In a year when democracy worldwide is being put to the test like never before, India conducted a peaceful election — the largest in human history. But, looking ahead, there’s a surprising contradiction in the Indian economic and political outlook right now. On the one hand, the economy’s on a tear, growing 7.8% in the 2023–24 fiscal year — outpacing the average 3.4% growth for G20 countries and 4.1% for all emerging markets. But on the other hand, India is in an employment crisis: In a country with the world’s largest and youngest workforce, there are very few good jobs to be had.
Consider some sobering statistics. Less than half of the 950 million working-age population is actually employed, compared to 70% in other emerging markets. Bleak as this statistic is, the reality is worse. According to the Periodic Labor Force Survey, some half of all those workers are self-employed, a category that includes “unpaid helpers in family enterprises,” which could cover family and friends who help out for no compensation. Just 32.7% of working-aged women participated in the workforce in 2023. On top of this, a study of 388,000 college graduates by the educational testing services firm Wheebox found that only 51.25% were “employable,” as measured by a skills-assessment test.
To maintain its economic momentum, India needs to produce more jobs and move a greater proportion of its workforce into higher-productivity sectors. Failure to do so would result not only in depressed incomes and slowdown in consumer demand, it would also add to future political instability, social unrest, and a waste of the country’s much-vaunted “demographic dividend.” These are significant problems for a country in which 40% of the population is younger than 25 years old and an economy that is deeply dependent on domestic consumption. Recent analysis from McKinsey suggests that by not improving its employment rates, India will fail to achieve its aspirational GDP growth of 7–8% annually, which would, in turn, delay its goal to enhance the country’s geopolitical standing by becoming the world’s third-largest economy by 2030.
The jobs crisis is also a political problem. It contributed to a blistering summer surprise in the recent elections: the ruling Bharatiya Janata Party (BJP), led by Narendra Modi (once considered the world’s most popular leader), failed to eke out a majority in the critical lower house of Parliament despite predictions for a landslide. While explanations abound — that influential Modi-critic YouTubers changed minds, the BJP’s Hindu nationalist rhetoric was a turnoff, arrests of opposition leaders were a bridge too far, and so on — joblessness and persistent inflation were issues that resonated across much of the electorate in pre-election surveys, and offer the simplest explanation for India’s election results.
Modi has been sworn in for a third term as the leader of a coalition government, and many are concerned that tough economic reforms may be harder to push through and keep the fast growth on track. Focusing on jobs growth will be key to striking a balance between competing needs. If joblessness is one of the main drivers of India’s economic and political challenges, it is also where the government’s policy and business priorities must be directed next. Both sides of the labor market can benefit from complementary policy and strategic interventions. Consider the following five priorities; the first four are high-potential growth areas that demand labor and the fifth helps boost the supply.
1. Develop a More Coherent Policy on Manufacturing
Historically, many East and Southeast Asian nations created jobs by moving labor from farms to factories and exporting manufactured goods. India, however, broke from this approach and bet on services, such as IT and back-office functions, for companies based in North America and Europe. As a result, while China’s share of global manufacturing grew to 31.63%, India’s is just 2.87%. India’s manufacturing sector represents only 13% of GDP, compared to a quarter of GDP in Vietnam or over a quarter of GDP in China. At this stage, there are many structural challenges to pivoting toward manufacturing as trends point toward greater automation and there’s pressure in import economies to near-shore factories and strengthen supply chains.
Nevertheless, given the volume of new jobs needed — between 90 million and 115 million by 2030 to keep the economy on its growth track — it’s worth reexamining the opportunities to expand the manufacturing workforce. Factories can still absorb large volumes of labor.
Despite the difficulties of a belated catch-up, there are openings for India to disrupt the global manufacturing order. Companies are looking for alternatives to China — a shift driven by both political and practical factors. Within India, many of the historical constraints on scaling up manufacturing have eased: Several regulations have been simplified, there are dramatic increases in infrastructure investments, many manufacturing clusters have received support from governments and businesses, and a Production-Linked Incentives scheme offers subsidies across 14 sectors to help establish “national manufacturing champions.”
