Why India needs to talk less about job creation and more about productivity

The obsession with job counts

India’s dreams of becoming a developed country by 2047 cannot be achieved by creating millions of low-paying jobs. Agriculture employs 46 per cent of its population and contributes only 18 per cent of its GDP by conservative estimates, indicating that manufacturing and services are significantly more productive than agriculture.

Imagine if India’s entire population was supported only by agriculture, and it decided to be the country that feeds the world. India’s GDP would collapse. There would be no money available to provide any direct cash transfers or for MGNREGA, now called VB-G RAM G.

Fundamental transformations underway

The very nature of work is getting rewritten. The Economic Survey 2024-25 says India is facing serious challenges from AI-driven automation, mainly in low-value-added service jobs, as the reduction of cost is a key driver of technology adoption. The IMF estimates 40 per cent of jobs in emerging markets like India are susceptible to disruption by AI. Manufacturing saw employment rise by only 13 million over five years despite a high growth rate narrative. Even dramatic percentage increases make for relatively modest job additions.

It is pertinent to note that India’s fast rate of growth in the 1990s and 2000s has been helped by the growth of the Information Technology (IT) sector. Although this sector employs a very small percentage of the population, it contributes almost 10 per cent of India’s GDP. The gains from this have ripple effects across different sectors. It is through this lens that India needs to look at AI too. The advent of AI has increased worries about the future of jobs. The right metric for India, or for that matter, any nation, is to look at increasing labour productivity while growing GDP. AI has the potential to increase labour productivity exponentially. It is therefore important not to put up artificial barriers to progress in AI, claiming that AI is taking away jobs.

India’s labour productivity in agriculture is a mere 30 per cent of the economy-wide average, yet nearly half the workforce remains attached to it. Manufacturing productivity is roughly thrice that of agriculture, and services even more so. But what’s surprising is that between 1994 and 2012, services productivity soared while manufacturing productivity stagnated. By 2012, services were nearly four times as productive as manufacturing in India, an international outlier.

What does this tell us? Blindly chasing manufacturing jobs, without demanding gains in productivity, has locked us in a low-value trap. Research shows that, in the absence of efficiency improvements, real wages in organised manufacturing have almost stagnated since the mid-1990s. The gains went to capital, not labour. This is, unfortunately, what low-productivity job creation means.

The freebies discourse gaining political ground is a symptom of this underlying reality. When productivity does not rise, wages cannot rise. And when wages do not rise, consumption-led growth doesn’t happen.

What’s the alternative?

India needs to shift the conversation to “how much value per worker”. It is not about moving away from job-creation concerns. It is about recognising that in an AI-augmented, increasingly automated global economy, cheap labour can’t be India’s competitive advantage. China already played that game and is now automating those very jobs.

Consider semiconductors, which India is desperate to break into. Design captures much more value than assembly. One chip designer contributes more to the economy than ten workers putting chips together. Should India strive to employ the latter ten in a low-productivity job or create the former in a high-productivity one? A productivity-first principle recognises that the latter contributes more to GDP, hence to tax revenues, and the possibility of livelihood security for all.

If India is to integrate into global value chains, it needs workers who can contribute at the design, engineering, and innovation stages, not just assembly.

Productivity-focused framework

What would a productivity-focused framework look like? First, realise that not everyone needs a traditional job. Universal basic income, or similar livelihood security mechanisms funded by high-productivity sectors, could provide a floor. Thereafter, investing aggressively in high-skill education and training is very important. Third, focus labour reforms and incentives on sectors and firms that can achieve world-class productivity, not on preserving low-productivity employment.

Telling voters, “we’ll make fewer, better jobs,” is harder than promising “we’ll create millions of jobs.” But the alternative is worse: Creating millions of jobs that fail to lift people out of poverty, fail to bring in sufficient tax revenue, and fail to position India competitively for the next phase of global growth.

The sooner India moves this Overton window, the better positioned it will be for the reality already unfolding. The jobs of the future will emerge from companies and workers who can compete on productivity, innovation, and value creation in an automated world. Get on this bus, increase GDP and per capita income and eliminate poverty and hunger. Use this to provide high-quality education and healthcare. That’s the north star India should target.

Goswami is research analyst and Krishna is senior scholar, at the Takshashila Institution