Industrial Growth and Employment Patterns in Urban India

India’s industrial story over the last three decades is full of paradoxes. Factories have grown bigger, output has multiplied, and cities have expanded outward at a remarkable pace. Yet ask any young person walking out of a college gate in Mumbai, Ahmedabad, or Kolkata, and a familiar worry surfaces: where are the jobs? This tension between industrial growth and employment generation sits at the heart of urban India’s economic transformation, and it shapes everything from migration patterns to slum settlements to the gig economy delivering food to your doorstep.

How industrialization shaped urban employment 🔗

Industrialization has historically been the engine that pulls people from villages into cities. Factories need workers, and workers need housing, transport, food vendors, and services around them. This is how industrial townships like Jamshedpur and Ludhiana grew into manufacturing hubs, drawing labour from surrounding rural belts. The classical model, articulated by economists like W. Arthur Lewis, assumed that industry would steadily absorb surplus rural labour and convert it into a productive urban workforce.

For the first few decades after independence, this pattern broadly held. Public-sector steel towns like Bhilai and Rourkela were planned with residential colonies, schools, and hospitals, so that industrial employment directly created urban communities. Textile mills in Bombay, jute mills in Calcutta, and engineering units in Pune offered relatively stable wage employment. Cities expanded because factories expanded.

The post-liberalization shift 🔗

After the 1991 economic reforms, this relationship became more complicated. Industrial output continued to grow, but it began growing in ways that needed fewer hands per unit of output. Industrial and progressive states like Maharashtra, Gujarat, Tamil Nadu, Karnataka, and Kerala saw substantial urban growth, while several northern and eastern states fell behind. The country also pivoted toward services rather than labour-intensive manufacturing. Bengaluru, Hyderabad, and Gurugram exploded in population not because of factories, but because of IT campuses, call centres, and financial offices.

The puzzle of jobless growth 🔗

Economists describe the recent Indian experience using the uncomfortable phrase “jobless growth.” It captures a simple but troubling fact: gross domestic product can rise sharply while employment barely moves. Between 2011-12 and 2019-20, India’s GDP grew at an average annual rate of around 6.7 percent, while employment growth averaged only about 2.1 percent. The gap between these two numbers is where the anxiety about industrial growth meets the everyday reality of unemployed graduates.

The services sector illustrates this gap most starkly. Services now contribute more than half of India’s economic output, yet employ only about a quarter to a third of the workforce. High-end services like IT and finance are skill-intensive and absorb a relatively small slice of the educated population. The remaining workers, including those displaced from agriculture, do not find easy entry into these sectors.

Why growth has stopped creating proportionate jobs 🔗

Several forces explain the disconnect. First, Indian manufacturing has become unusually capital-intensive for a country with abundant labour. Research has consistently shown that India uses more capital-intensive techniques in manufacturing than countries at similar levels of development, including China. This is partly the result of policy distortions like capital subsidies, low import duties on machinery, and stringent labour regulations that nudge firms toward replacing workers with machines.

Second, automation and digitisation have accelerated. Factories that once needed assembly lines of workers now use robotic arms, computer numerical control machines, and integrated software systems. According to a working paper by ICRIER, while total persons engaged in organized manufacturing grew from 7.42 million to 11.41 million between 2000-01 and 2010-11, the number of contract workers nearly tripled from 1.17 million to 3.04 million, suggesting that even the limited job growth was increasingly insecure.

Third, the wage pie shifted. Skilled and supervisory staff captured a larger share, while production workers received a smaller proportion. This widened the inequality between those who could operate sophisticated systems and those who could only offer manual labour.

The rise of informal employment 🔗

When formal industry stops absorbing labour, people do not stop needing work. They move to wherever they can earn, even if the conditions are poor. This is the central reason why informal employment dominates urban India today. The informal sector covers street vendors, domestic workers, construction labourers, small workshop hands, autorickshaw drivers, delivery riders, and home-based piece-rate workers, among many others.

The scale is staggering. Nearly 90 percent of India’s workforce is employed in informal jobs, often without stable contracts, paid leave, or social protection. A research paper drawing on Periodic Labour Force Survey data observes that informal employment is typified by the lack of formal contracts, social security benefits, and paid leave, and disproportionately affects women, deepening existing socioeconomic vulnerabilities.

