Crack the employment paradox to avoid a middle-income trap

Weak employment elasticity marks India’s growth story, with hurdles in the transition of our bulk workforce from farms to factories.
Weak employment elasticity marks India’s growth story, with hurdles in the transition of our bulk workforce from farms to factories.


  • RBI KLEMS data shows rapid job creation, but India must still expand employment furiously as GDP growth seems to be losing labour intensity. The economy’s ‘K-shaped’ recovery reminded us of a big risk: If only some Indians prosper while most are left behind, ‘developed’ status will elude us.

Is India’s unemployment problem being exaggerated? Going by the latest KLEMS data released by India’s central bank—which tracks inputs of capital, labour, energy, materials and services—that may seem to be the case. It shows employment in the country grew 6% in 2023-24, up from 3.2% in 2022-23. 

In absolute terms, the economy added 46.7 million jobs in 2023-24, compared with 19 million in 2022-23 and 11.9 million in 2021-22. This acceleration, with data partly drawn from the Periodic Labour Force Survey (PLFS), offers hope in the context of a job-market slump reflected in private surveys of joblessness. 

According to the Centre for Monitoring Indian Economy, our unemployment rate rose to 8% in 2023-24. While measuring job-market gaps is a challenge in a vast country with multiple forms of employment, and the official PLFS classifies workers in a way that may explain its brighter readings, we’d have less to worry about if it’s clear that more jobs are being created than people joining our workforce. But then, is it? 

Also read: RBI data reveals more jobs in India, private surveys paint bleak unemployment picture, flag quality concerns

Some KLEMS data-points stick out, such as its record of 31 million jobs generated in covid year 2020-21, drawing job arguments back to what exactly we call being employed. All considered, we still face an apparent paradox of fast GDP growth leaving us short of jobs that can add up to deliver a long awaited all-round boom in consumption.

Although our GDP growth has outpaced that of all other major economies, declining labour-intensity in non-farm sectors has also been observed. Globally, manufacturing and services have gotten more capital intensive, so we see less labour used for incremental output than before. The rise of AI as a job displacer is recent, but it’s part of a bigger tech-driven thrust for productivity. 

Weak employment elasticity marks India’s growth story too, with hurdles seen to have arisen in the transition of our bulk workforce from farms to factories, a slow long-term trend that even saw a slight reversal some years ago. Public discontent over a scarcity of good jobs has been high; it was no surprise that it became a political issue, even though uneven prosperity was a major problem even before this government took charge. 

Also read: India will not have enough jobs, even with 7% growth: report

It’s just that the economy’s ‘K-shaped’ recovery from the pandemic highlighted its core risk: If only some folks prosper while the rest are left further behind, we could slip into a middle-income trap before the country attains ‘developed’ status.

India’s policy emphasis on getting more factories up and running is aimed at getting multitudes off farms into jobs that spell upward mobility. A focus on instilling skills is expected to plug employability gaps and make the most of a youth bulge in our demography. Yet, so far, progress has lagged hopes, even as the better-off find new openings in high-value service industries. 

To avert a middle-income trap, we need better job prospects for all brackets of the socio-economic pyramid—especially those who can only aspire to lives of comfort. Else, we may find money too unevenly spread for Indian consumer markets to enlarge beyond a point, hitting investment. Premature market saturation has dogged many countries whose growth served an elite far more than their masses. 

Also read: A digital public platform for jobs could lend India’s labour market efficiency

Maybe the upcoming Union Budget will signal remedial action in the form of much bigger outlays on basic levellers like health and education. Since the private sector does most of the hiring, anything that spurs private investment would help too. But cracking the paradox we face may take more than fiscal policy.

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