Why has India's rapid economic growth not translated into more or better manufacturing jobs?

The economic transformations of East Asia offer the most instructive point of comparison. South Korea, Taiwan, China, and, more recently, Vietnam each used manufacturing to move large numbers of workers out of low-productivity agriculture and into better-paying factory jobs. That transition drove rapid income growth, reduced poverty, and built a skilled industrial workforce within a generation. India liberalised its economy in 1991 under conditions that appeared similarly favourable: a large surplus of agricultural labour, wages well below those in developed economies, and stated ambitions for industrial expansion. 

India did not experience manufacturing growth comparable to that of the East Asian tigers. India has grown at roughly 7% annually since liberalisation, which is a genuine achievement, but manufacturing’s share of GDP fell from 16% to 13%. More strikingly, the majority of jobs created after 1991 were informal: outside the organised sector, without stable contracts or social protection. India achieved growth, but not the large-scale shift from low-productivity agricultural work to higher-productivity formal employment that defined the East Asian experience. 

One reason for India’s limited success in shifting large sections of society into manufacturing was its focus on services. Services expanded faster than manufacturing. The share of GDP from services rose from 34% to 55% between 1991 and 2025. However, service firms employ far fewer workers per unit of investment than factories do at comparable stages of development. A mid-sized software firm can generate substantial revenue with a few hundred employees, while a garment factory or electronics assembly plant deploying similar capital can absorb tens of thousands. The services route raised incomes for a relatively narrow slice of the workforce, those with the education to enter it. 

For the workers excluded from the service economy, manufacturing was the natural alternative. Indian manufacturing wages are considerably lower than those in China. India’s average monthly wage in manufacturing is $240, compared with $750 in China. This gap in labour costs should, in principle, make India highly competitive for labour-intensive production. However, when 56 firms shifted production out of China between 2018 and 2019, only three chose India. Twenty-six firms chose Vietnam. That disparity cannot be explained by wages alone. It points instead to the total cost of doing business after accounting for regulation, infrastructure, and, most consequentially for the argument that follows, the structure of labour law.