01 April 2025 : Indian Express Editorial Analysis

1. Labour at the centre

(Source – Indian Express, Section – The Editorial Page – Page No. – 08)

The Employment Deficit and Its Implications

• Since 2017-18, India’s working-age population has grown by approximately 9 crore, while formal sector jobs have increased by only 6 crore. 
• This results in a shortfall of around 50 lakh jobs annually. The employment gap is largely filled by self-employment in rural areas and informal service jobs, leading to concerns about both the quality and quantity of work opportunities. 
• With the growing working-age population, the challenge of expanding formal sector jobs is becoming more pressing.

The Role of Technology in Reducing Labour Intensity

• Rapid technological advancements have exacerbated the issue by steadily reducing the labour intensity of production. 
• Across various sectors, capital-intensive production processes are becoming the norm, even in traditionally labour-intensive industries like manufacturing and services. 
• The introduction of AI and automation is expected to accelerate this trend, potentially further limiting employment opportunities for unskilled and semi-skilled workers.

The Rising Capital Intensity in a Labour-Abundant Economy

A key question arises: why is capital intensity increasing in a country with abundant labour? Two primary factors drive this trend:

1. Demand-Side Factors: To enhance productivity and reduce costs, industries are adopting capital-intensive techniques. This shift enables businesses to increase value addition at a lower cost.
2. Supply-Side Factors: A shortage of skilled labour forces industries to turn to automation and capital-intensive processes. Despite India’s large workforce, only about 10% of workers have formal technical or vocational training, and many educated youth lack job-ready skills.

The Impact of Capital Cost Reduction on Employment

• Technological advancements have significantly reduced the cost of capital, making machinery and automation more affordable. 
• Meanwhile, real wages have not risen significantly, making it relatively cheaper for firms to invest in technology rather than hiring additional workers. 
• This has led to a shift in economic activity, with the services sector contributing more to Gross Value Added (GVA) and GDP, while manufacturing remains stagnant and agriculture’s share continues to decline.

Skill-Biased Technological Change and Job Displacement

• The rise of new technologies tends to favour workers with specific skill sets, leading to what is known as “skill-biased technological change.” 
• Tasks that do not require these advanced skills become redundant, reducing overall labour demand. 
• To address this challenge, continuous skilling and upskilling of the workforce are necessary to complement emerging technologies and machinery.

Government Initiatives to Bridge the Employment Gap

The Indian government has taken a two-pronged approach to address the jobs deficit:

1. Expanding Production Capacity: Through initiatives like the Production-Linked Incentive (PLI) scheme, the government aims to boost manufacturing output.
2. Incentivizing Labour Hiring: Programs such as the Employment Linked Incentive (ELI) scheme and internship programs seek to encourage private-sector firms to hire and train workers.

Challenges in the Implementation of the PLI Scheme

• While the PLI scheme aims to boost high-value production, over 50% of its budget is allocated to sectors like electronics, IT hardware, and drone manufacturing—industries that require highly specialized labour. 
• However, the highest job creation has been observed in food processing and pharmaceuticals, indicating a mismatch between budget allocation and employment potential. 
• Additionally, the lack of skilled labour in high-end sectors may hinder job growth, as most of India’s workforce remains low- or medium-skilled.

Effectiveness and Limitations of the ELI Scheme

• The ELI scheme aims to encourage formal sector employment by subsidizing labour costs for private firms. 
• While this reduces the initial hiring risk, the subsidies are only available for two to three years, raising concerns about the long-term sustainability of employment generated. 
• The scheme’s effectiveness depends on whether it leads to sustainable skill development and lasting employment opportunities.

The Need for an Integrated Policy Approach

To maximize job creation, policymakers must align production and skilling strategies. This requires:

• Greater coordination between ministries handling PLI, labour, and skilling.
• Revising the ELI scheme to provide graded incentives that increase with skill levels.
• Strengthening vocational training institutions (such as ITIs) by linking funding to employment and earnings outcomes.

The Role of Labour Regulations in Employment Generation

• India’s rigid labour laws contribute to the preference for capital-intensive production methods. 
• To counteract this, state governments need to adopt more flexible labour policies that lower employment costs and incentivize hiring.

Conclusion

• As India moves up the global production value chain, it is essential to invest in both the quality and quantity of the workforce. 
• An agile and dynamic policy framework focused on skill development and employment generation will be key to advancing the vision of Viksit Bharat.

 Check this out 29 March 2025 : Indian Express Editorial Analysis