Why Is The Manufacturing Sector Failing To Create Jobs?

The Central government’s Production-Linked Incentive (PLI), announced in 2020, was also aimed at boosting manufacturing’s share in the GDP. The scheme offers financial incentives to manufacturers based on increased sales to boost domestic production.

Fast forward to 2026, and manufacturing’s share in GDP still hovers around 16%. 

According to the government’s Periodic Labour Force Survey (PLFS) Annual Report, 2025, manufacturing contributes only 12.1% of the workforce, even as agriculture still accounts for the largest share of employment at 43.0%. The services sector accounts for 30%.

What went wrong?

Economists point out that manufacturing has not proved to be a viable alternative for Indian youth. They also say the government’s policies have failed to take into account certain constraints in the manufacturing sector. 

Youth Keeping Away

Over the past decade, policymakers have sought to position manufacturing as the bridge between the agricultural workforce and the need for large-scale job creation. 

India's young workforce comprises around 370 million people aged 15–29. With a median age of 28, this is one of the world's largest youth demographics.

According to the recently released State of Working India 2026 report, the share of young people employed in agriculture fell sharply from 56% in 1983 to 27% in 2023. But agriculture’s loss has not become manufacturing’s gain.

“Today, more and more youth are moving away from the agricultural sector as professional degrees and higher education enable them to seek employment in other sectors, particularly services,” Vidya Mahambare, Union Bank Chair Professor of Economics, Great Lakes Institute of Management, Chennai, told The Secretariat.

“Bringing labour out of agriculture is a function of what sort of employment-generating policies are instituted in the manufacturing and services sector,” Ranveer Nagaich, former Economist at NITI Aayog, told The Secretariat.

What Must Change

While formal factory employment stood at around 13.9 million in 2015-16, it rose to 19.5 million by 2023-24, according to the Indian Brand Equity Foundation (IBEF), a trust established by the Department of Commerce.

Industry voices remain cautious about the manufacturing sector’s ability to generate jobs at scale. Structural challenges, including job location, working conditions, and perception, continue to limit its appeal among younger workers. 

If the manufacturing sector has to create large-scale jobs, it has to move to where people are or improve the status and working conditions associated with such jobs

— Vidya Mahambare, Union Bank Chair Professor of Economics, Great Lakes Institute of Management

Experts also warn that future disruptions could complicate the transition further.

According to the Council on Energy, Environment and Water (CEEW), heat stress alone could lead to the loss of 35 million full-time jobs, reducing GDP by 4.5% by 2030.

For manufacturing to emerge as a viable alternative, economists argue that policy must go beyond incentives and production targets. Job quality, climate resilience, and regional distribution of opportunities will be as critical as output growth.