India Needs to Create 10 Million Jobs Annually: Goldman Sachs

India’s official labour market indicators have shown improvement over the past six years, with a significant decline in the unemployment rate and a steady rise in female labour force participation, which has historically remained low. The positive trend is a result of broader structural changes in the Indian economy, according to a recent report by Goldman Sachs Economic Research.

The report highlighted RBI data which shows that over the last 23 years, around 196 million jobs were created in India, with around two-thirds of these created in the past decade as workers moved out of agriculture into construction or services up to FY19.

From FY20 to FY23, the landscape changed as jobs in agriculture sector witnessed an uptick, partly aided by workers migrating back to rural areas during the pandemic supported by additional subsidies which created a safety net. Additionally, both the services and construction sectors also created, with the latter benefitting from a robust real estate cycle and substantial government-funded infrastructure projects.

Capital-intensive manufacturing sectors saw higher employment growth than labour-intensive sectors, partly aided by fiscal incentives.

Goldman Sachs estimates that India needs to create around 10 million jobs annually, higher from the average of 8.5 million jobs added between FY00 and FY23, to sustain an average Gross Value Added (GVA) growth of approx 8.5 per cent year-on-year (YoY) from FY25 to FY30.

“In our view, there are three broad policies that can raise India’s employment rate further incentivizing ‘affordable social housing’ development, given that real estate employs more than 80 per cent of the labor force in the construction sector, diversifying the locations of IT hubs and GCCs to Tier-2 and Tier-3 cities which would ease resource pressures on existing Tier-1 cities and increase employment opportunities in the smaller cities, and labour-intensive manufacturing: re-allocating fiscal incentives towards labour-intensive manufacturing sectors,” Goldman Sachs said.

The report added that India’s demographic transition is slower compared to other Asian countries, with gradual declines in death and birth rates. Over the next two decades, the dependency ratio in India will be one of the lowest among major economies, as a larger share of population enters working age. To capitalize on this 20-year window of favourable demographics, it is important for India to focus on increasing per-capita income levels.

Goldman Sachs states that construction sector (including both infrastructure and real-estate construction) is a potential driver in generating mass-scale jobs, with over 13 per cent share in total employment.

India’s share in global services exports rose from under 2 per cent in 2005 to 4.6 per cent in 2023. To ease the domestic constraints to further growth and job creation in this sector, training technology graduates for this sector is important.