India is grappling with a significant employment challenge as its manufacturing sector struggles to generate sufficient jobs for a rapidly expanding young workforce. Senior Economist Santosh Mehrotra highlighted this critical disconnect, emphasizing the urgent need for comprehensive industrial policies.
Manufacturing's Failure to Keep Pace
During an "India@100 LIVE" session, Mehrotra pointed out that despite India's "demographic dividend" of a large youth population, manufacturing has not scaled up job creation to match this growth. He argued that India must adopt explicit industrial policies and manufacturing strategies, mirroring the approaches of approximately 100 other nations that have successfully fostered manufacturing employment.
Mehrotra also raised questions regarding the effectiveness of India's Production Linked Incentive (PLI) scheme in creating widespread employment. He noted that 12 out of its 14 designated sectors are capital-intensive, which inherently limits their potential for generating a large number of jobs for a diverse workforce.
The Looming Threat of Automation and AI
Beyond the current manufacturing shortfall, Mehrotra cautioned against excessive reliance on the services sector and Global Capability Centres (GCCs) for future job growth. He warned that advancements in Artificial Intelligence (AI) are set to significantly alter the nature of services work, potentially curbing the job growth rates observed over the past two decades.
This concern was echoed by economist Abheek Barua at the same session, who stressed the continued importance of labour-intensive industries like textiles and toys for India, given its substantial labour surplus. Barua also suggested that proposed labour reforms, particularly those related to payroll restructuring, could inadvertently push smaller, labour-intensive units towards greater capital investment and automation, further exacerbating the job crisis.
Structural Concerns and Policy Imperatives
Mehrotra highlighted a long-term structural issue: manufacturing's contribution to India's gross value added (GVA) has declined from 16-17% to 14.3%. Furthermore, labour-intensive manufacturing jobs experienced a decade-long decline, only recently recovering to 2012 levels.
The dual challenge for policymakers is clear: to cultivate a manufacturing capacity robust enough to absorb India's vast workforce while simultaneously ensuring that the rapid adoption of automation and AI does not further stifle employment growth. Experts advocate for a strategic framework that prioritizes job creation alongside industrial expansion.