India's Employment Growth: Capital-Intensive Sectors Lead While Labor-Intensive Industries Dominate Jobs

India's Employment Growth: Capital-Intensive Sectors Lead While Labor-Intensive Industries Dominate Jobs

A recent report by Goldman Sachs highlights India’s employment growth dynamics, revealing that capital-intensive sectors have shown faster employment growth compared to labor-intensive sectors over the past decade. However, labor-intensive industries continue to hold a larger share of jobs in India, reflecting a diverse employment landscape.

Shift Toward Capital-Intensive Sectors in Manufacturing

The report emphasizes India’s impressive performance in capital-intensive manufacturing sub-sectors such as chemicals, machinery, and electronics. These industries have outpaced labor-intensive sectors like textiles and footwear in both export growth and employment. This shift has been largely attributed to government incentives, such as the Production-Linked Incentive (PLI) scheme, aimed at boosting high-value product exports to developed markets.

According to the report, capital-intensive industries—defined as those with a capital income share of 0.65 or higher—have demonstrated double-digit export growth, especially in products such as electronics, chemicals, and machinery.

Labor-Intensive Sectors Still Dominant in Employment

Despite capital-intensive sectors leading in employment growth rates, labor-intensive industries remain significant employers within India’s manufacturing sector:

   - Textiles, food processing, and furniture continue to account for 67% of jobs in manufacturing.

   - Data from the Annual Survey of Industries (ASI) shows that approximately 17 million workers (28% of total manufacturing employment) were employed in organized manufacturing as of FY22.

   

The labor-intensive sector benefits from recent PLI expansions into areas such as textiles, footwear, toys, and leather to stimulate job creation in sectors with high labor demand.

Construction Sector: A Pillar for Large-Scale Employment

The construction sector has remained a major employment generator, accounting for 13% of India’s total workforce. During the 2004-2008 construction cycle, this sector created 40% of all incremental non-agricultural jobs, driven by capital investments in real estate and infrastructure. Construction remains essential not only for employment but also for income growth, given its high labor income share.

Service Sector Growth Driven by Retail and Business Services

In the service sector, retail trade and business services have emerged as employment leaders, accounting for 34% of total jobs. However, this is still below the service sector’s 54% contribution to gross value added (GVA), indicating growth potential.

   - Retail and wholesale trade are primary employment sources, with business and transportation services following closely.

   - Technology advances and the rise of e-commerce have transformed the retail industry, prompting 41% of offline vendors to expand online, creating demand for roles in digital skills, logistics, and warehousing.

IT Industry: A Key Contributor to Employment and GDP

The IT sector has also contributed significantly to employment growth within business services. According to NASSCOM, India's IT industry reached a revenue milestone of USD 245 billion by FY23, representing around 7% of India’s nominal GDP. Over the past eight years, the IT sector has added approximately 1.9 million jobs, raising its total workforce to 5.4 million as of FY23. 

Conclusion: Balanced Growth Between Capital and Labor-Intensive Sectors

While capital-intensive sectors drive employment growth, labor-intensive industries continue to employ a substantial portion of India’s workforce. Government incentives and technological advancements are reshaping the employment landscape across both manufacturing and services. As India’s economy grows, this balanced approach between capital and labor-intensive sectors will be key to sustainable and inclusive job creation.