Structural Shift in India’s Labour Market

Periodic Labour Force Survey (PLFS) 2025 highlights India’s labour market transition from agriculture towards diversified, formalised, and skill-driven employment opportunities and sectors.

Need for Structural Shift in India’s Labour Market

Employment Diversification: Agriculture employs nearly 43% of India’s workforce yet contributes only 16–18% of GDP, underscoring the need for productive non-farm employment.
Demographic Dividend: With over 65% of the population below 35 years and youth unemployment at 9.9%, labour market transformation is essential for job creation.
Productivity Growth: Only 14.5% of workers are employed in firms with more than 20 employees, underscoring the need to expand the formal and productive sectors.
Inclusive Development: Women hold 69% of Mudra loans and 55% of Jan Dhan accounts, showing the importance of inclusive and diversified employment opportunities.

Changing Employment Landscape in India

Agrarian Shift: Agriculture’s employment share declined from 66% (1987–88) to 43% (2025), reflecting movement towards non-farm sectors.
Formal Expansion: Workers employed in firms with over 20 employees increased from 10.8% (2024) to 14.5% (2025).
Women Skilling: Government skill training raised women’s probability of self-employment by 5.8%, improving entrepreneurial participation.
Youth Employment: India’s youth unemployment rate stands at 9.9%, lower than the global average of 12.6% in 2025.
Educational Participation: About 37.9% of youth (15–29 years) participated in education or skill training during the previous year.

Changing Nature of India’s Labour Market

Agrarian Transition: Agriculture’s employment share declined from 66% (1987–88) to nearly 43% (2025), reflecting a shift in the workforce towards the manufacturing and services sectors.
Growing Formalisation: Workers employed in firms with more than 20 employees rose from 10.8% (2024) to 14.5% (2025), driven by labour reforms and PLI-led industrial expansion.
Skill-Based Employment: About 37.9% of youth (aged 15–29) participated in education or skills training, indicating a shift towards knowledge- and technology-driven employment.
Women’s Participation: Women received nearly 69% of Mudra loans, and government skill training increased women’s probability of self-employment by 5.8%, thereby promoting entrepreneurship.
Gig Economy: NITI Aayog estimates India may have over 2.3 crore gig workers by 2030, reflecting the expansion of platform-based and flexible employment opportunities.

Government Initiatives

Production Linked Incentive (PLI) Scheme: The PLI scheme covering 14 sectors aims to boost manufacturing, attract investment, and generate large-scale formal employment opportunities.
PMKVY: Pradhan Mantri Kaushal Vikas Yojana (PMKVY) provides industry-oriented skill training to improve employability and workforce productivity.
Skill India Mission: Skill India Mission enhances employability through industry-oriented training, apprenticeships, and workforce upskilling programmes.
Four Labour Codes Reform: The four Labour Codes simplify labour regulations, promote ease of doing business, and encourage labour-intensive industrial growth.
Pradhan Mantri Mudra Yojana (PMMY): PMMY supports micro-enterprises and self-employment, with women receiving nearly 69% of total Mudra loans.

Persistent Challenges in India’s Labour Market

High Informality: Nearly 80–85% of India’s workforce remains employed in the informal sector with limited social security and job protection.
Manufacturing Stagnation: Manufacturing contributes around 17% of GDP, but employs only about 12–13% of the workforce, limiting large-scale job creation.
Wage Stagnation: Real wage growth for casual and salaried workers has remained slow in several sectors despite rising inflationary pressures.
Skill Gap: According to various skill surveys, only about 4–5% of India’s workforce has received formal skill training, which is far below that of many developed economies.
Regional Disparities: Significant interstate differences persist in minimum wage compliance, labour participation, and employment quality across states.

Measures for Labour Market Transformation

Industrial Expansion: Manufacturing employs only 12–13% of the workforce despite contributing nearly 17% of GDP, underscoring the need for labour-intensive industrial growth.
Skill Alignment: Only 4–5% of India’s workforce has formal skill training, highlighting the need for industry-oriented skilling systems.
Wage Protection: Many casual workers still earn below minimum wages, necessitating stricter enforcement of labour rights and wage laws.
MSME Integration: MSMEs contribute nearly 30% of GDP and employ over 11 crore people, underscoring the need for stronger formal-sector integration.
Inclusive Employment: Women account for 69% of Mudra beneficiaries, underscoring the importance of gender-inclusive labour market policies.

“From ‘Demographic Dividend’ to ‘Viksit Bharat’, India’s future depends on productive, inclusive, skill-driven, and formalised employment ensuring sustainable economic growth.”

Reference: Live Mint

PMF IAS Pathfinder for Mains – Question 674

Q. India’s labour market is undergoing a structural shift from agriculture-led employment towards a formal and skill-oriented economy. Discuss the major challenges associated with this transition and suggest suitable policy measures to ensure inclusive and sustainable employment growth. (250 Words) (15 Marks)

Approach

Introduction: Write a brief introduction about India’s labour market.
Body: Write about the structural shift in the labour market, highlighting major challenges associated with this transition & suggest suitable policy measures to ensure inclusive & sustainable employment growth.