’s workforce is employed across diverse sectors, with employers broadly classified based on formality, size, and nature of operations. Understanding these categories helps in analyzing employment trends and policy impacts.

1. Formal Sector Employers

Definition: Registered entities that comply with labour laws, provide social security, and offer formal contracts.
Sectors:
- Manufacturing: Large industrial units, factories, and export-oriented businesses.
- Services: IT, banking, insurance, consultancy, and healthcare firms.
- Government & Public Sector: Central and state government departments, PSUs, and educational institutions.
Characteristics: Regular wages, statutory benefits like EPF/ESI, job security, and structured career paths.

2. Informal Sector Employers

Definition: Unregistered businesses or self-employed units with minimal compliance to labour laws.
Sectors:
- Agriculture: Smallholder farms, seasonal agricultural work, and allied activities.
- Construction & Real Estate: Small contractors and casual labourers.
- Retail & Street Vendors: Local shops, markets, and home-based enterprises.
- Services: Domestic workers, drivers, repair services, and casual workers in hospitality.
Characteristics: Low wages, lack of social security, temporary or casual employment, and limited worker rights.

3. Micro, Small, and Medium Enterprises (MSMEs)

Definition: Small-scale registered or unregistered businesses operating in local or regional markets.
Sectors:
- Manufacturing: Cottage industries, small-scale units, handicrafts, and textiles.
- Services: Local logistics, small IT firms, repair shops, and tourism services.
Characteristics: Moderate compliance with labour laws, limited formal benefits, and significant employment contribution in semi-urban and rural areas.

4. Large Enterprises / Corporates

Definition: Big private or multinational companies with structured HR systems.
Sectors:
- IT & ITES: Software, BPOs, tech services, and global delivery centers.
- Manufacturing & Industrial: Automobiles, electronics, heavy machinery, and chemical industries.
- Financial Services: Banks, insurance companies, and investment firms.
Characteristics: High productivity, formal contracts, performance-linked wages, and skill-intensive employment.

5. Self-Employed / Entrepreneurs

Definition: Individuals running their own business or freelance services.
Sectors:
- Agriculture & Allied: Farmers, horticulture, fisheries, and livestock.
- Services & Trade: Small shops, food stalls, freelance professionals, and local service providers.
Characteristics: Flexible employment, income varies with market demand, and limited formal social security.

Understanding the types of employers and sectoral distribution is crucial for designing employment policies, skilling programs, and incentive schemes like the ELI that target both formal and informal workforce segments.

Government Efforts on Job Creation

The Government of India has implemented multiple initiatives across sectors to generate employment, support entrepreneurship, and enhance skill development. These efforts can be broadly categorized as follows:

1. Employment Generation Schemes

Production Linked Incentive (PLI) Scheme: Promotes manufacturing and boosts jobs in industrial sectors.
Prime Minister’s Employment Generation Programme (PMEGP): Supports self-employment and MSMEs.
Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS): Provides wage employment in rural areas.
Pt. Deen Dayal Upadhyaya Grameen Kaushalya Yojana (DDU-GKY): Skill development program for rural youth.
Deendayal Antodaya Yojana (DAY-NRLM & DAY-NULM): Livelihood missions for rural and urban poor.
PM Street Vendor’s AtmaNirbhar Nidhi (PM-SVANidhi): Provides loans to street vendors.
Pradhan Mantri MUDRA Yojana (PMMY): Offers loans to small businesses for income generation.

2. Entrepreneurship & Startups

Make in India: Encourages manufacturing and FDI-linked job creation.
Start-up India & Stand-up India: Promotes entrepreneurship among youth and women.
Digital India: Creates tech-driven employment opportunities and digital skill development.

3. Infrastructure-Linked Jobs

Mega investments in roads, railways, airports, ports, and waterways generate employment in construction, logistics, and allied sectors.

4. Skilling & Career Support

National Career Service (NCS) Portal: Provides job matching, career counseling, and online skill courses.
Union Budget 2024-25: Launched “PM’s Package” for 4.1 crore youth over 5 years with a ₹2 lakh crore outlay.
Union Budget 2025-26: Focus on tourism, manufacturing, fisheries, and skill development to generate sustainable employment.

5. Public Sector Recruitment

Rozgar Melas: Mission-mode recruitment to fill vacant posts in:
- Central Ministries and Departments
- CPSUs, autonomous bodies, educational and health institutions
Impact: 14 melas conducted across 45–50 cities, issuing several lakh appointment letters.

