India’s Employment Growth Gains Momentum, but Labour Market Challenges Persist: CareEdge Report

Employment growth has outpaced population growth since 2021, while low female participation, skill mismatches and limited labour-intensive job creation remain key concerns

India’s employment landscape has shown improvement in the post-pandemic period, with employment growth outpacing population growth among people aged 15 and above between 2021 and 2025. However, a new report titled “India’s Employment Scenario: Progress Underway but Miles to Go” highlights continuing challenges around labour force participation, women’s employment, youth unemployment, education-skill mismatches, informality and the availability of jobs in labour-intensive sectors.

The report notes that India’s working-age population currently accounts for 68% of the population. During 2021-2025, employment grew at a 3.5% CAGR, compared with 1.4% population growth among those aged 15+. Employment elasticity also increased to 0.46, compared with 0.22 during 2011-15 and 0.08 during 2006-2010.

Employment growth improves after the pandemic

Over the last two decades, India’s real GDP growth averaged 6.4% during FY07-FY26, while the share of the working-age population aged 15-64 increased from 62% to nearly 68%.

The report notes that employment growth among the population aged 15+ had slowed in the late 2000s and lagged population growth. The trend changed after the pandemic, with employment recording a 3.5% CAGR during 2021-2025, compared with 1.4% growth in the 15+ population.

Employment elasticity, which measures the change in employment associated with economic growth, also improved to 0.46 during 2021-2025, from 0.22 during 2011-2015 and 0.08 during 2006-2010.

Despite these gains, the report identifies lower labour force participation, education-skill mismatches, youth unemployment, job informality and untapped employment opportunities in labour-intensive sectors as continuing challenges.

Labour force participation rises to 59.3%

India’s labour force participation rate (LFPR) increased to 59.3% in 2025, compared with 49.8% in 2018. The increase was driven mainly by higher rural LFPR, while urban participation also increased at a slower pace.

Despite the improvement, India’s LFPR remained below the global average of 61% and below several Asian economies, including Vietnam at 72.8%, Singapore at 69.7% and Indonesia at 68%.

The report identifies higher female participation and greater formalisation of jobs as areas where further improvement is possible.

Female participation remains lower than male participation

India’s male LFPR stood at 77.6% in 2025, above the global average of 73.1%. Female LFPR, however, was 32.4%, compared with the global average of 48.9%.

The report links the lower female participation rate partly to women’s involvement in domestic and caregiving activities.

According to the Time Use Survey (2024), 41% of women aged 15-59 years were engaged in caregiving for household members, compared with 21.4% of men in the same age group. Women in this age bracket spent about 140 minutes per day on caregiving activities, while men spent 74 minutes.

Unemployment stabilises, while self-employment remains widespread

India’s unemployment rate has remained around 3.1% since 2023, compared with 6% in 2018, according to the PLFS Survey under the usual status measure.

The urban unemployment rate stood at 4.8%, compared with 2.4% in rural areas.

The report notes that the unemployment rate may not fully capture the extent of unemployment because of increasing self-employment and disguised unemployment in agriculture. Seasonal, casual and irregular employment can also affect how unemployment is measured.

The share of self-employment in total employment increased from 52.1% in 2018-19 to 58.4% in 2023-24, before declining to 56.2% in 2025. The 2025 level remained above the pre-Covid figure of 52.1%.

Among rural workers, 57.4% of men and 70.7% of women were self-employed, compared with 40.4% each among urban male and female workers.

The report notes that the high share of rural women in self-employment reflects unpaid family labour and work informality, and highlights the need for better rural employment opportunities for women.

Nominal wages rise faster than inflation

Nominal wage growth across employment categories increased by close to 6% in 2025, compared with 2% inflation.

The report states that nominal wage growth among regular and salaried employees consistently exceeded inflation, while earnings growth among casual labour and self-employed workers showed greater volatility.

The broader increase in nominal earnings relative to inflation in 2025 indicated an improvement in workers’ purchasing power. However, the report notes that an expected increase in inflation could put pressure on purchasing power and the consumption outlook.

Education-skill mismatch remains a labour market concern

Although overall unemployment has declined, unemployment remains higher among people with higher educational attainment.

