Random Thoughts - Employment and Markets

 Between 2001 and 2025, India transitioned from a phase of "jobless growth" to a period of massive job creation. Total employment surged from roughly 40 crore to over 61.6 crore, driven by the service sector and informal/gig economies. Meanwhile, overall labour productivity increased steadily, though manufacturing specifically has struggled with fragmented, low-productivity growth.

Aggregate Employment & Labour Productivity (2001 vs. 2025)
2001:
Employment: Around \(400\) million workers. The early 2000s were frequently characterized by "jobless growth"—where the economy grew at roughly \(4 - 5\%\), but job creation in the organized sector remained largely stagnant.
Labour Productivity: Output per worker was relatively low, growing at about a \(3 - 4\%\) annualized rate, deeply constrained by a lack of formalized skilling and heavy reliance on the agricultural sector for employment.
2025:
Employment: Reached over \(616\) million (61.6 crore) workers aged 15 and above. This massive jump was driven by a post-pandemic economic boom, extensive infrastructure investments, and the rapid rise of the gig and platform economy.
Labour Productivity: Economy-wide labour productivity grew by an average of \(3.3 - 3.5\%\) annually, supported by improved labour quality, digital integration, and technology adoption.
Manufacturing Sector Specifics
2001: Organized manufacturing generated few formal jobs despite broad trade and industrial policy reforms. While there was some structural consolidation, much of the manufacturing workforce remained trapped in low-tech, informal, or unorganized segments, resulting in a low Total Factor Productivity (TFP).
2025:
Modern industrial policies—most notably the Production Linked Incentive (PLI) schemes and the Skill India mission—have pushed manufacturing higher up the global value chain. By 2025, the manufacturing sector saw a resurgence in employment growth and hit record-high manufacturing PMIs (consistently around 59.0).
The Productivity Challenge: While production volumes and capacity utilization have boomed, structural issues remain. Capital-intensive manufacturing has surged in productivity, but unorganized, labour-heavy manufacturing industries continue to report suppressed or fragmented long-term productivity growth. The share of wages in net value-added by organized manufacturing has fallen compared to corporate profits, pointing to an ongoing structural shift toward automation.
Of course we need to assess too if it is a high employment due to low tech, low salaries, gig jobs...which is actually indicative of lack of suitable employment. And the MSMEs and the quality of employment and actual payouts and are salaries benchmarked against inflation, as seen by strikes and agitations recently.
As regards increase in production as shown in the chart we also need to assess the impact of technology on improving production and productivity . And then the aspect of over production or under utilisation of capacity. And benchmarking the cost of production as against in China or South East Asia.
The increase in output 2001-2025 would certainly have an impact on ancillary industries and logistics in positive terms. Where we lack is innovation on scale. 

Markets

My reading of the Pull out by FIIs
As of May 2026, the movement of capital out of India is driven by a combination of higher capital gains taxes and a massive rotation of funds into AI-driven markets in Taiwan and South Korea, where the market capitalization gap with India is rapidly closing. Read about the valuations of Samsung and TSMC.
Add to it our earnings momentum is slowing over the last two years.
Indian Capital Gains Tax Factors
I firmly believe this is a key factor. Honestly this needs a relook. Following the Union Budget 2024 and continuing into the 2026-27 financial year, taxes have increased:Short-Term Capital Gains (STCG - Listed Equity):Rate: Increased to 20% (up from 15%) Applicable if shares/equity mutual funds are sold within 12 months.Long-Term Capital Gains (LTCG - Listed Equity):Rate: Increased to 12.5% (up from 10%).Exemption: Only gains exceeding ₹1.25 lakh per year are taxed.Condition: Held for more than 12 months.Indexation Benefits: Removed for most assets, making real-term taxes higher.
Other Assets (Real Estate/Gold): STCG is taxed at normal income tax slab rates; LTCG is generally 12.5% without indexation.
The STT continues in addition. These are self goals, enhancing these taxes. We need a rational approach.
The Korea/Taiwan AI Factor
While tax increases are a structural factor, the immediate, aggressive outflow of foreign capital (approx. ₹1.92 lakh crore by early May 2026) is driven by the AI surge in other Asian markets.
Underperformance vs. AI Powerhouses: Unlike Taiwan and South Korea, India has fewer large-cap listed companies directly benefiting from the global semiconductor and AI infrastructure boom.
Capital Rotation: Investors are pulling funds from India to invest in TSMC (Taiwan) and Samsung Electronics/SK Hynix (Korea), which are witnessing record gains due to AI demand.
Rapid Market Cap Growth: In the first four months of 2026, Taiwan's market cap surged by ~40%, bringing it within close range of India's fifth-largest global stock market status.
Currency Pressure: The weakening Indian Rupee (depreciating against the US dollar since 2025) further reduces returns for foreign investors, encouraging them to rotate capital into stronger currency tech markets.
Higher Capital Gains taxes plus the promise of higher AI-related returns in Korea/Taiwan is currently outweighing that cost of withdrawal from India, we need to not only benchmark taxes but also encourage innovation on scale. And to assess reasons for a slow down in earnings. Innovation on scale eludes us. Whether we like it or not. We need to encourage innovation and build this culture. Not just of assembling with batteries from China or as a major business house says, bringing out A2 Icecream. We must build a culture of major innovations and manufacturing.
DK Kapila