Context:

India is experiencing a paradoxical trend — despite a rapidly expanding working-age population and rising production capacity, the generation of formal employment opportunities remains insufficient. Since 2017–18, while the working-age population has increased by approximately 9 crore, formal sector jobs have grown by only 6 crore, indicating an annual shortfall of around 50 lakh jobs. This mismatch is further compounded by the dominance of self-employment and informal sector jobs, especially in rural areas, raising concerns about both the quality and sustainability of employment.

Structural Shift Towards Capital-Intensive Growth

The country’s production systems are increasingly exhibiting capital-intensive tendencies — even in traditionally labour-intensive sectors such as textiles and food processing. This phenomenon, often referred to as "skill-biased technological change," is driven by two broad factors:

• Demand-Side Factors: The pressure to enhance productivity and reduce costs incentivises adoption of automated and capital-intensive technologies, especially in high-value manufacturing and services.
• Supply-Side Constraints: A shortage of skilled and technically trained labour impedes the effective utilisation of labour resources. Less than 10% of India’s workforce has received formal vocational or technical training, and most youth entering the labour market lack industry-relevant skills.

The declining cost of technology, coupled with stagnant real wages and rigid labour laws in some states, further tilts the balance in favour of machines over human labour.

Policy Interventions and Challenges

The Government of India has initiated schemes such as the Production-Linked Incentive (PLI) Scheme and the Employment Linked Incentive (ELI) Scheme to address the employment deficit.

• PLI Scheme: While it aims to boost manufacturing output, the scheme is heavily focused on high-tech sectors like electronics, drones, and IT hardware — which are capital- and skill-intensive. Despite this, the highest job creation under the PLI has been observed in food processing and pharmaceuticals, suggesting a disconnect between investment focus and employment potential.
• ELI Scheme: Designed to subsidise the cost of hiring untrained workers in labour-intensive sectors, the ELI provides short-term financial support via EPFO contributions. However, its long-term efficacy in ensuring sustainable skilling and employment remains uncertain due to lack of outcome data and short subsidy duration (2–3 years).

Need for a Cohesive Labour-Capital Policy Framework

India’s employment challenge cannot be addressed through fragmented policies. A cohesive framework is required that integrates:

• Industrial Policy with Skilling Policy: Ministries responsible for industrial production, labour, and skilling must work in tandem to ensure the availability of a workforce with skills that are aligned with the demands of emerging sectors.
• Incentive Structuring: The current flat subsidies under ELI could be modified into a graded structure, where higher transfers are provided for higher levels of certified skill acquisition, encouraging continuous skill upgrading.
• Skill Supply Chain Reform: Skill development institutions like ITIs and vocational centres should be incentivised based on placement rates and wage outcomes, not just enrolments or certifications.
• Labour Law Flexibility: State-level reforms in labour regulations are essential to reduce the cost of employing formal workers and to encourage job creation, especially in micro, small, and medium enterprises (MSMEs).

Way Forward for a Viksit Bharat (Developed India)

As India transitions towards becoming a high-value production economy, it must simultaneously invest in its human capital. This requires:

• Dynamic Skill Development Programs: Adaptive skilling strategies must be designed to align with evolving technological trends such as Artificial Intelligence (AI), robotics, and green energy.
• Data-Driven Employment Policies: Regular labour market surveys and outcome tracking of employment schemes are critical for evidence-based policymaking.
• Support for Labour-Intensive Sectors: Focused support to industries with high employment elasticity, such as textiles, leather, food processing, tourism, and construction, can yield substantial job creation.

In conclusion, advancing the agenda of Viksit Bharat demands equal emphasis on capital and labour. Without a strong and skilled workforce, India's demographic dividend risks turning into a demographic burden. Therefore, employment generation must be at the core of India’s development policy, with a strategic vision that links skilling, production, and structural transformation.