Context:

• India’s working-age population has increased significantly since 2017-18 (by about 9 crore), yet formal sector job creation has not kept pace (rose by 6 crore), leading to a deficit of 50 lakh jobs annually.
• Most new employment has emerged from informal and self-employment sectors, highlighting both quantitative and qualitative challenges in job opportunities.

The Rising Capital Intensity of Production:

• Technological progress and declining labour intensity:
  • Labour-intensive industries are increasingly adopting capital-intensive production processes.
  • AI and automation are accelerating this trend, reducing labour demand across sectors.
• Why is capital intensity increasing in a labour-abundant economy? Two key factors contribute to this shift:
  • Demand-side factors: Need for higher productivity and value addition at lower costs.
  • Supply-side factors: Shortage of skilled labour forces employers to opt for automation.
• Impact on employment and economic sectors:
  • Services sector: Highest value addition, increasing contribution to GDP.
  • Manufacturing sector: Stagnant contribution despite industrial policies.
  • Agriculture sector: Declining share in GDP, pushing surplus labour into informal jobs.

Skills Deficit and the Challenge of Employment Readiness:

• Less than 10% of India’s workforce has formal technical or vocational training.
• Many educated youths lack job-ready skills, widening the skill gap in the labour market.
• The rise of “skill-biased technological change” is making certain job roles redundant, reducing labour demand further.
• Key policy requirement: Continuous skilling and upskilling to ensure workforce adaptability to new technologies.

Government Strategies for Job Creation:

• PLI scheme:
  • The production-linked incentive (PLI) scheme aims to boost high-value production and attract investments.
  • Over 50% of the PLI budget is allocated to electronics, IT hardware, and drone manufacturing.
  • Employment mismatch:
    • High job creation in food processing & pharmaceuticals, but these sectors receive less financial support.
    • Labour-intensive industries remain underfunded despite high employment potential.
• ELI scheme:
  • The employment-linked incentive (ELI) scheme provides government cash transfers via EPFO to encourage private sector hiring.
  • Supports labour-intensive sectors by reducing initial hiring risks for employers.
  • Challenges:
    • Short subsidy period (2-3 years), raising concerns about long-term employment sustainability.
    • Requires tracking of employment outcomes to assess its effectiveness in skill development.

Policy Recommendations for Employment Generation:

• Integration of production and skilling policies:
  • Align PLI incentives with labour supply and skilling strategies to ensure job creation in relevant sectors.
  • Improve coordination between Ministries of Labour, Skill Development, and Industry.
• Reforming the ELI scheme for sustainable employment:
  • Shift from a flat incentive model to a graded structure linked to skill levels.
  • Extend ELI benefits to training institutes (e.g., ITIs) based on employment and earnings outcomes.
• Labour market reforms:
  • State governments need to ease restrictive labour laws that artificially inflate labour costs.
  • More flexible labour regulations can encourage firms to hire more workers rather than opting for capital-intensive solutions.

Conclusion:

• To realize the vision of Viksit Bharat, India must adopt a dynamic and comprehensive employment policy that simultaneously expands production capacity and enhances workforce quality.
• A future-ready workforce, backed by robust skilling and labour market reforms, is critical for sustainable job creation and economic growth.