Accelerating labour-intensive manufacturing can play a vital role in the structural transformation of the Indian economy, creating decent jobs for a large labour force disguisedly employed in agriculture with negligible marginal productivity. Labour-intensive manufacturing will help India reap the demographic dividend by addressing the problems of underemployment and inequality. A comparative analysis of India’s labour-intensive manufacturing in terms of output, employment, and productivity, among others is provided. The analysis presents potential labour-intensive sectors, factors affecting productivity, policy lessons from successful countries, and offers specific policy prescriptions to accelerate labour-intensive manufacturing in India.

The authors thank Nagesh Kumar for the valuable inputs that helped improve this paper. 

India’s services-led growth story during post-1991 departs from the well-established linear-stage growth theories of structural transformation (Lewis 1954; Kuznets 1957) moving from agriculture to industry and then to services. Lewis’s model of dualistic development suggests shifting surplus labour from a slow-growing agricultural sector to a more productive manufacturing sector. This is relevant for a populous country like India—with two-thirds of its population in the working-age group—for productivity-led growth and overall economic development. India’s economic structure has remained unlike East Asian economies such as China and South Korea, where industry contributes around 40% and 32% of output, respectively. Further, the World Bank Group data shows that, in 2023, one-third of the employment is contributed by the industrial sector in China and Vietnam, compared to 26% in India. The bypassing of the middle stage—manufacturing—has created a structural imbalance in the Indian economy, leaving a large number of the labour force in agriculture with negligible marginal productivity. Though the share of the primary sector has moderated (28% in 1990 to 17% in 2022), 40% of the total labour force is still engaged in the sector for livelihood. An effective way to increase the productivity of disguisedly employed surplus labour with limited education and skills in agriculture rests in moving them to labour-intensive manufacturing, which paves the way for reducing underemployment and inequality.