
Budget 2025 preview—Part 3: Skilling and jobs, exports, and middle-class woes

Summary
- Some of the biggest questions facing India's budget-making, presented in charts.
Part 1 covered fiscal deficit, foreign direct investment, disinvestment, and India's energy transition. Part 2 covered IT hiring and AI, internal migration, and the government's pension expenses.
Skilling: From degrees to employability
India is in the middle of a demographic dividend—where we have more hands to work than to support—and it's going to last till 2040. China tapped a similar demographic advantage, among other things, and morphed from a low-income economy to a middle-income one. Can India pull off something similar? Two key factors would be skilling and creating well-paid jobs.
At present, each Indian worker in the manufacturing sector added an average value of $8,076 in 2021, compared to $18,308 in Thailand and $34,402 in Malaysia, according to S&P Global. One reason is their low skill levels. Despite improvements, nearly half of final-year or pre-final-year students aren’t employable.
Professional degrees like B.E or B.Tech have employability scores exceeding 70%, but they accounted for just 12% of students enrolled. For the remaining 88%, it ranges from 29% (polytechnic) to 58% (B.Sc). To improve these numbers, India needs to invest in public goods like health, education and basic infrastructure, and upskill the labour force in a way that it can support greater manufacturing investments.
Labour-intensive exports: Blending jobs, growth and global presence
Export-driven growth is hard these days, as big consumer economies like the US and Europe are erecting trade barriers. That’s one reason India will find it hard to replicate China’s growth story, which revolved around drawing foreign investments in local manufacturing with the aim to export.
India is also facing a jobs and growth question—it needs to add 7.85 million jobs each year till 2030 to sustain growth, according to last year’s Economic Survey. Thus, one imperative is to drive exports in labour-intensive sectors. Four such sectors accounted for about 27% of India’s exports in 2018-19: gems & jewellery, textiles, marine products and leather. However, between 2018-19 and 2023-24, when India’s overall exports increased 32%, combined exports of these four sectors shrunk 11%.
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A 2020 report by industry grouping Confederation of Indian Industry (CII) identified three other labour-intensive industries with potential for brisk export growth: coffee (plus tea and spices), footwear and furniture. Each grew at a compounded annual rate of above 5% between 2010 and 2019, as per the report. Between 2018-19 and 2023-24, coffee and furniture maintained that pace, but footwear fell behind. Can more such sectors step up?
Middle class: Populating a middle class in middle India
Fact 1: If an Indian spent above ₹11,000 per month, they would be roughly among the top 10% of urban Indians by consumption expenditure. For rural Indians, that top 10% baseline is somewhere around ₹6,000. Fact 2: Inter-state variation in consumption expenditure is huge. In urban areas, the average monthly per capita consumption expenditure in Telangana was ₹8,978, while Chhattisgarh was about half of that.
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Consumption expenditure doesn’t equal income. But it gives some idea of the income levels of Indians, especially at the lower end. The numbers bring out another stark reality: there is really no middle class in middle India. In the 40-60% fractile classes of India’s consumption distribution, the average urban Indian is spending just ₹67,400 to ₹76,000 per annum—a little more than the international poverty line of $2.15 per person per day (or, about ₹67,000 per year).
Things are projected to change over the next two decades. The middle class—households earning ₹5 lakh to ₹30 lakh per year—is projected to cross 1 billion by 2046-47, against an estimated 482 million in 2020-21. For this to happen, the economy has to grow upwards of 6% for the next 25 years.
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