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An agile and dynamic policy framework that focuses on creating a workforce for the future to advance the agenda of Viksit Bharat is critical.

Since 2017-18, the working-age population of India has increased by about 9 crore, while formal sector jobs rose by 6 crore — a deficit of 50 lakh jobs annually. Most of the recent increase in employment has come either from self-employment in rural areas or from informal services. Hence, both the quality and the quantity of work opportunities are under strain with a rising working-age population.

The challenge of expanding work opportunities in the formal sector becomes even more daunting in the face of rapid technological progress. Data shows a persistent and steady decline in the labour intensity of production technology across sectors.

This deepening of the capital intensity of the production process, including in labour-intensive manufacturing and services industries, is likely to hasten with the advent of AI.

But why is the capital intensity of production rising in a labour-abundant economy? There can be two factors at play — one, demand-side factors, which make the adoption of capital-intensive techniques imperative for increasing productivity and value added at low cost, and two, supply-side factors, which impinge on the availability of complementary quality or skilled labour.

If the relative cost of capital or machinery falls, it incentivises producers to invest in more capital-intensive technology, even without any gains in productivity. Value added has increased the most in the services sector, which is reflected in the rising contribution of the services sector to GVA (Gross Value Added) and to GDP.

However, the manufacturing sector’s contribution has been stagnant while agriculture’s contribution to GDP has declined. Although real wages have not risen significantly, the price of capital or new machine-based technology is falling rapidly with technological progress worldwide. At the same time, less than 10 per cent of our labour force has any formal technical or vocational training and evidence suggests that the majority of our educated youth do not possess skills that make them employment ready.

With the advent of new technologies that favour particular skills, there is likely to be devaluation or destruction of tasks that become redundant. This “skill-biased technological change” lowers the demand for labour by firms as they shift towards more productive and relatively cheaper machine-based technologies. It is, therefore, imperative to continuously equip and re-equip our labour force with skills that complement new technology and machinery. Given this scenario, what are the policies that need to be adopted to incentivise hiring more labour in the formal sector?

The central government has been following two, somewhat parallel, tracks to address the jobs deficit: On the one hand, it aims to increase production capacity, for instance through the PLI scheme, and on the other, incentivise the private sector to hire more labour while also skilling them, through the ELI and other internship programmes.

The current structure of the PLI scheme is primarily focused on expanding production of high-value products with backward linkages, which require high-skilled, specialised labour, and is relatively less focused on low- and middle-skilled labour-intensive sectors. Specifically, over 50 per cent of the PLI budget is allocated for large-scale electronics, IT hardware and drone manufacturing. However, the highest number of jobs under the scheme has been created in the food processing and pharmaceutical industries. Hence, there is a mismatch between the weight of the budgetary allocation and the potential for employment creation. The emphasis on high-end products is also constrained by the lack of adequate supply of labour with complementary skills, which could further stymie creation of new jobs. The majority of our current labour force possesses low or medium skills.

The ELI scheme, on the other hand, intends to create jobs in the formal sector, effectively through government cash transfers via the EPFO, and in relatively labour-intensive sectors, by bearing some of the risk of hiring untrained labour by private firms. While this policy does reduce the cost of labour by shifting (the initial) burden on to the government, the period of the subsidy or transfers is short (about two to three years). It is yet to be seen whether the scheme will be successful in creating durable employment. More importantly, data would be needed to follow interns over time to evaluate whether the scheme leads to sustainable skilling. It is, therefore, an open question how the ELI scheme can address the fundamental issue of encouraging employers to invest in not just initial skilling but also upskilling the workforce to complement new technologies.

Simply put, policymakers should consider linking the production and labour skilling strategies to create a comprehensive and cohesive agenda to not only expand production capacity but also ensure a pipeline of workers with requisite, complementary skills in these sectors. Such an approach would address both the demand- and supply-side factors that impinge on job creation, while also inducing the structural transformation of the economy towards high-value manufacturing.

Currently, each ministry focuses on utilisation of its own PLI budget with little (if any) coordination with the ministries of labour and skilling to map where the current and (expected) future supply of (skilled) labour will come from. The current structure of ELI incentives could also be amended from flat to graded, that is, transfers would increase with each level of skills that is certified to support both on-the-job training and upgrading of skills. The ELI scheme’s focus could also move further back into the skill supply chain — to re-haul and reward training institutes and programmes (such as ITIs) based on employment and earnings outcomes through skills that are linked to the projected future demand.

At the same time, we cannot ignore the long-standing issue of loosening our labour regulations that artificially inflate the cost of labour and encourage the adoption of capital intensive technologies. The onus of adopting flexible labour policies, however, lies with the state governments.

An agile and dynamic policy framework that focuses on creating a workforce for the future to advance the agenda of Viksit Bharat is critical. As we collectively move up the production value chain, we must simultaneously invest in both the quantity and the quality of our present and future workforce.

The writer is professor of Economics at the ISI (Delhi) and visiting professor at NCAER. Views are personal.

