India’s Labour Market: Challenges and Policy Interventions

Context

• India’s working-age population is expanding rapidly, but job creation has not kept pace.

• Automation, skill gaps, and structural issues are limiting employment opportunities.

• The formal sector is unable to absorb surplus labour, increasing reliance on informal jobs and self-employment.

• Government initiatives like PLI, ELI, and Skill India aim to bridge this gap, but challenges remain.

Challenges in the Indian Labour Market

1. Job Deficit

• India's working-age population increased by 9 crore, but formal sector jobs increased by only 6 crore.

• This results in a deficit of 50 lakh jobs annually.

2. Informal and Insecure Employment

• Most new jobs are in self-employment (rural areas) or informal services, lacking stability and social security.

3. Lack of Skilled Workforce

• Less than 10% of India's labour force has received formal technical or vocational training.

• A large section of educated youth lacks industry-ready skills.

4. High Labour Costs and Rigid Laws

• Stringent labour laws increase hiring costs, pushing firms towards capital-intensive technologies.

5. Mismatch in PLI Allocation

• Over 50% of the PLI budget is allocated to high-value sectors like electronics, IT hardware, and drones.

• However, most new jobs are being created in food processing and pharmaceuticals, leading to a sectoral job mismatch.

6. Short-Term Nature of Job Incentives

• Employment Linked Incentives (ELI) last only 2-3 years, failing to ensure long-term employment.

Government Initiatives for Labour Market Improvement

1. Production Linked Incentive (PLI) Scheme

• Launched: 2020

• Objective: Boost industrial growth and make India a global manufacturing hub.

• Focus Areas:

  • Attracting investment in high-tech industries.

  • Strengthening domestic manufacturing.

  • Enhancing India’s global competitiveness.

• Covers 14 critical sectors.

2. Employment Linked Incentive (ELI) Scheme

• Launched: Union Budget 2024

• Nodal Ministry: Ministry of Labour and Employment

• Objective:

  • Boost formal sector employment.

  • Provide comprehensive support to workers and employers.

3. Labour Reforms – The Four Labour Codes

• Code on Wages, 2019 – Simplifies wage regulations.

• Industrial Relations Code, 2020 – Eases hiring and retrenchment.

• Code on Social Security, 2020 – Expands social benefits.

• Occupational Safety, Health, and Working Conditions Code, 2020 – Improves workplace standards.

4. Skill Development Initiatives

• Skill India Mission (2015) – National initiative for skill training and employment.

• PMKVY (Pradhan Mantri Kaushal Vikas Yojana, 2015) – Standardization of vocational skills.

• PMEGP (Prime Minister Employment Generation Programme) – Credit-linked subsidy for self-employment in the non-farm sector.

Why is Job Creation a Challenge?

1. Rapid Technological Progress and Automation

• AI and automation are leading to capital-intensive production, reducing labour demand.

2. Capital-Intensive vs. Labour-Intensive Production

• Capital-Intensive: Industries rely on machinery instead of human labour.

• Labour-Intensive: Requires more workers, but is often less productive.

3. Cheaper Capital and Automation

• The cost of machinery is falling, making automation more attractive than hiring workers.

4. Skill Mismatch

• There is a gap between available jobs and required skills, reducing employability.

5. Lack of Policy Coordination

• Ministries focus on their own budgets without aligning industrial growth with job creation.

Solutions for Labour Market Improvement

1. Dynamic Policy Framework

• A future-oriented workforce strategy under Viksit Bharat is essential.

2. Linking PLI and ELI

• Aligning industrial production incentives with labour skilling programs will ensure a steady supply of skilled workers.

3. Graded Incentives in ELI

• Instead of a flat subsidy, provide higher incentives for hiring and training skilled workers.

4. Revamping Training Institutes

• Reward institutions based on employment outcomes and market relevance of skills.

5. Balancing Capital and Labour

• Provide incentives for labour-intensive industries and support firms in hiring through tax benefits.

6. Data-Driven Policy Approach

• Track employment and skill development data to make evidence-based policy decisions.

Conclusion

• India’s job market faces structural challenges such as automation, skill mismatch, and capital-intensive production.

• Government policies like PLI, ELI, and Skill India are crucial but need better coordination and long-term vision.

• A balanced approach between technological progress and employment generation is key to inclusive economic growth.