As India marches towards its goal of becoming a developed nation by 2047, a critical debate is gaining urgency among economists and policy thinkers. The familiar political promise of generating millions of new jobs every election cycle is being challenged by a more fundamental metric: productivity. According to analysts Arindam Goswami and Sridhar Krishna from the Takshashila Institution, the country's future prosperity depends less on the sheer number of jobs created and more on the value generated by each worker.
The Obsession with Job Counts and Its Pitfalls
The authors point to a stark imbalance in India's current economic structure. Agriculture employs nearly 46% of the workforce but contributes only about 18% to the GDP. This highlights a massive productivity gap compared to manufacturing and services. If the entire population relied solely on agriculture, India's GDP would collapse, leaving no fiscal room for social welfare schemes or direct cash transfers.
The narrative of rapid growth in manufacturing also masks a concerning trend. Despite high growth rates, manufacturing employment rose by a modest 13 million over five years. More importantly, research indicates that real wages in organised manufacturing have largely stagnated since the mid-1990s in the absence of efficiency gains. This creates a low-value trap, where job creation does not translate into higher incomes or significant tax revenues, ultimately failing to fuel consumption-led growth.
The AI Disruption and the Productivity Imperative
The very nature of work is undergoing a fundamental transformation. The Economic Survey 2024-25 warns of serious challenges from AI-driven automation, particularly in low-value-added service roles. The International Monetary Fund (IMF) estimates that 40% of jobs in emerging markets like India are susceptible to AI disruption.
Instead of fearing this shift, India must view AI through the lens of the Information Technology sector's success. The IT industry, while employing a small percentage of the population, contributes roughly 10% to GDP, with gains rippling across the economy. Similarly, AI holds the potential to exponentially increase labour productivity. The right metric for national progress, therefore, is growing GDP by enhancing the value output per worker.
The data reveals surprising trends: between 1994 and 2012, productivity in India's services sector soared while manufacturing stagnated. By 2012, services were nearly four times as productive as manufacturing—an international outlier. This underscores the risk of blindly chasing manufacturing jobs without demanding parallel gains in productivity.
Charting a Productivity-First Path Forward
In an AI-augmented and automated global economy, cheap labour can no longer be India's lasting competitive advantage. China, which once capitalised on this, is now rapidly automating those same jobs. For India to integrate into global value chains, it must contribute at the stages of design, engineering, and innovation, not just assembly. The example of semiconductors is telling: one chip designer adds far more economic value than ten workers in low-productivity assembly.
A productivity-focused framework would involve several key shifts:
- Recognising that not everyone needs a traditional job. Universal Basic Income or similar livelihood security mechanisms, funded by high-productivity sectors, could provide a safety net.
- Aggressively investing in high-skill education and vocational training to prepare the workforce for value-added roles.
- Aligning labour reforms and government incentives with sectors and firms that can achieve world-class productivity, rather than preserving low-productivity employment.
Admittedly, telling voters, "we'll create fewer, but better, jobs" is a tougher political sell than promising millions of new positions. However, the alternative is worse: generating millions of jobs that keep people in poverty, fail to boost tax revenues, and leave India uncompetitive in the next phase of global growth.
The sooner India moves this Overton window—the range of ideas acceptable in public discourse—the better it will be positioned for the reality already unfolding. The future will belong to companies and workers who compete on productivity, innovation, and value creation. By embracing this principle, India can increase GDP and per capita income, eliminate poverty, and generate the resources needed for high-quality education and healthcare for all.
