Editorial 1 : Labour at the Centre
Context: Labour needs as much focus as capital in India.
Introduction: The quality and the quantity of work opportunities are under strain in India with a rising working-age population. Since 2017-18, working-age population increased by 9 crore and formal sector jobs grew by 6 crore, leaving a deficit of 50 lakh jobs annually. Most new jobs are in rural self-employment or informal services, indicating poor job quality.
Challenges
- Structural Economic Issues
- Sectoral Contributions to GDP
- Services: Rising share in GVA and GDP.
- Manufacturing: Stagnant contribution.
- Agriculture: Declining contribution.
- Capital Intensity Growth
- Labor intensity declining across sectors due to rapid technological adoption (e.g. AI).
- Capital-intensive production rising despite India’s labour-abundant economy.
- Drivers of Capital Intensity
- Demand-Side Factors: Need for productivity gains and low-cost value addition.
- Supply-Side Factors
- Falling cost of machinery and stagnant real wages.
- Skill Deficit: Only 10% of the workforce has formal technical/vocational training.
- Skill-Biased Technological Change
- Impact:
- Automation and AI devalue low/middle-skill tasks.
- Firms prioritize machine-based technologies over labour.
- Consequence: Reduced labour demand and widening skill gaps.
Current Policy Responses
- Production-Linked Incentive (PLI) Scheme
- Objective: Boost high-value manufacturing (e.g. electronics, drones).
- Issues
- Mismatch: Over 50% budget allocated to capital-intensive sectors, but maximum jobs created in food processing and pharma.
- Skill Constraints: High-end sectors require specialized labour, which is scarce.
- Employees’ Labour Incentive (ELI) Scheme
- Objective: Formal job creation via EPFO-linked subsidies.
- Challenges
- Short-term subsidies (2–3 years) with uncertain long-term impact.
- Limited focus on upskilling and employer investment in training.
Way Forward: Recommendations
- Integrated Strategy for Production and Skilling
- Coordination: Align PLI allocations with labour and skilling ministries to map future skill demand.
- Sectoral Focus: Prioritize labour-intensive sectors (e.g. textiles, food processing) in PLI.
- Reforming ELI Scheme
- Graded Incentives: Increase subsidies with certified skill levels (e.g. from Level 1 to Level 3).
- Supply Chain Integration
- Link training institutes (ITIs) to projected industry demand.
- Reward institutes based on employment outcomes.
- Labor Market Reforms
- Flexibility: States must simplify rigid labour laws to reduce artificial labour costs.
- Formalization: Incentivize informal-to-formal sector transitions.
- Future-Ready Workforce
- Upskilling: Continuous training to complement AI and automation.
- Vocational Education: Scale programs aligned with manufacturing and services needs.
Conclusion: There is a need for cohesive policy framework to address demand-supply mismatches and structural economic shifts. Government must invest in high-value manufacturing while building a skilled, adaptive workforce. Balance production expansion with labour reforms and lifelong learning.