This hasn’t been enough, however. To increase manufacturing’s footprint to the extent needed and make a dent in the unemployment numbers, more consistent systemic changes are necessary.
The government ought to consider a few complementary initiatives:
Simplify the processes for developing land for non-agricultural use.
The lack of reliable land records has remained a longstanding barrier to investment because it is hard to identify whom to negotiate with and how to compensate them for transferring the rights to the land.
Reform existing labor laws.
With a legacy of over 50 federal and 200 state-led labor laws, India has been a challenging environment for large manufacturers to hire, reassign roles, or let go of workers as business conditions change. These have created incentives to prioritize more capital-intensive manufacturing or not grow beyond a certain size so as to avoid being subjected to some laws aimed at larger enterprises, or for international firms to skip India in favor of other manufacturing locations with fewer regulations. Recent reforms of labor laws address issues such as union proliferation and the length of workers’ contracts, as well as introduce a reporting system for labor law compliance.
All reforms must, however, strike a balance between enhancing India’s competitiveness as a manufacturing destination and protecting the well-being and safety of workers and their economic and human rights. Critics worry — and justifiably so — that the pendulum might swing to the other extreme and expose the large labor force to unregulated exploitation.
Forgo protectionist policies.
India has high import tariffs. These policies raise costs for manufacturers and makes it hard for India to participate in international trade agreements that could facilitate integration into global supply chains. For example, clearing customs for imports takes 44 to 85 hours in India compared to about 20 hours in China.
Increase government spending on the development of manufacturing hubs with integrated infrastructure, utilities, and services.
Such investments need to be done in selective areas and judiciously. Some experts, such as former Reserve Bank of India governor, Raghuram Rajan, argue that much of the spending is misdirected on high-profile manufacturing projects that don’t employ workers in large enough numbers. For instance, the public investment of $400,000 for each job created in a new chip factory for Micron could have been spent on skill-building focused on value-added services associated with all manufacturing.
For their part, businesses can take several steps as well:
Explore joint ventures, contract manufacturing, and other forms of alliances.
International businesses can form relationships with Indian partners to establish production facilities, as well as technology training, skill building programs, and access to global resources and standards. Domestic players can help navigate local rules and regulations and leverage their knowledge of local labor pools and markets. The model of contract manufacturing that has worked well in pharmaceuticals can be replicated and scaled up in other sectors, such as electronics and consumer durables.
Invest in small- and medium-sized manufacturing enterprises that are less automation-intensive.
Small- and medium-sized manufacturers can leverage homegrown innovations — such as the Open Network for Digital Commerce, which connects market players on a single protocol — to gain access to credit, resources, logistics, warehousing, and customers. This enables them to replicate the benefits of scale that larger players enjoy.
2. Double Down on Services
Given India’s original bet on services, this sector ought to be considered a key source of national competitive advantage and must be nurtured even further. Services represent about a tenth of India’s GDP, and its exports grew at almost double the rate of that of the rest of the world between 2005 and 2023. Nevertheless, this sector is vulnerable. Most of the services employment is in low-skilled areas, where the work is informal and low-paid and talent is underutilized. As for high-skilled services, the much-vaunted $250 billion IT sector that hired over 5 million Indians is shrinking and will hire fewer people in the near-term because of a combination of over-hiring and the growing prospect of AI taking on various services provided by the sector.
Consider three promising growth areas that can benefit from government and business attention:
Grow Global Capability Centers (GCCs).
These high-end service exports host the non-P&L units of multinational corporations and provide services, such as finance, legal, and HR, to high-tech innovation clusters in cyber, analytics, and AI. There are already over 1,500 GCCs employing 1.3 million people, and jobs in such centers are expected to grow to 4.5 million by 2030. If managed well, GCC services could become one of India’s biggest exports.