The unemployment rate among individuals with secondary and above education was 6.5% in 2025, the highest among the education categories examined.

The Economic Survey 2024-25 found that 53% of individuals with a graduate degree and 36% with a post-graduate degree were underemployed.

The report identifies the gap between educational qualifications and available employment opportunities as a continuing issue.

Youth unemployment remains at 9.9%

India’s unemployment rate among people aged 15-29 years stood at 9.9% in 2025.

Female youth unemployment was 11.3%, compared with 9.3% for males. The report notes that the female youth unemployment rate has widened during the post-pandemic period.

India’s working-age population is expected to continue increasing until 2033, while the share of the population aged 15-24 is estimated to decline from around 17.3% in 2026 to 15.6% by 2033.

The report highlights youth-focused employment creation, industry-aligned skilling and vocational training as areas requiring greater attention.

Agriculture continues to employ the largest workforce

Agriculture accounted for 43% of total employment in 2025, while its share of employment had declined from 61.5% in 2000 to 48.8% in 2012.

The construction sector absorbed part of the workforce moving away from agriculture, with its employment share increasing from 4.4% in 2000 to 10.6% in 2012 and 12.1% in 2025.

The services sector’s employment share increased from 22.9% in 2000 to 31.8% in 2025.

Manufacturing, meanwhile, continued to account for approximately 10-12% of total employment.

Agri-allied activities gain share

Agriculture and allied activities contributed about one-fifth of India’s national income at current prices, despite accounting for 43% of the workforce.

The report highlights higher-value agricultural activities such as horticulture and floriculture, allied activities including animal husbandry and poultry, and ancillary activities such as food processing.

Within agriculture and allied activities, crop production accounted for 31.3% of employment in 2025, down from 40% in 2018.

Employment in animal production increased to 6.4% in 2025 from 2.1% in 2018, while mixed farming increased to 4.7% from 1.4%.

Manufacturing employment remains broadly unchanged

The manufacturing sector continues to employ about 10-12% of India’s workforce, while growth has increasingly shifted towards skill- and technology-intensive segments such as automobiles, pharmaceuticals, electronics and speciality chemicals.

The share of labour- and resource-intensive products in manufacturing exports declined to an average of 20% during 2021-2025, from 29% during 2006-2010.

Within skill- and technology-intensive manufacturing exports, medium/high-skill and technology-intensive products increased to 65% during 2021-2025, compared with 53% during 2006-2010.

The share of low-skill and technology-intensive manufacturing exports declined to 15% from 18% over the same periods.

The report calls for continued attention to labour-intensive manufacturing sectors including textiles and apparel, leather and footwear, gems and jewellery, toys and sports goods, alongside skilling and upskilling for medium- and high-skilled manufacturing roles.

PLI schemes linked to investment and employment

The report cites the Production Linked Incentive (PLI) scheme as one of the government measures supporting manufacturing.

As of the end of March FY26, cumulative PLI investment stood at Rs 2.4 lakh crore, with reported employment of more than 14.15 lakh, including direct and indirect employment. Direct employment accounted for 8.4 lakh.

Source: Rajya Sabha Response dated 24th July 2026, CareEdge.

Labour-intensive services remain an employment opportunity

Within services, wholesale and retail trade accounted for 10.8% of total employment in 2025, followed by transportation and storage at 4.5% and education at 3.3%.

Information and communication accounted for 1.3%, while financial and insurance activities represented 1.2%.

The report highlights travel, trade, hospitality, healthcare and education as labour-intensive services with potential for employment generation at scale.

At the same time, high-value services such as software and business services have supported India’s services exports and the expansion of Global Capability Centres (GCCs). These sectors are also facing changes associated with artificial intelligence and automation.

Hiring slows among selected Nifty 500 companies

An analysis of 236 companies from the Nifty 500 index found that hiring trends stagnated in FY26. Net employee additions in the sample were flat during FY26 after stronger post-pandemic additions.

Banking/Finance/Insurance and IT accounted for 38% and 32% of total employment, respectively, within the sample.

The report attributes the recent hiring slowdown in Banking/Finance/Insurance to increasing adoption of artificial intelligence, digital technologies and automation. In IT, weaker hiring was linked to weak demand, increased recruitment for specialised roles and a normalisation following strong post-pandemic hiring.

