India's Economic Growth Hinges on Workforce Participation and Productivity

India’s employment and growth ambitions have received a fresh analytical push from a new report by the National Council of Applied Economic Research (NCAER), which underscores the need to remove persistent bottlenecks in workforce participation and labour productivity. The report, released in collaboration with the Ministry of Finance, examines how improving skills and productivity, particularly in small enterprises, could unlock substantial employment gains and strengthen the country’s economic trajectory.

Background and institutional context

NCAER is one of India’s oldest and most prominent economic policy research institutions, regularly partnering with central ministries and multilateral agencies on labour markets, growth, and sectoral development. The latest analysis has been prepared against the backdrop of India’s stated objective of becoming a developed economy in the coming decades and its focus on employment-intensive, productivity-driven growth.

The study ties in with the Government of India’s broader reform agenda, which includes programmes to boost skilling, expand manufacturing, deepen formalisation of enterprises, and increase labour force participation, including that of women and youth. The report’s findings and recommendations are now expected to inform ongoing policy discussions on how to align labour market outcomes with the country’s growth aspirations.

Core finding: Productivity and participation as twin constraints

The central message emerging from the NCAER analysis is that India must address twin constraints to fully leverage its demographic and economic potential. These constraints are low and uneven workforce participation on one side, and modest labour productivity levels, particularly in micro, small and medium enterprises (MSMEs), on the other.

According to the report, the interaction of these two factors can significantly shape the trajectory of employment growth. A larger, better-utilised workforce operating within more productive firms and sectors can generate higher output, better wages, and more sustainable job creation. Conversely, persistent bottlenecks that keep participation and productivity below potential levels can dampen growth and limit the benefits of ongoing public investment in infrastructure, manufacturing, and services.

Focus on small enterprises and employment potential

The analysis gives particular attention to small enterprises, which account for a substantial share of India’s employment but often lag behind in productivity, technology adoption, and access to formal finance. According to the Press Information Bureau summary of the NCAER report, an increase in skilled workforce availability and improvements in productivity in small enterprises can together lead to substantial employment growth in India.[1][2]

The report notes that small firms are often the first point of entry into the labour market for new workers, including migrants, women, and youth. Yet their capacity to absorb workers at scale, offer stable employment, and pay higher wages is constrained by low productivity, limited formalisation, and weak integration into larger value chains. Addressing these constraints, the study suggests, can have a multiplier effect on job creation and income growth.

Identified bottlenecks in workforce participation

NCAER’s analysis points to a range of structural and institutional bottlenecks that continue to limit India’s effective workforce participation:

• Gaps in skills and employability that reduce the match between available workers and the needs of employers
• Barriers faced by women in entering and remaining in the labour force, including care responsibilities and safety concerns
• Regional disparities in job opportunities, forcing migration and contributing to underemployment in some areas
• Limited formal sector absorption, which pushes workers into informal or low-productivity activities
• Inadequate information flows between job seekers and employers, particularly in smaller towns and rural areas

The report emphasises that raising participation is not only a matter of adding more workers to the labour force. It also requires improving the quality of jobs available, reducing underemployment, and ensuring that workers are able to move into higher productivity roles over time.

Constraints on labour productivity

On the productivity side, NCAER highlights several recurring constraints faced by enterprises, especially smaller ones:

• Limited access to quality skilling and reskilling opportunities for workers and managers
• Low levels of technology adoption and digitalisation in operations and supply chains
• Infrastructure gaps, including power reliability, logistics, and connectivity that raise operating costs
• Restricted access to affordable formal finance, constraining investment in modern equipment and processes
• Administrative and compliance burdens that disproportionately affect smaller firms

The analysis argues that lifting productivity in such enterprises can be a powerful lever for job creation. As small firms become more competitive, they can expand output, move into higher value segments, and create better-quality jobs.

Alignment with existing government schemes and reforms

The NCAER report interfaces with a wide range of ongoing government initiatives aimed at skill development, MSME strengthening, and sectoral growth. These include national skilling programmes, digital public infrastructure for payments and documentation, incentive schemes for manufacturing, and targeted sectoral schemes.

