Tackling India's jobs plight: Underutilised levers and lessons from China

Alicia Garc¡a Herrero and Rajeswari Sengupta
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Alicia Garc¡a Herrero: Natixis

Indira Gandhi Institute of Development Research, Mumbai Working Papers from Indira Gandhi Institute of Development Research, Mumbai, India

Abstract: Despite strong GDP growth and favourable demographics, India faces an impending jobs crisis. A large share of the workforce remains stuck in low-productivity agriculture, while new entrants are increasingly absorbed into the informal sector. By contrast, China's rapid growth was driven by manufacturing-led, export-oriented industrialisation, supported by substantial foreign direct investment and sustained technology transfer. India's manufacturing sector remains relatively small, and formal employment is concentrated in skill-intensive services. This paper compares the development trajectories of India and China and identifies four underutilised levers in India: manufacturing, goods exports, manufacturing-oriented foreign direct investment, and innovation. While each remains underdeveloped, together they offer a pathway to more labour-intensive and durable growth. Given the need to create 8-10 million jobs annually, job creation must become an explicit policy priority. We argue that this requires greater trade openness, particularly with Asia and Europe, to integrate India into global value chains; deeper labour market reforms, including effective implementation of the new labour codes; and stronger innovation and skills ecosystems aligned with industrialisation. Absent such structural shifts, India's current pattern of jobless growth risks turning its demographic dividend into a long-term liability.

Keywords: GDP growth; Jobs; Exports; Foreign Direct Investment; Manufacturing; Innovation (search for similar items in EconPapers)
JEL-codes: E2 E6 F1 F4 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2026-03
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Working Paper: Tackling India's jobs plight- underutilised levers and lessons from China (2026)
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