Jobless Growth in India’s Unorganized Sector

India's growth story has long been celebrated, but beneath the surface lies a growing concern: the widening gap between the organized and unorganized sectors. This division isn't just a technicality; it represents a structural imbalance that has serious implications for employment, income equality, and sustainable economic growth. While organized sectors thrive with high levels of mechanization and automation, the unorganized sectors—comprising agriculture, micro, small, and medium enterprises (MSMEs), and self-employed individuals—face significant challenges that stymie their growth and hinder the nation's broader economic progress.

The Plight of the Agricultural Sector

Agriculture remains the backbone of India’s economy, employing nearly half of the population. Yet, 85% of India’s farmers are smallholders, possessing less than five acres of land. These farmers struggle under the weight of rising costs and stagnant income, unable to fetch adequate prices for their produce. According to the 2017-18 survey, the average income from agriculture per person was just ₹27 per day—barely above the poverty line. This stark reality places a substantial portion of the farming population near or below poverty thresholds, limiting their ability to invest in productivity-enhancing inputs, modern technology, or even essential living standards.

The low income of small farmers affects both their quality of life and the broader economy. When such a large share of the workforce is barely surviving, the economic multiplier effect—the spending power that stimulates demand in other sectors—is significantly weakened. As a result, growth in India’s GDP remains constrained.

The MSME Sector: Backbone but Overlooked

The MSME sector is often referred to as the backbone of India's economy. The micro sector alone comprises 99% of all units within MSMEs and contributes 97.5% of the employment within the sector. Despite their importance, micro and small enterprises struggle with limited resources, lack of access to credit, and stiff competition from larger corporations. This segment, along with agriculture, employs the majority of India’s workforce but remains vulnerable to market fluctuations and lacks substantial support from policy initiatives focused on organized sectors.

When investments favor big industries, as seen over the past two decades, a phenomenon known as "jobless growth" occurs. This term refers to an economy that grows in terms of GDP but fails to generate adequate employment opportunities. For example, the organized manufacturing sector has seen advancements in technology, which increase output but reduce the demand for labor. The auto industry provides a stark illustration of this phenomenon: Maruti, a major car manufacturer, now produces a car in 58 seconds, employing fewer workers than a decade ago due to the rise of robotics. This shift underscores the transformation from "jobless growth" to "job-loss growth," where not only are new jobs not created, but existing ones are eliminated.

Technology and Automation: A Double-Edged Sword

Technology, particularly automation and artificial intelligence (AI), is reshaping industries at an unprecedented pace. Automation has enabled efficiencies in sectors like banking, where work has increased over the last 30 years by over 1,000%, yet staffing has halved. The adoption of digital banking solutions has streamlined processes, but it has also diminished the need for traditional banking roles, contributing to job losses.

The next wave of technological change, led by AI, poses even greater risks to employment across various industries. With AI, bots are replacing human customer service roles, 3D printing is beginning to take over construction jobs, and even skilled roles in fields like teaching and medicine are facing potential displacement. For example, AI tools like ChatGPT can handle certain teaching tasks, while robotic surgery and diagnostic tools are reducing the demand for some healthcare roles.

While these technological advancements can enhance productivity, they often fail to replace the breadth of employment opportunities they eliminate. In sectors that traditionally offered steady employment, the shift toward mechanization and AI raises concerns about the long-term implications for workers and the potential for economic dislocation.

The Urgent Need for Policy Intervention

To bridge the gap between the organized and unorganized sectors, India needs a multi-pronged approach that addresses both structural and policy-related challenges. Key interventions should focus on:

1. Strengthening Support for the Unorganized Sector: Government policies must prioritize the unorganized sector, especially agriculture and MSMEs. Providing access to affordable credit, training in modern agricultural practices, and infrastructure improvements can help small farmers and entrepreneurs increase their productivity and profitability.

2. Encouraging Job Creation in the Organized Sector: While mechanization and AI are inevitable, policies should encourage sectors to adopt technologies in a way that complements, rather than replaces, human labor. This could involve incentivizing industries to create hybrid roles that integrate technology with human oversight.

3. Investing in Reskilling Programs: As technology transforms the job market, reskilling workers to perform new, tech-driven roles becomes essential. Public-private partnerships could facilitate reskilling programs that equip workers with skills relevant to the digital economy, reducing the displacement caused by automation.

4. Social Security for Unorganized Workers: Establishing a comprehensive social security system for the unorganized sector is critical. Workers in agriculture and MSMEs often lack access to health insurance, retirement benefits, and other social protections. Creating frameworks that extend these benefits to informal workers would help mitigate the economic insecurity exacerbated by technological change.

A Balanced Approach to Growth

India’s growth model should aim for inclusivity, emphasizing both the organized and unorganized sectors. If the country continues to prioritize large industries without addressing the needs of smallholders, micro-entrepreneurs, and self-employed workers, the growth rate will be lopsided and unsustainable. True economic progress requires a foundation where all sectors contribute to and benefit from growth.

Without adequate support, India's unorganized sector will continue to struggle, and the nation’s growth potential will remain unfulfilled. By addressing these disparities, India can pursue a path of growth that is not only faster but also more equitable, creating opportunities for all segments of society and building a resilient economy for the future.