For instance, in the food processing sector, which is recognised as one of the largest employment providers in organised manufacturing, the Ministry of Food Processing Industries (MoFPI) has highlighted the role of employment-oriented schemes such as the Pradhan Mantri Kisan SAMPADA Yojana (PMKSY), the Production Linked Incentive Scheme for Food Processing Industry (PLISFPI), and the PM Formalization of Micro Food Processing Enterprises (PMFME) scheme.[4] These initiatives seek to create off-farm employment, support infrastructure, and raise value addition in agri-food chains, thereby directly contributing to productivity and employment outcomes.

As per official data, these schemes together have generated several lakh direct and indirect employment opportunities across the country as of late 2025, illustrating the scale at which sector-specific interventions can impact labour markets when aligned with broader productivity goals.[4]

Key quantitative insights and sectoral linkages

While the NCAER document primarily focuses on workforce participation and productivity trends at the macro and enterprise levels, the government’s own sectoral data provide supporting evidence of the employment-productivity link. The food processing sector, for example, accounts for a notable share of employment in the registered manufacturing sector and has seen its Gross Value Added (GVA) increase significantly over the last decade.[4]

This sector has also recorded year-on-year increases in women’s employment in several states, reflecting how targeted infrastructure and incentives can help bring more workers, including women, into higher value-added segments of the economy.[4] In this context, the NCAER emphasis on addressing labour market bottlenecks complements the sectoral and scheme-based data emerging from ministries.

Recommendations on skills, inclusion and enterprise support

On the policy front, the NCAER report calls for a sharper focus on three interlinked areas: skills, inclusion, and enterprise support.

First, the study underlines the need to deepen and continuously update skilling systems to align with evolving industry requirements. This includes not only initial vocational or technical training but also lifelong learning and upskilling for workers already in the labour market.

Second, the report stresses that workforce participation must expand in an inclusive manner, with particular attention to women, youth, and workers from lagging regions. Removing structural barriers, ensuring safe and accessible workplaces, and improving childcare and related support structures are presented as critical enablers.

Third, NCAER advocates stronger, more integrated support frameworks for small and micro enterprises. These would cover access to finance, advisory services, digital tools, and simplified compliance processes, all aimed at raising productivity and facilitating formalisation.

Implementation channels within government

The practical implementation of these recommendations would largely operate through existing institutional channels, including central ministries, state governments, skilling agencies, and financial sector regulators. The Ministry of Finance, which engaged with the NCAER study, plays a coordinating role in framing fiscal and policy measures that influence credit, incentives, and public investment priorities.[1][2]

Labour and employment policies fall under the remit of the Ministry of Labour and Employment, while skilling initiatives are led by the Ministry of Skill Development and Entrepreneurship, in collaboration with sector skill councils. Enterprise-related measures are implemented through the Ministry of Micro, Small and Medium Enterprises and line ministries responsible for specific sectors such as food processing, textiles, and electronics.

State governments also have a crucial role in tailoring skill development, industrial promotion, and labour facilitation measures to local conditions. The NCAER analysis, by providing structured evidence and economic modelling, is expected to support both central and state-level policy design.

Administrative implications and policy traction

From an administrative standpoint, the report encourages closer integration between labour market policies and enterprise development strategies. This could translate into coordinated planning between departments handling employment, skills, industry, and finance when framing schemes or allocating resources.

The analysis may also feed into ongoing reviews of existing programmes, helping administrators identify where schemes are effectively improving workforce participation and productivity, and where additional support or redesign may be necessary. Monitoring frameworks could incorporate more granular indicators on job quality, productivity gains, and participation of underrepresented groups.

For example, sectoral surveys such as the Annual Survey of Industries (ASI), which already capture information on employment, including women’s participation in sectors like food processing, can be used more systematically to track progress in overcoming the bottlenecks flagged by NCAER.[4] This would enhance the evidence base available to both policymakers and implementing agencies.

Potential public impact and citizen interface

For workers and job seekers, successful implementation of the report’s recommendations could mean expanded access to quality employment, greater opportunities for upskilling, and improved mobility between sectors and regions. Higher productivity at the enterprise level often correlates with better wage prospects, more stable employment conditions, and increased formalisation.

