India’s Economic Growth vs. Rising Unemployment: A Political Paradox in the Making

India’s economic growth remains central to the ruling government’s policy achievements, yet the nation faces a stark paradox. The real GDP growth rate for FY 2024-25 is projected at 6.4%, a decline from 8.2% in FY 2023-24, although nominal GDP growth is expected to rise slightly to 9.7% from 9.6% the previous year. While these figures affirm India’s position as one of the world’s fastest-growing major economies, they contrast sharply with persistent unemployment concerns.

Despite robust economic expansion, unemployment remains alarmingly high, reaching 9.2% in June 2024. This widening disconnect between GDP growth and employment opportunities has intensified political debates, with opposition parties arguing that the government’s economic policies disproportionately benefit the wealthy while failing to create sufficient jobs.

Economic Growth: Reflection of Rising Inequality

The government frequently highlights India’s robust economic performance as a validation of its leadership. The 8.2% GDP growth in FY 2023-24 has been underpinned by several key drivers:

● Public investment in infrastructure: The Modi administration has significantly increased capital expenditure on roads, railways, and ports, boosting economic activity and fostering industrial growth.

● Household investment in real estate: Government-backed housing initiatives such as the Pradhan Mantri Awas Yojana (PMAY) have stimulated demand in the real estate sector, driving construction and associated employment.

● Manufacturing sector expansion: The Production-Linked Incentive (PLI) Scheme has propelled a 9.9% growth in the manufacturing sector, positioning India as a rising global manufacturing hub.

● A thriving services sector: IT, financial services, and digital platforms remain major contributors to GDP, ensuring continued momentum in high-value economic segments.

While these factors have driven overall economic expansion, a closer look reveals that the benefits of growth have not been evenly distributed. India’s richest 1% now hold over 40% of the country’s total wealth, while the bottom 50% own less than 3%. Corporate profits and stock market gains have surged, but wage growth for the average worker has stagnated. Many high-growth industries, particularly in technology and finance, are capital-intensive rather than labour-intensive, meaning they contribute to GDP without significantly increasing employment opportunities.

This uneven distribution of wealth fuels a growing divide between the rich and the working class. While top corporate executives and investors reap the benefits of economic expansion, millions of Indians face precarious job prospects, rising living costs, and declining job security. Critics argue that the government’s economic policies favour large corporations and urban elites at the expense of the wider population, exacerbating the structural inequalities in Indian society.

Rising Unemployment: A Structural Challenge

Despite robust economic indicators, India faces an ongoing employment crisis. The unemployment rate hit 9.2% in June 2024, with urban youth unemployment soaring to 16.8%. Rural unemployment, too, has climbed to 9.3%, signalling distress not only in industrial sectors but also in agriculture and small enterprises, which traditionally serve as major employment sources.

Underlying Factors Behind India’s Unemployment Crisis

● High Population Growth: With over 12 million young people entering the workforce annually, job creation has not kept pace with demographic expansion.

● Structural Shifts in Employment: The rise of capital-intensive industries, automation, and digital transformation has reduced employment opportunities in traditional labour-intensive sectors.

● Labour Market Reforms and Informality: Recent labour law simplifications were aimed at increasing ease of doing business, but they have also weakened worker protections, contributing to job insecurity and a rise in informal employment.

● Agricultural and Rural Distress: The decline of agriculture’s share in GDP and stagnation in small-scale rural enterprises have worsened employment conditions in semi-urban and rural India.

Historical data underscores the persistence of India’s employment challenge. Between 2018 and 2025, the average unemployment rate has stood at 8.18%, with an all-time high of 23.5% in April 2020 during the COVID-19 lockdowns. While the government insists that employment prospects will improve, projections suggest that the unemployment rate is likely to remain above 8.5% through 2026 and 2027, exacerbating concerns about job scarcity in an expanding workforce.

Moreover, real wages have not kept pace with inflation, eroding the purchasing power of middle- and lower-income groups. While job losses in traditional sectors such as agriculture and small-scale manufacturing persist, many of the new opportunities being created require highly specialised skills, further marginalising those without access to quality education and vocational training.

The Political and Economic Crossroads

The paradox of high economic growth coexisting with rising unemployment and widening inequality raises fundamental questions about the structure of India’s economy. The concentration of growth in capital-intensive sectors such as infrastructure, IT, and large-scale manufacturing has contributed to rising productivity without proportionate job creation. Additionally, automation and digital transformation in manufacturing and services may be displacing traditional employment opportunities rather than expanding them.

For the government, navigating this paradox will require a recalibration of policy priorities. Expanding labour-intensive sectors, incentivising small and medium enterprises (SMEs), and bridging the skill gap through education and vocational training could be critical in addressing the employment challenge.

It is crucial that policymakers shift their focus from merely achieving capital-intensive economic growth to fostering employment-led development. Instead of relying primarily on infrastructure investment and corporate incentives, greater emphasis must be placed on labour-intensive policies that can create sustainable, widespread employment opportunities.

A more secure and balanced growth model; one that prioritises job creation alongside economic expansion, will be essential to ensuring that India’s economic progress benefits all segments of society, rather than deepening existing disparities.

Riya Kothavale is the Head of Research at the Sixteenth Council