These government initiatives aim to provide a multi-pronged approach to employment creation, combining wage employment, entrepreneurship, skill development, and formal sector recruitment.

Challenges

India’s labour market faces multiple structural, social, and economic challenges that limit the translation of economic growth into meaningful employment:

1. Jobless Growth & Economic Mismatch

GDP growth does not automatically translate into employment: India’s economy is expanding (~6–7% in 2025), but formal job creation lags.
Manufacturing contributes 14–16% to GDP but employs only ~12% of workers, reflecting low labour absorption.
Automation and AI disruption in traditional sectors such as textiles and banking reduce human labor demand.

2. Informalization & Low-Quality Work

Around 83–90% of jobs are informal, with no social security, low wages, and unstable contracts.
Rising self-employment (street vendors, gig workers) often reflects economic distress rather than entrepreneurship.
Policy focus on formal sector employers excludes informal workers from major incentives.

3. Skill Mismatch & Youth Unemployment

Large gaps exist between education/training and industry requirements.
Majority of graduates and postgraduates are employed in low-skill jobs or remain underemployed.
Less than 5% of youth (15–29 years) have received formal vocational training; only 5% of graduates are employable in high-tech roles.
Urban youth unemployment stands at 18.8%, with educated women facing higher rates (~25.8%).

4. Sectoral Imbalances

Agriculture employs 45% of the workforce but contributes only 18% to GDP, reflecting low productivity and disguised unemployment.
Manufacturing stagnation: Policies like “Make in India” have not scaled labour-intensive sectors (e.g., apparel, electronics).
Services-led growth: Dominated by low-paying gig jobs (delivery, drivers) rather than high-skilled employment.
Employment elasticity in manufacturing is declining due to automation and capital-intensive processes.

5. Gender Disparity

Female labour force participation (LFPR) and worker population ratio (WPR) are significantly lower than males.
Urban female unemployment is higher than rural, reflecting cultural, social, and safety barriers.
Female LFPR remains low (~32%) due to cultural norms and lack of safe workplaces.

6. Regional Imbalances

Job opportunities are concentrated in urban centres, causing rural unemployment and migration pressures.
Some states/regions face chronic underemployment, particularly in agriculture and informal sectors.

7. Wage Inequality & Low Bargaining Power

Large differences exist in wages between skilled vs low-skilled workers and formal vs informal employment.
Workers have limited bargaining power, while benefits often accrue to capital-intensive firms.

8. Disguised and Underemployment

Many workers appear employed but contribute little to productivity, especially in agriculture and informal services.
Risk of disguised unemployment through relabeling jobs as “new employment” may distort statistics.

9. Policy & Implementation Gaps

Skilling schemes (DDU-GKY, NCS) suffer from low industry linkages, leaving trained workers without job guarantees.
PLI schemes favor capital-intensive industries over sectors that generate mass employment.
Delayed Rozgar Melas and slow public sector recruitment result in unfilled government vacancies (e.g., 2.8 lakh posts pending in railways, 2025).

10. Demographic Pressure & Limited Long-Term Employment

Approximately 12 million youth enter the workforce annually, but only ~1.2 million formal jobs are created each year.
Employment generation programs often emphasize short-term headcount growth rather than sustainable opportunities.
Inadequate vocational training centers and industry linkages leave youth unprepared for industry demands.

These challenges collectively contribute to India’s jobless growth, underemployment, and structural inefficiencies in the labour market.

Way Forward

Addressing India’s jobless growth and labour market challenges requires a multi-pronged approach targeting skill development, inclusive employment, and sectoral reforms:

1. Strengthening Skill Development & Education

Focus on skill development and education reforms to enhance employability.
Expand vocational and technical training aligned with industry needs.
Introduce apprenticeship and on-the-job training programs to improve practical skills.
Encourage public-private partnerships for skilling initiatives to ensure direct employment outcomes.

2. Formalization of Workforce & Inclusive Policies

Promote inclusive policies for informal workers, including social security and formalisation incentives.
Extend labour rights and wage protections to enhance bargaining power for workers.
Design policy incentives that target both formal and informal sectors to reduce exclusion.

3. Sectoral Diversification & Equitable Incentives

Emphasize equitable sectoral incentives, including services, agriculture, and rural employment, not just manufacturing.
Encourage labour-intensive manufacturing sectors such as apparel, electronics, and food processing.
Support high-value service sectors like IT, healthcare, and tourism while ensuring decent employment.
Develop agriculture-linked and rural enterprises to absorb rural youth and reduce urban migration.

