Creation of quality jobs: India has come a long way from the colonial economy the British left behind. In 2025, it overtook Japan to become the world’s fourth largest economy, with GDP estimated at $4.19 trillion. With real GDP projected to grow by around 7% in FY26, the macroeconomic narrative remains reassuring. Foreign exchange reserves are strong, inflation has softened, and fiscal consolidation has improved confidence.
There is much to celebrate in these numbers. Yet the Economic Survey 2025-26 draws attention to a harder fact. India is growing, but that growth is not generating enough quality employment. This is no longer a routine lag between output and jobs. It has the shape of a structural weakness.
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GDP growth and employment growth are diverging
The divergence is not new, but it is now too large to ignore. Between 1981 and 2022, India’s economy grew at an average rate of about 5.9%, while employment grew by only around 1.5%, according to KLEMS 2025. The problem is not only slower job creation. It is also the weak link between growth and labour absorption.
The mismatch is visible in recent data as well. In the second quarter of 2025, about 8.7 lakh jobs were added, while 10-12 million young Indians are estimated to enter the labour force each year. That gap helps explain why high growth has not eased anxiety in the labour market.
This is why the central issue needs to be stated more clearly. India is not dealing only with unemployment. It is dealing with underemployment, low-productivity work and a shortage of secure wage-paying jobs.
Job quality remains India’s deeper labour market problem
The weakness of the labour market lies not just in numbers, but in the nature of employment. India’s workforce remains heavily informal. Nearly 31 crore workers are registered on the e-Shram portal, a measure of the scale of insecure and unprotected work.
Many of the jobs being created are informal, low-paid and volatile. They come without meaningful social protection, income stability or mobility. That is why higher work participation, by itself, can mislead. More people may be working, but not necessarily in jobs that raise productivity or living standards.
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The missing variable here is wages. If employment rises without a corresponding rise in real earnings, the economy may be generating work without generating security. That weakens the claim that growth is translating into broad-based prosperity.
Agriculture still carries the burden of failed structural change
Agriculture remains the clearest sign that the economy has not moved workers into more productive sectors at the required pace. The sector contributes a modest share of GDP, yet still employs around 45% of the workforce.
Employment in agriculture had begun to decline after the early 2000s, suggesting that structural transformation was under way. But since 2018, that trend has partly reversed. More workers have remained in, or returned to, agriculture. This is less a sign of agricultural dynamism than of weak absorption elsewhere in the economy.
When agriculture acts as a fallback employer, the issue is not only low output per worker. It is hidden underemployment.
Construction absorbs labour, but not securely
Any reading of India’s labour market must also account for construction. It has long been a major absorber of workers leaving agriculture, especially low- and semi-skilled men migrating to towns and cities.
But construction offers only a partial answer. It creates jobs, often quickly, but these are typically cyclical, informal and vulnerable to shocks in credit, real estate and public investment. It can absorb labour. It cannot, on its own, deliver durable employment security.
That matters because the transition out of agriculture has often led not to formal manufacturing, but to casual urban work.
Manufacturing growth is still not employment-intensive enough
Manufacturing should have been the bridge between surplus labour in agriculture and higher-productivity jobs in the formal economy. It has not played that role at the needed scale.
Gross value added in manufacturing grew by more than 9% in the second quarter of 2025. Government schemes such as the production-linked incentive programme have supported investment and output. Credit growth to MSMEs has crossed 21%, reflecting official support to smaller enterprises that remain important employers.
Yet the core question remains unanswered: why has manufacturing growth not translated into large-scale labour-intensive employment?
Part of the answer lies in the pattern of industrial growth. Some of the faster-growing segments are capital-intensive. Some MSMEs survive on credit support but do not achieve productivity gains that allow sustained hiring. This leaves employment exposed when liquidity tightens or demand softens.
Output growth in manufacturing matters. But unless it creates more productive jobs at scale, its effect on the labour market remains limited.
Services growth is widening the skills divide
The services sector now accounts for nearly 54% of GDP, with growth of around 9.1% in 2025. It is the main driver of the economy. But services-led growth does not automatically become employment-led growth.
Modern services demand formal education, digital literacy, communication skills and technical competence. Large sections of India’s workforce do not possess that combination. As a result, the gains from services growth are captured disproportionately by those already equipped to enter these sectors.
The outcome is labour market polarisation. A relatively small segment moves into high-productivity work. A much larger group remains in informal services, low-end retail, delivery work, petty trade or other low-value occupations.
Education gains have not become employability gains
India’s demographic advantage still exists on paper. It is young, and educational attainment has improved. But education has not translated into formal sector absorption at the required scale.
That is partly because the problem is not just skill shortage. It is skill mismatch. Schooling, vocational training and labour market demand remain weakly aligned. Many educated young people are entering gig work, casual employment or jobs unrelated to their qualifications.
That weakens both productivity and social confidence. A young workforce is an advantage only when the economy can convert educational attainment into employability and employability into stable work.
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Female labour force participation still needs better jobs
Female labour force participation has improved to around 35.3%. That is progress. But the number needs careful reading.
A large share of women’s work remains informal, unpaid or concentrated in low-paying activities. Participation without job quality does not amount to economic empowerment. If more women are entering vulnerable work because household finances are under strain, the headline improvement tells only part of the story.
Without better childcare, safer mobility, stronger skilling and more formal sector opportunities, higher participation may not produce commensurate gains in income, autonomy or productivity.
India’s problem is not lack of growth, but weak employment intensity
The Economic Survey’s message is clear enough. India has growth. It has a young population. It has rising aspirations and improving levels of education. What it does not yet have is enough productive, secure and formal employment.
That is the real fault line in the economy. India is not suffering from an absence of growth. It is suffering from growth that is not sufficiently employment-intensive, either in quantity or in quality.
Unless that changes, the demographic dividend will remain underused. Growth may strengthen macroeconomic confidence. But without quality jobs, prosperity will remain incomplete.
Samyak Negwal is a student, and Aamir Ahmad Teeli Assistant Professor, Apex Institute of Management, Chandigarh University.