India's labor market transformations boost manufacturing competitiveness

Young workers and policy reforms drive manufacturing growth despite challenges.

India has transformed its labor market into a competitive manufacturing hub. With an ample supply of workers and recent policy reforms aimed at improving the ease of doing business, the country is projected to position itself as a manufacturing powerhouse on the global stage.

However, challenges such as skill gaps, low labor participation rates among females, and inadequate education levels, require attention to fully maximise India's labor market potential.

According to the Economist Intelligence Unit (EIU), India's demographic advantage lies in its youthful population. Projections indicate that India's working-age population will surpass a staggering 1 billion by 2030.

To benefit from this situation, the government implemented policy reforms aimed at enhancing the economy, specifically focusing on infrastructure, taxation, and trade regulations. These reforms are anticipated to attract both domestic and foreign companies by mitigating risks associated with manufacturing investments in the region. The simplification of labor regulations, achieved through the consolidation of labor legislation into comprehensive labor codes, has streamlined compliance for businesses.

However, despite its plentiful labor supply and positive policy reforms, India's labor market is faced with the significant challenge of skill shortages. EIU points to insufficient education levels, especially in secondary schooling, as the major factor for this hurdle. According to the report, individuals in India only complete 6.5 years of schooling on average, which is lower compared to competing neighbors like Vietnam and Thailand.

Aside from the noted skill gap, India's labor participation rate remains relatively low. One contributing factor is the disproportionately low participation of women in the workforce. To address this, India must focus on developing its female workforce demographics through initiatives that break down cultural barriers, and promote work-life balance as well as gender equality among its working class.

Despite these challenges, the improvements in India's labor market have still positioned the country as a competitive manufacturing destination. With improved infrastructure, lower manufacturing wage rates, and reduced risks from labor unionism, India has become an attractive destination for investors and businesses seeking growth opportunities.