4. Gender Inclusion & Safe Workplaces

Implement programs to increase female labour force participation through safe, flexible, and formal employment opportunities.
Provide childcare facilities, transportation safety, and skill training specifically targeting women.
Promote awareness campaigns to overcome cultural barriers to women’s employment.

5. Improving Public Employment Programs & Governance

Strengthen schemes like Rozgar Melas, PMEGP, MGNREGS with better monitoring and faster delivery.
Shift from short-term employment subsidies to sustainable job creation, ensuring productivity growth.
Ensure that PLIs and other incentives create additional employment rather than just subsidizing existing jobs.
Use digital platforms and data analytics to match skill supply with demand efficiently.

6. Encouraging Entrepreneurship & Startups

Support micro, small, and medium enterprises (MSMEs) through easy credit, mentorship, and market access.
Promote startups and innovation hubs that generate employment in both urban and rural areas.
Facilitate tech-driven employment while balancing automation with human labor absorption.

7. Long-Term Planning & Demographic Dividend

Focus on sustainable employment strategies rather than short-term headcount increases.
Align policies with demographic realities, ensuring that the growing youth population is equipped for productive work.
Invest in infrastructure, skill clusters, and regional development to reduce geographical disparities.

Best Practices at State and Global Levels

Examining successful initiatives from Indian states and other countries provides lessons for tackling jobless growth and enhancing employment quality.

1. Indian State-Level Best Practices

Kerala – Skill Development & Inclusive Employment:
- High literacy rates and targeted Skill Development Mission link education directly to employment opportunities.
- Focus on women’s employment through industry-aligned vocational training and apprenticeships.
Maharashtra – Entrepreneurship & MSME Promotion:
- State initiatives like Maharashtra State Innovation Society support startups and MSMEs, generating urban and semi-urban employment.
- Offers subsidies, incubation centers, and mentorship programs for youth and women entrepreneurs.
Gujarat – Industrial Clusters & Employment:
- Development of industrial clusters (textiles, chemicals, engineering) creates local jobs and formalizes employment.
- Promotes public-private partnerships linking training institutes with industry demand.
Rural Employment Schemes – Across States:
- Implementation of MGNREGS in Rajasthan, Odisha, and Chhattisgarh provides rural wage employment and reduces seasonal migration.

2. Global Best Practices

Germany – Dual Vocational Training System:
- Combines formal education with on-the-job apprenticeships, ensuring graduates are immediately employable.
- Strengthens education-industry linkages and reduces youth unemployment.
South Korea – Youth Employment & SME Support:
- Offers targeted incentives to firms for hiring young workers.
- Investment in technology-driven sectors alongside skill retraining programs for displaced workers.
- Ensures high employment elasticity in industrial sectors.
Singapore – Workforce Upgrading & Lifelong Learning:
- Emphasizes reskilling, continuous learning, and sector-specific skill grants.
- Aligns workforce skills closely with market demand through industry-government collaboration.
Canada – Support for Informal & Gig Workers:
- Provides social security benefits and formalization incentives for non-traditional workers.
- Promotes inclusive labor market policies, ensuring equitable access to employment benefits.

These examples highlight the importance of linking education and skills to employment, supporting SMEs, promoting inclusive policies, and ensuring sectoral diversification to enhance employment outcomes.

Conclusion

India faces the dual challenge of creating jobs and ensuring they are meaningful, sustainable, and inclusive. While initiatives like the Employment Linked Incentive (ELI) Scheme aim to boost employment, its employer-centric design without addressing skill gaps and informal sector exclusion limits its effectiveness. The Global Competitiveness Report 2023 emphasizes that labour market efficiency and skill alignment are key to inclusive growth.

With millions of youth entering the workforce annually, India’s demographic dividend is both an opportunity and a challenge. Persistent poverty and a large informal sector underscore the need for social security, formalisation, and equitable access to employment. Policy recommendations from the NITI Aayog, Standing Committee on Labour (2024), Second National Commission on Labour (2002), Rangarajan Committee, and Shyamala Gopinath Committee stress linking vocational training to industry demand, promoting labour-intensive sectors, protecting workers’ rights, and supporting marginalized groups.

To realize its potential, India must focus on equitable skill development, sectoral balance, and long-term labour empowerment. By integrating these measures with lessons from state-level and global best practices, economic growth can translate into productive, inclusive, and resilient employment for all.