Why the informal sector keeps expanding 🔗

The informal sector grows for both push and pull reasons. On the push side, formal sector hiring has remained tepid. Job creation in regular wage employment in India was less than 1 percent during 2004-12, even as the working-age population kept rising. On the pull side, urban demand for cheap services has exploded. Middle-class households need cooks and house help, real estate developers need construction labour, restaurants need delivery riders, and offices need security guards.

The rise of platform-based work has added a modern twist. App-driven jobs in ride-hailing, food delivery, and logistics are technically informal in nature: workers are classified as independent contractors, bear their own costs, and have no entitlement to provident fund or paid sick leave. Yet for many young migrants, these jobs are easier to access than a factory floor that demands specific skills or certifications.

Job quality and vulnerability 🔗

The shift to informal work is not just a numerical phenomenon; it is a quality problem. Informal workers face long hours, irregular income, exposure to occupational hazards, and almost no bargaining power. They are usually the first to lose work during downturns and the last to receive any institutional support. The COVID-19 lockdowns offered a brutal illustration: millions of informal workers in cities lost wages overnight and walked home to villages because their employers had no obligation to retain them.

Women bear a particularly heavy burden. They are over-represented in low-paid domestic work and home-based piece-rate jobs, and under-represented in formal manufacturing employment. Recent research highlights a worrisome increase in unofficial employment in the post-COVID-19 era, aggravating precarity for underprivileged workers, with women hit hardest.

What this means for urban India 🔗

The combination of capital-intensive industry, jobless growth, and a swelling informal sector has reshaped Indian cities in visible ways. Slums and informal settlements continue to expand because workers cannot afford formal housing on informal wages. Public transport remains overcrowded because most informal workers cannot afford private vehicles. Civic services strain under the weight of populations that contribute economically but remain officially invisible.

The dualism that sociologist A. R. Desai described decades ago, the coexistence of modern industrial sectors and traditional informal ones, has only sharpened. A glass-fronted IT park can sit a kilometre from a settlement where families work twelve-hour shifts in tiny workshops. Both belong to the same city, but they live in different economic universes.

Policy directions being attempted 🔗

Several policy efforts have tried to address this gap. The “Make in India” initiative aimed to revive labour-intensive manufacturing in sectors like textiles, leather, and electronics assembly. Production Linked Incentive schemes have offered subsidies to encourage domestic production. Skill development programmes attempt to bridge the gap between graduates and industry requirements. The e-Shram portal seeks to register unorganised workers so they can be included in welfare schemes.

The harder challenge is structural. Labour-intensive sectors such as textiles, leather, marine goods, gems, and jewellery remain crucial because they can absorb large numbers of low-skilled workers, but they require sustained policy support to remain competitive against capital-intensive imports and automated alternatives. Without this, the gap between industrial growth and employment generation will continue to widen.

Looking ahead 🔗

India’s urban industrial future will be shaped by how it navigates three simultaneous transitions: the move from agriculture to non-farm work, the shift from manufacturing-led to services-led growth, and the rise of platform-based informal labour. Each transition creates winners and losers. Engineers and data scientists thrive in the new economy, while textile workers and small-shop assistants struggle to keep pace. The question is whether industrial policy can be redesigned so that growth produces work that is both plentiful and dignified, rather than work that is precarious by default.

What do you think? Should India prioritise reviving labour-intensive manufacturing to absorb its young workforce, or accept that the future of urban employment lies in services and the gig economy? And how should the rights of informal workers be protected when the very nature of their work resists traditional regulation?

References

1. https://ignoucorner.com/pattern-of-urban-growth-in-india/
2. https://sociology.institute/urban-sociology/impact-urban-employment-markets-urbanization/
3. https://www.dalvoy.com/en/upsc/mains/previous-years/2015/general-studies-paper-iii/jobless-growth-india-assessment
4. https://ideas.repec.org/a/eme/igdrpp/v6y2013i2p212-241.html
5. https://icrier.org/pdf/Working_Paper_313.pdf
6. https://www.ensureias.com/blog/current-affairs/unemployment-in-india-and-the-issue-of-jobless-growth
7. https://link.springer.com/article/10.1007/s44282-025-00239-9
8. https://www.epw.in/journal/2023/25-26/special-articles/jobless-growth-informal-sector.html
9. https://globalindiannetwork.com/labour-intensive-manufacturing-in-india/