Industry is growing, but isn’t creating jobs

Why in the News

India’s registered manufacturing sector grew its output by 7.8% in 2024-25, according to the Annual Survey of Industries (ASI). Yet manufacturing has not become a mass employer as it did in Korea and China, and most non-farm workers remain outside the formal economy.

What does the ASI show about formal factories?

1. What it is: The ASI is the government’s yearly survey of registered factories, the formal part of manufacturing covered by factory laws. It works like an annual health check of organised industry.
2. Jobs and pay grew: That year, factory employment rose 7.2% and emoluments (wages, salaries and benefits) rose 12.08%.
3. Workforce size: Persons engaged in organised manufacturing have passed 2 crore. This is still only a fraction of the labour force.
4. The takeaway: Formal factories are growing steadily, but they are too small a part of the economy to absorb India’s workers.

Who gains from factory growth?

1. Capital over labour: Invested capital has risen steadily, but output per worker has stayed roughly the same over the years.
2. Profits ahead of wages: Wages per worker have grown more slowly than net profit, so owners gain more from growth than workers do.
3. Economy-wide effects: Slow wage growth and flat output per worker affect consumption, investment and productivity across the economy.

Where do most non-farm workers actually work?

1. Informal dominance: Nearly three in four non-farm workers work in informal-sector enterprises, according to the Periodic Labour Force Survey (PLFS) 2025.
2. Formal shortfall: The formal sector, in both manufacturing and services, simply does not create enough jobs.
3. Organised versus unorganised: In the previous year, organised manufacturing employed 1.9 crore people against about 3.3 crore in the unorganised segment, according to the Economic Survey.
4. Firm size matters: Organised manufacturing is dominated by small firms, yet factories with more than 100 workers employ a larger share, pay higher wages and have higher labour productivity.

Why has manufacturing not become a mass employer?

1. Share unchanged: Successive governments have tried to boost manufacturing, yet its share in GDP and in employment has barely moved.
2. Missed transition: Factories have not absorbed the millions who enter the labour force each year or who want to leave farming.
3. Fallback options: Without factory jobs, low-skilled and unskilled workers stay on the farm or take gig work, short platform jobs such as delivery. This is the core of India’s employment challenge.

Challenges

1. Size thresholds: Labour rules that tighten above a worker count push firms to stay small. Eg. Lay-off permission above 100 workers under the Industrial Disputes Act, 1947.
2. Capital-heavy incentives: Industrial support often flows to capital-intensive sectors that create few jobs per rupee. Eg. Semiconductor fabrication plants.
3. Export shocks: Labour-intensive exporters face sudden demand losses. Eg. The 50% United States tariff of 2025 on textiles and gems.
4. Skill gaps: Many new entrants lack the vocational skills factories need, so firms prefer machines to hiring.

Way Forward

1. Employment-linked support: The Ministry of Labour and Employment should target the Employment Linked Incentive (ELI) scheme at first-time factory workers.
2. Higher lay-off threshold: States should apply the Industrial Relations Code, 2020 threshold of 300 workers for lay-off permission, so firms can grow without penalty.
3. Labour-intensive parks: The Centre should expand PM MITRA textile parks and plug-and-play parks for apparel, leather and food processing.
4. Apprenticeships: The National Apprenticeship Promotion Scheme should be linked to factory hiring targets.

Conclusion

India’s factories are growing on capital rather than on workers, so formal manufacturing expands without changing where most Indians earn a living. Whether policy shifts from output targets to jobs created per rupee in labour-intensive sectors will decide if manufacturing absorbs those leaving the farm.

Key numbers

1. Organised manufacturing workforce, 2021-22: 1.72 crore.
2. Non-farm workers in informal-sector enterprises (PLFS 2025): 73.1%.

Matching Previous Year Question

“[2023, GS3, 15 marks] Most of the unemployment in India is structural in nature. Examine the methodology adopted to compute unemployment in the country and suggest improvements.”