With technology shaping the future of work, all communities, including marginalised ones, should have equal access to emerging high-value roles.

The information technology (IT) industry is at the heart of global economic transformation, shaping industries, driving innovation and creating new career paths.

The demand for IT professionals continues to surge, creating both opportunities and challenges, as the industry evolves rapidly. Technology-driven fields, particularly in Artificial Intelligence (AI), are now shaping the future of work, presenting fresh opportunities for growth while simultaneously posing potential risks to existing employment structures.

The employment landscape within IT and IT-related occupations has seen substantial growth over the past few years. According to the Period Labour Force Survey (PLFS) data, employment in the IT sector surged 1.89 times between 2017-2018 and 2023-2024. This remarkable increase highlights the growing importance of technology-driven sectors in India’s overall economic modernisation.

The IT industry is a critical component of economic development, especially as businesses across the globe continue to digitise and automate various functions.

As the demand for IT professionals rises, there are emerging job opportunities in software development, data analysis, cybersecurity, cloud computing, AI research and more. This evolution in the nature of work has resulted in increasing recognition of IT as a sector capable of driving economic growth, providing high-paying, specialised jobs, and transforming other industries through technology adoption.

 Socio-demographic distribution

While the rise in IT employment is encouraging, a closer look at the distribution of these opportunities reveals concerning inequalities. The share of different communities in IT employment, as presented by the PLFS data, reveals discrepancies in how various demographic groups are represented in the IT workforce.

To assess this more critically, we need to break down the data by community and analyse the trends from 2017-2018 to 2023-2024.

The representation of Scheduled Tribes (STs) in IT employment has decreased from 3.86% in 2017-2018 to 3.28% in 2023-2024, despite an increase in their overall share in total employment and population.

This decrease, especially in the IT sector, raises significant concerns. The persistent under-representation of STs in IT occupations likely stems from multiple factors. For one, there is a substantial digital divide in rural and tribal areas, where access to education, the Internet and digital literacy programmes is comparatively limited.

The lack of quality educational infrastructure, as well as barriers to accessing skill development resources, may contribute to their exclusion from this rapidly growing field. In essence, while tribal communities are benefiting from an increase in total employment, they remain sidelined in high-skill sectors like IT.

Similarly, Scheduled Castes (SCs) have seen a notable decline in their share of IT employment, from 9.93% in 2017-2018 to 7.12% in 2023-2024. Despite maintaining a consistent share of almost 20% in total employment, their representation in the IT sector remains disproportionately low.

This suggests that while affirmative action policies have helped SCs gain access to broader employment opportunities, these communities still face significant barriers in accessing high-skill, high-paying roles within the IT industry. Limited access to quality education, insufficient mentorship programmes and biases in hiring practices likely contribute to this disparity.

The Other Backward Classes (OBCs) have the largest share of IT employment, but their representation has slightly decreased from 41.36% in 2017-2018 to 40.51% in 2023-2024. While this group remains dominant in IT-related fields, this slight decline may indicate a shifting demographic in the IT workforce.

OBCs, being a heterogeneous group, have seen a broader representation in urban and semi-urban areas, where access to educational institutions and technology-related opportunities is more robust. However, the decreasing share could also point to the increasing involvement of more privileged communities in the IT sector, suggesting a potential widening of the socio-economic divide as more elite groups gain access to these opportunities.

The “Others” category, which consists of more privileged groups, has seen an increase in IT and IT-related employment from 44.85% to 49.09%, while the community’s share in total employment declined from 27.26% to 23.06%. The larger share of this community in IT & IT-related employment can be attributed to the fact that individuals in these communities may have greater access to resources, networks, and educational opportunities that facilitate entry into the IT sector.

Their higher share of IT employment reflects the concentration of technological and managerial expertise in these communities, contributing to the continued socio-economic divide in the digital economy.
The disparities in representation across different communities are indicative of a broader issue. Despite the rapid growth of the IT sector, historically marginalised communities, particularly STs and SCs, face systemic barriers that prevent them from accessing these opportunities.

The dominance of the “Others” category in IT occupations further highlights the socio-economic divide. Privileged groups often have access to better education, training resources and job networks, giving them a distinct advantage in securing high-ski…

While employment in IT is growing, marginalised groups, including STs and SCs, remain under-represented in this high-skill sector. The disparities suggest that systemic barriers need to be addressed. Additionally, more inclusive hiring and affirmative action policies must be deployed to ensure that the IT sector becomes a true reflection of India’s diverse demographic landscape.

As the IT industry continues to grow, particularly in fields like AI, data science, and machine learning, there is a pressing need to ensure that all communities have equal access to these emerging high-value roles.

Without focused efforts, the digital economy risks becoming a further driver of socio-economic inequality. Only by addressing these disparities can we ensure that the benefits of the digital revolution are shared equitably across all communities in India.

Palash is a Fellow at the National Council of Applied Economic Research (NCAER), New Delhi, and Wankhar is a retired Government of India officer. Views are personal.