For small enterprises, a policy focus on productivity and workforce development can help reduce operational costs, improve competitiveness, and facilitate integration into national and global value chains. Enhanced access to digital tools, credit, and advisory services could enable these firms to adopt better technologies and management practices.

Citizens may also indirectly benefit through improved service delivery and public finances. A more productive workforce and enterprise base can generate higher tax revenues and relieve pressure on social safety nets, allowing the government to invest more in health, education, and infrastructure.

Emphasis on data and evidence-based policymaking

An important feature of the NCAER exercise is its emphasis on data-driven analysis. By combining macroeconomic data, labour force surveys, and enterprise-level information, the study seeks to quantify the potential gains from removing participation and productivity bottlenecks. This empirical approach supports evidence-based policymaking and helps prioritise interventions with the highest expected impact.

The report aligns with the broader governmental trend of increasing the use of administrative data, digital platforms, and surveys in policy design. Programmes across sectors now frequently incorporate real-time dashboards and monitoring tools, enabling decision makers to track outcomes and make mid-course corrections where necessary.

Official articulation and next steps

In its public communication around the report, the government has highlighted the central finding that increased skills and productivity in small enterprises can lead to substantial employment growth.[1][2] The official articulation frames this relationship as a key lever for inclusive economic development.

“Increase in skilled workforce and productivity of small enterprises can lead to substantial employment growth in India,” the report notes, underscoring the importance of strengthening employment and productivity linkages in the country’s growth strategy.[1][2]

Policy follow-up is expected to take the form of detailed inter-ministerial consultations, further technical analysis, and potential adjustments to existing schemes. Some of these changes may be reflected in future budget announcements, medium-term policy frameworks, or sectoral guidelines, depending on the final decisions taken by the competent authorities.

Interaction with digital public infrastructure

The report’s emphasis on productivity and participation also intersects with India’s expanding digital public infrastructure. Platforms for digital identity, payments, and documentation have already lowered transaction costs for enterprises and workers, particularly in areas such as wage payments, benefits transfers, and credit access.

Building on this foundation, policymakers may explore how to better use digital tools for job matching, remote skilling, and enterprise support services. For small firms, digitalisation can improve record-keeping, market access, and compliance, all of which contribute to higher productivity. For workers, digital platforms can expand outreach of training programmes and improve visibility of job opportunities across regions.

Regional and demographic considerations

NCAER’s focus on workforce participation naturally draws attention to regional and demographic variations in labour market outcomes. Some states display higher female participation and stronger industrial or services employment, while others rely more heavily on agriculture or informal work. Age structure, education levels, and migration patterns also differ considerably across regions.

The study suggests that national-level strategies must be complemented by region-specific approaches that reflect local economic structures and labour profiles. For instance, states with stronger manufacturing bases may see quicker gains from enterprise productivity measures, whereas others might need greater emphasis on services, allied agricultural activities, or tourism.

Demographically, younger workers may require more foundational skilling and apprenticeship opportunities, while mid-career workers might benefit from reskilling and recognition of prior learning. Women may need tailored support such as flexible work arrangements, safe transport, and childcare. These differentiated needs underpin the report’s call to systematically address participation bottlenecks.

Monitoring, evaluation and long-term outlook

Looking ahead, the effectiveness of any policy response to the NCAER findings will depend heavily on monitoring and evaluation mechanisms. Regular labour force surveys, enterprise surveys, and scheme-level tracking will be essential for assessing whether workforce participation and productivity are improving in line with expectations.

Institutionalising feedback loops between data, research and policy is a recurring theme in India’s economic governance. NCAER’s role as an independent research body positions it to continue supporting this process through follow-up studies and evaluations, working alongside government departments and other research organisations.

Over the long term, sustained improvements in workforce participation and labour productivity are expected to reinforce each other. A more engaged, better-skilled workforce can raise productivity, while more productive enterprises can offer stronger incentives for individuals to participate in the labour market. The present analysis, by clearly articulating the need to overcome bottlenecks on both fronts, provides a structured framework for policy action and administrative planning.