Several challenges need to be managed to ensure that growth. First, 30–40% of GCCs have found it difficult to prove their value to the parent companies they serve as wages rise and the costs of establishing physical infrastructure with reliable supplies of energy, security, and other inputs increase. As tier-I urban areas get congested and GCCs need to expand in tier-II cities, they will require infrastructure, land, and accessible talent. GCCs and the country’s IT firms compete for talent and business opportunities, and they will both compete with the increasing adoption of off-the-shelf AI products. But over time, with appropriate policy and strategic interventions, they can grow together and complement each other.
Invest in health care.
Right now, the country is facing a shortage of trained health care professionals — including a gap of at least 1.54 million more doctors and 2.4 million nurses — despite growing demand from a population experiencing illnesses due to environmental degradation, changing lifestyles, rising life expectancy, and a growing segment of aged people expected to double over the next two decades. The sector is about $372 billion in size and is growing at a CAGR of 22%. Also, India’s urban consumers are increasingly accustomed to home delivery of services, which includes home health care. This area is expected to be valued at $21.3 billion by 2027.
Encourage travel and tourism.
The reasons for travel in India are diverse. There will be demand for workers with a range of skills, such as travel and tourism marketers, chefs, tour operators and agents, and hotel staff; specialists in cultural- and history-related travel; and those catering to tourists traveling for wildlife safaris, weddings, religious visits, adventure, and eco-tourism. The volume of international tourists is growing and expected to return to the pre-pandemic level of 10.93 million in 2019. Domestic travel is also rising. The sector is expected to add 58.2 million jobs by 2033 to the 39 million employed in 2023.
That said, there is plenty of unrealized potential. Despite greater awareness of India in international fora, as well as improved infrastructure, India still ranks low in the World Economic Forum’s Travel & Tourism Development Index 2024 at 39th. India can learn from the countries that rose in the rankings in recent years. In addition, it must get ahead of the environmental issues created by the crush of tourists in a few concentrated areas, from untreated sewage from hotels to overcrowding, overbuilding, and deforestation.
3. Restart Startup India
India’s tech startups can catalyze a wider ecosystem and create new jobs in supporting sectors as the startups grow. An earlier generation of startups were beneficiaries of a “China dividend” as investors were looking for a place to invest during President Xi Jinping’s crackdown on some of China’s biggest internet companies. India provided a natural refuge. Many of the over-hyped companies from that period, such as Paytm, Byju’s, and Oyo, have now stumbled, and investments in Indian startups have fallen.
Nevertheless, there is unmet need, entrepreneurial energy, and tech skills in India, and the startup potential can be revived. Among major urban centers, Bangalore (ranked eighth), New Delhi, and Mumbai are among the top 20 cities for startups worldwide. Consider three areas that need government and business support and help from investors, mentors, and other facilitators:
Prioritize support for startups in key growth areas.
There are growing needs in fintech, AI, SaaS, defense, and green tech — solid industries that play to India’s strengths. Ensuring a skilled talent pool to serve this ecosystem is essential for its ultimate growth.
Boost a network of entrepreneurship facilitators.
Initiatives such as Startup India and Make in India, along with regional bodies in states that provide seed funding and organize state-specific entrepreneurship challenges, must work alongside the 763 different accelerators and incubators and more than 1,600 venture capital funds around India. These initiatives need to be further connected and supported by public- and private-sector bodies.
Learn from past failures of recent high-fliers.
Founders must be more mindful of their seemingly reflexive capacity for hubris at the first signs of success. Byju’s, the once high-flying EdTech startup, offers a perfect case study of a founder, Byju Raveendran, who attempted aggressive growth without putting a robust governance system in place. This resulted in financial mismanagement, employee burnout, and a collapse in market valuation. Paytm’s early success as a mobile wallet company encouraged its high-profile founder, Vijay Shekhar Sharma, to move too quickly into new businesses, such as a payments bank, without sufficient regard for strategic and regulatory realities. Investors, accelerators, boards, and other facilitators and mentors of Indian entrepreneurs must reinforce good business discipline, getting a clear line of sight to profitability and reminding the entrepreneurs that rules and regulations are real constraints and cannot be assumed away or bypassed.