The automobile and ancillaries, capital goods, construction materials, healthcare including pharmaceuticals, infrastructure and realty sectors recorded net workforce additions in FY26. Together, these sectors accounted for 13% of employment in the sample.

The automobile and ancillaries sector accounted for 4%, while healthcare including pharmaceuticals represented 5%.

More recent IT data indicates that subdued hiring continued into FY27. Employee headcount at India’s top five IT companies contracted for the last two quarters in a row.

The five companies covered are HCLTech, Tech Mahindra, Infosys, Tata Consultancy Services (TCS) and Wipro.

Government expands employment and skill-development initiatives

The report notes that the government has simplified and consolidated 29 Central labour laws into four Labour Codes:

• Code on Wages, 2019
• Code on Social Security, 2020
• Industrial Relations Code, 2020
• Occupational Safety, Health, and Working Conditions Code, 2020

The report also points to government measures covering skill development and employment-linked incentives, including the PM Internship Scheme, PM Employment Generation Programme and Skill India Programme.

Budget allocations for selected employment schemes include:

Source: CMIE, Budget Documents, CareEdge. RE: Revised Estimate; BE: Budget Estimate.

Under-utilisation of allocated funds remains an issue

Budget allocations to the Ministry of Education and Ministry of Labour and Employment increased at CAGRs of 8.4% and 25.2%, respectively, during the post-pandemic period.

Allocations to the Ministry of Micro, Small and Medium Enterprises and Ministry of Skill Development and Entrepreneurship also recorded continued double-digit growth.

The report, however, points to under-utilisation of allocated funds across these ministries and identifies more effective use of budgeted resources as an area requiring attention.

Report outlines employment policy priorities

The report identifies several areas for strengthening India’s employment landscape, including:

High-value agriculture and allied activities: Expanding employment in horticulture, floriculture, animal husbandry, poultry and food processing while supporting movement beyond agriculture.

Labour-intensive manufacturing: Expanding sectors such as textiles, gems and jewellery and leather products, alongside skilling and upskilling.

Plug-and-play industrial parks and industrial corridors: India has 4,500+ industrial parks mapped on the India Industrial Land Bank, including 300+ plug-and-play parks. In March 2026, the Union Cabinet approved the Bharat Audyogik Vikas Yojana (BHAVYA) for developing 100 plug-and-play industrial parks across the country.

Labour-intensive services: Increasing employment opportunities in travel, trade, hospitality, healthcare and education.

New-age services: Supporting employment in areas including the digital economy and orange economy, covering media and entertainment, gaming and animation.

Digital economy and gig work: Employment in India’s platform-based gig workforce increased from 77 lakh in FY21 to 120 lakh in FY25, representing a 55% increase, according to the Economic Survey 2025-26. The report notes that the recently implemented labour codes have extended social-security coverage to gig and platform workers.

AI and automation: Supporting higher-value roles and innovation in software and business services while addressing potential displacement risks associated with automation.

Women’s labour force participation: Expanding employment opportunities, particularly in rural areas, and creating conditions that support women’s participation in paid employment.

Care economy: The population aged 65 and above is projected to increase from an estimated 7.4% in 2025 to 14.2% by 2055. The report identifies caregiving for older people and children as an area with potential for both employment creation and support for women’s workforce participation.

Skill development and vocational training: Strengthening links between education, vocational training and industry requirements to address education-skill mismatches.

Security for self-employed and informal workers: Improving social protection, access to credit and skill development, labour-law coverage and formalisation of informal enterprises.

Employment remains a key policy issue

The report concludes that India’s favourable demographic structure and economic growth provide a basis for expanding productive employment, while persistent differences across demographic and education groups remain.

It highlights the need to balance employment generation in labour-intensive sectors with deeper integration into global value chains and greater specialisation.

The report also identifies increasing use of AI and automation as factors shaping the future labour market and emphasises the importance of developing skills for roles where human capabilities can complement emerging technologies.

Overall, the report states that a coordinated approach covering employment generation, skills, sectoral development, women’s participation, labour formalisation and emerging industries will be important to India’s employment outlook under the Viksit Bharat 2047 initiative.