BFSI Summit 2026: Focus must be on labour-intensive growth, say economists | BS Events

India must focus on labour-intensive manufacturing and equip workers to adapt to artificial intelligence (AI), economists Sajjid Z Chinoy and Soumya Kanti Ghosh said on Tuesday.

 

The two economists, who are part of the Prime Minister Economic Advisory Council, were speaking at the Business Standard BFSI Insight Summit.

 

Technological advances have made production increasingly capital-intensive, with businesses using more machinery and fewer workers for each unit of output. AI could extend that pressure from factories into services, a major source of skilled employment.

 

“In the United States, resilient headline economic growth has coincided with a slowdown in jobs creation and declining wages. In India, the gap between headline gross domestic product (GDP) and employment growth predates AI. The data from India’s Annual Survey of Industries between 2000 and 2025 shows an increasing use of machines relative to labour per unit of output,” said Chinoy, head of Asia economic research, JP Morgan.  

  

Chinoy said the employment challenge for India was different from that of ageing economies such as China, Japan and Western Europe, which were facing a decline in working population and had a genuine demand for robots and automation.

 

“Unlike these ageing countries, India needs to create eight-nine million jobs annually to absorb the growth in the working-age population. Failure to create productive jobs could squander the demographic advantage that we enjoy right now.”

 

Ghosh, who is State Bank of India group chief economic adviser, said inequality must be measured through more than income data. “In an economy with a large informal workforce, where earnings are difficult to report accurately and employment is often intermittent, consumption inequality can offer a more useful measure of living standards. India has performed better on consumption inequality than on income inequality.”

 

He cited official figures, according to which around 250 million people in India moved out of poverty in the past decade, while China had lifted around 800 million over the past 10 years. Poverty reduction and inequality can coexist, he said, making it important to assess both rather than treat them as interchangeable measures.

 

Yet the structure of India’s labour market has not changed much over the years. “Self-employment accounted for about 50 per cent of employment five decades ago and now represents 54-55 per cent,” Ghosh said. Forty-five-fifty per cent of Indians remain engaged in agriculture, an increase from 41-42 per cent before the pandemic. “Moving workers into more productive activities remains a central economic challenge.”

 

Chinoy welcomed the government’s recent emphasis on labour-intensive sectors such as footwear, apparel, leather goods, gems and jewellery, which can create more jobs per unit of investment. “China’s experience demonstrated the economic dividends of moving workers out of agriculture into labour-intensive manufacturing and exporting goods at scale,” he said.

 

Ghosh said post-pandemic growth had increasingly been driven by investment and exports. Government initiatives such as the production-linked incentive scheme and import-substitution measures might be beginning to support manufacturing, whose share in gross value added, however, had remained 14-15 per cent, suggesting there was considerable ground to cover.

 

However, he said the skilling gap could undermine that transition. Only 30.7 per cent of the workers in the informal labour market had received training, according to the latest Periodic Labour Force Survey data, cited by Ghosh. He said two government programmes had trained one million people over seven to eight years, which is inadequate for the scale of the challenge. Unless training expands and connects directly with formal employment, inequality will be difficult to address sustainably.

 

Chinoy called for a broader package: Better education, retraining and reskilling; labour laws that supported rather than disadvantage workers; and a safety net that was wide enough to protect people during transitions but temporary enough to preserve incentives to seek work. Governments must help workers move between industries and direct scarce public resources towards labour-intensive sectors.

 

“We are in the midst of a horse race between capital and labour for the past 30-35 years and most often labour tends to lose to capital in this. Governments need to come up with a policy framework so that workers start winning,” said Chinoy.

 

AI complicates the task because it may disrupt jobs faster than previous waves of technological change. Chinoy cautioned against assuming India was insulated simply because many workers were in occupations not currently exposed to AI. The policy objective is to move workers from agriculture to industry and services, but some entry-level jobs in both sectors could themselves be affected by automation.

 

A Brookings paper estimates that a 200-megawatt AI training data centre costs $8.2 billion and employs about 100 people in the United States. An investment of that size would typically generate around 10,000 jobs in other sectors, Chinoy said. India needs data centres for strategic reasons, but they cannot by themselves form a broadbased employment strategy.

 

Chinoy cited Taiwan’s rapid growth, supported by advanced chip production, alongside the government’s use of cash transfers. Highly capital-intensive industries may boost output without generating equivalent gains in wages, employment or consumption, he said. India should participate in the AI ecosystem while investing concurrently in sectors that absorb more labour.

 

Ghosh said AI could displace lower-skilled workers over the next three to four years, but also be deployed in health care research and defence production. India should apply the technology where it addresses national needs rather than compete only in capital-intensive areas. He also warned that India could grow old before becoming rich if it failed to make use of its demographic dividend soon.

 

The economists said new occupations might emerge, and demand could rise for workers with skills that complemented AI. Chinoy cited an International Monetary Fund analysis showing a 10 per cent decline in demand in AI-exposed sectors, although demand had stabilised as employers sought complementary skills. The speed of change leaves less time to adjust than in earlier industrial transitions.

 

The gig economy can provide some employment, but neither economist saw it as a complete answer. Ghosh said registrations on the eShram portal indicated that many informal workers reported monthly incomes of around ~10,000, or ~1.2 lakh annually, compared with India’s per capita income of about ~2.35 lakh. Gig work may offer a partial buffer, especially if social protection improves, but low pay and limited training constrained its ability to deliver broad-based prosperity.

 

India’s priority is growth that converts investment and technological progress into productive work. That requires faster skilling, stronger labour-intensive manufacturing, effective worker transitions and a careful approach to AI. As Chinoy put it, the task is to give labour the skills and tools to compete with capital; Ghosh’s emphasis was that India needed more high-productivity jobs, not merely a larger count of jobs.