4. Resolve the Green Transition Tension
India is the third-largest energy-consuming nation and fourth in the world in renewable energy installed capacity. It intends to install 500 gigawatts of renewable energy capacity by 2030 and reach a net-zero target of 2070, along with a plan to produce 5 million tons of green hydrogen annually. Several steps need to be taken in parallel:
Invest to maintain commitments.
For India to achieve its energy goals, $190–215 billion of spending is needed, along with an additional $150–170 billion for transmission and distribution. The World Economic Forum projects 50 million net-new “green economy” jobs in India if it persists with this path.
There is a critical problem to be addressed despite this potential for job creation. With the economy anticipated to be growing quickly, a coalition-led government cannot afford to slow it down and lose political capital. This means it will be difficult to scale back on the most expedient sources of energy: coal, oil, and solid biomass. Already, the pace of renewable energy installations has been slow compared to the targets, signaling a tension to be managed between short-term needs and growing green-transition jobs.
Develop a federal policy that balances short-term economic needs and long-term green transition.
There needs to be a more coherent approach to striking a balance — possibly through a recognition that some states will accelerate to green energy faster than others. India’s coal-dependent states are in the eastern and central parts of the country, and they are also poorer, whereas 75% of solar and wind-generation capacity in 2020 was in the more prosperous southern and western states.
As part of a national strategy coordinated by the new government, the richer, greener states can help subsidize the transition away from traditional energy sources for the poorer states. The costs of poorer coal-reliant states — for example, Jharkhand — becoming even poorer could translate into a higher burden for the richer states over the long-term as they will get taxed more in the future. Negotiating such a cross-state compact requires a continuous partnership, dialogue, and more-productive relationships between the center and the states; a coalition government might be a more successful model for accomplishing such a complex balance.
Businesses can play a key role in accelerating the green transition by making it a priority for their own operations, goals, and strategies:
Make sustainability a business priority.
The leading businesses can create demand and set the tone for others by adopting several practices: emphasizing renewable sources for their energy needs; adopting more energy-efficient processes and operations; improving supply-chain sustainability while investing in responsible sourcing; and improving transparency, reporting, and disclosures on goals and progress made. Such actions could help make such practices standard across industries. About half of Indian companies have committed to net zero targets. They must follow through and do so in a credible manner, and the proportion of such companies needs to go up. Credible actions on sustainability ought to be viewed as a competitive differentiator to consumers who can directly feel the negative effects of India’s worsening climate.
Innovate in green finance, incorporating local insights and alliances.
Since conventional approaches to financing can be inappropriate for evaluating environmental impacts and the novel risks associated with the green transition, it is essential to develop innovative approaches to channel capital toward such initiatives. Businesses can build on an existing foundation: India is already the leader among Asian emerging markets (excluding China) in issuing green bonds, with 84% from the private sector. Many financing options have involved partnerships with institutions such as the IFC and the World Bank, Indian and foreign public sector institutions, and foundations; broader partnerships and creative approaches can be facilitated by collaborative platforms, such as the Global Innovation Lab for Climate Finance.
5. Enhance and Improve the Labor Supply
To reap the demographic dividend and ensure that the workforce can meet growing demand, government, businesses, educational institutions, and education- and skills-oriented nongovernmental organizations (NGOs) must lean in, given the scale at which change needs to happen:
Invest in skill-building — at scale.
India’s workforce desperately needs investments in skill-building. The quality of education varies widely — some excellent institutions are accessible to a tiny fraction of the population, while the vast majority must contend with poorly trained teachers, inadequate facilities, and curricula with insufficient emphasis on critical thinking or job-ready skills. No more than 5% of India’s workforce gets formal skills training, while in Japan and South Korea, the corresponding figures are 80–96%. All of this needs to change.
Initiatives such as the Pradhan Mantri Kaushal Vikas Yojana and the government’s Skill India Mission’s flagship program need expansion. These need to be paired with genuine improvement in the quality of the education and employability of graduates through a corresponding expansion of training and apprenticeship programs led by businesses. Technology-enabled solutions, from online courses to AI and virtual reality, if carefully deployed, can help with reaching a wide segment of the intended audience. These initiatives should also coordinate, wherever relevant, with the numerous NGOs that have emerged to fill the need for skill-building and vocational training. Many are sub-scale and need added funding and personnel support.
Enable women’s participation in the workforce.
There is a specific need to increase the presence of women in the workforce. This will require a systemic approach that draws on many mutually reinforcing initiatives, from improving access to education and technology to making changes in workplace policies (e.g., flexibility, maternity benefits, childcare, digital delivery of pay and benefits, etc.), and enacting legal protections to ensure pay equity and impose penalties for gender discrimination.
Women frequently aren’t entitled to property due to patriarchal societal norms, which reduces their ability to provide collateral needed to get a loan and perpetuates dependence on male family members. These structural factors need to change.
Many institutional mechanisms, such as self-help groups that bring women together to empower them in areas ranging from financial inclusion to economic and social empowerment and community engagement, as well as other programs promoting women’s access to financial services, need public support and further expansion. Digital technologies give informal women workers access to information on market opportunities, pricing, and industry trends, helping them make more informed business decisions. New modes of work, from gig platforms to cooperatives and women-centered collaboratives, can serve as important on-ramps.
Existing women’s empowerment programs need continuous support and further expansion. Examples include Beti Bachao Beti Padhao Andolan (“save the daughter and educate the daughter”) to create awareness of the importance of elevating women and educating girls; the MUDRA Yojana (Micro Units Development and Refinance Agency Ltd. ) scheme for collateral-free loans for women entrepreneurs; and the Mahila Shakti Kendras to provide skills development. These government-led programs need to ensure that they are genuine vehicles for bringing more women into the workforce and do not become new avenues for dependence and paternalism with political entities being considered “father figures” who deliver benefits.
Beyond the public programs, businesses have a key role to play. In addition to implementing the workplace policies mentioned previously, they need to: add gender-neutral procedures for responsibilities, pay, promotions, and training; ensure safe working conditions for women; provide management and leadership skills training; and encourage and invest in women-led initiatives, including startups. Businesses can also elevate role models and address social orthodoxies that discourage women from working by helping publicize the economic and societal benefits of working women in the community.
In particular, small and medium enterprises can be critical in putting many such practices in place. Examples of enterprises, such as Even Cargo, the country’s first women-driven logistics and delivery company, or Farm Didi, a food startup that empowers rural women while working with self-help groups and women entrepreneurs, ought to be studied and replicated.
• • •
Narendra Modi has secured a rare third term as India’s Prime Minister. He will be making a huge transition from his previous tenure that helped him push through his agenda unilaterally. Now, he will need to work with coalition partners and even make deals with political opponents. He will need to ensure more consistency in his policies. Three major shocks during Modi’s earlier terms — the 2016 demonetization of high-value currency (which I wrote about previously in HBR), the rollout of the Goods and Services Tax in 2017, and the Covid lockdown — caused the workforce in the non-agricultural informal sector (the primary employer in India) to drop by 1.5%, according to a new study. The last of these, a Covid lockdown that was declared with no advance notice, forced many urban migrant workers to return to their villages, and a government food-welfare program targeted at the rural population created incentives for them to remain. The result is an agricultural workforce that has grown by 60 million in the last four years — quite the opposite direction for a country that needs to expand a higher-paid urban workforce.
The bottom line is that Modi will need to keep the fast-growing economy on track for both political and economic reasons. At the heart of that goal is the need to dramatically improve the employment situation, which needs to be the singular focus to which all policies must return. Divisive issues, such as Hindu nationalism and jingoistic rhetoric, have not delivered in this election. The message of the Indian voter this summer was clear: Less BS, more J-O-B-S.
The author is grateful to Ajay Banga, president of the World Bank Group, for his valuable advice and suggestions on opportunities for jobs growth in India.
