The Two Track Industrial Recovery, Why India’s Manufacturing Growth Isn’t Creating Enough Jobs

The Two Track Industrial Recovery, Why India’s Manufacturing Growth Isn’t Creating Enough Jobs

The latest Index of Industrial Production (IIP) data for September 2025 offers a paradoxical glimpse into the state of the Indian economy. On the surface, the numbers tell a story of resilient recovery and green shoots. A deeper, more nuanced analysis, however, reveals a landscape of concerning fragilities, where the nature of growth may be sowing the seeds for future economic and social challenges. The data is not merely a collection of percentages; it is a diagnostic report card on the health of India’s industrial core, highlighting a critical divergence between capital-intensive expansion and job-creating, demand-boosting broad-based growth. The central, unsettling takeaway is that while the industrial engine is chugging back to life, it is running on a single track—one that bypasses the masses and fails to address the fundamental issue of slack consumer demand.

The Macro Picture: A Tale of Two Halves

At a macro level, the IIP data for the first half (April-September) of the financial year 2025 presents a sobering reality. Industrial growth, at just 3%, is the slowest in at least five years. This figure, standing well below the potential of an economy aspiring to become a global manufacturing hub, underscores the lingering headwinds from global uncertainties and domestic constraints.

However, a quarterly breakdown provides a more dynamic, and slightly more optimistic, narrative. The second quarter (July-September 2025) registered a more robust growth of 4.1%, a significant acceleration from the dismal 2% recorded in the first quarter (April-June 2025). This sequential improvement suggests that policy measures and a recovering global environment may be starting to yield results. It indicates that the downward spiral has been arrested and a tentative recovery is underway.

The star performer in this narrative, ostensibly, has been the manufacturing sector. In September alone, it grew by 4.8%, the second-highest rate this financial year. More impressively, the July-September 2025 quarter saw the sector grow by 4.9%, marking its fastest quarterly expansion since the quarter ending December 2023. On a half-yearly basis, manufacturing growth bounced back to 4.1%, up from 3.8% in the first half of the previous year. These figures are the ones often highlighted in headlines, projecting an image of a “Make in India” vision steadily materializing.

In stark contrast, the mining sector has been a persistent laggard. Activity in this sector contracted in September, in the second quarter as a whole, and across the entire first half of the financial year. While a portion of this weakness can be attributed to the disruptive effects of the annual monsoon, the severity of the contraction is “unusually poor.” This is not just an industrial data point; it is a strategic concern. A robust mining sector is the bedrock of energy security and is indispensable for supplying the raw materials and critical minerals needed for modern industries, from electronics to renewable energy. Its continued weakness threatens to become a bottleneck for the entire industrial value chain, increasing import dependence and undermining long-term strategic autonomy.

The Micro Reality: The Illusion of Broad-Based Growth

The apparent strength of the manufacturing sector unravels upon a granular examination. The growth is not a rising tide lifting all boats; it is a selective surge benefiting a narrow set of industries. Of the 23 main manufacturing sub-sectors measured by the IIP, more than half contracted in the July-September 2025 quarter. This startling statistic reveals a deeply uneven recovery.

The pattern of which sectors are growing and which are contracting is what makes this trend particularly alarming from a socio-economic perspective. The growth is concentrated in capital-intensive sectors such as wood products, mineral products, basic metals, and fabricated metal products. These industries are crucial for building infrastructure and supplying intermediate goods to other industries, but they are not significant generators of mass employment. Their growth is often driven by government capital expenditure in infrastructure projects and investments from large corporations.

On the other hand, labour-intensive sectors—the very ones that are supposed to absorb the millions of young Indians entering the workforce each year—are languishing. Sectors such as apparel, leather products, rubber products, and plastics all contracted in the September 2025 quarter. These industries are typically dominated by Micro, Small, and Medium Enterprises (MSMEs) and are major employers of low and semi-skilled labour. Their continued contraction signals a crisis in job creation. When a capital-intensive metal plant expands, it may add a few hundred highly skilled jobs. When a thousand garment factories contract, they shed tens of thousands of jobs. This is the core of the “jobless growth” conundrum that the IIP data so clearly exposes.

The Demand Conundrum: The Silent Consumer

The most troubling, and perhaps most telling, aspect of the data is the persistent weakness in consumer goods. The consumer non-durables sector, which encompasses everyday items from fast-moving consumer goods (FMCG) like soaps and shampoos to essential food items, has contracted for six consecutive quarters. This is not a short-term blip; it is a prolonged downturn.

While some of this decline can be statistically explained by the “base effect” (i.e., high growth in a previous period making current growth seem lower), it is impossible to ignore the underlying reality of “slack demand.” The contraction in discretionary non-durables indicates that households are cutting back on even small-ticket, non-essential purchases. This is a classic symptom of strained household budgets, low consumer confidence, and insufficient purchasing power in the hands of the masses.

This creates a vicious cycle that stifles the very industrial recovery the data seeks to measure:

1. Weak Job Creation: Contraction in labour-intensive sectors leads to job losses or stagnant wages.

2. Low Income Growth: Without stable and growing incomes, household purchasing power remains weak.

3. Slack Consumer Demand: This leads to low offtake of consumer goods, both durable and non-durable.

4. Reduced Production: Facing weak demand, manufacturers cut back on production, further impacting industrial growth and potentially leading to more job cuts.

The only way to break this cycle is to address its root cause. As the original analysis succinctly puts it, “The only real solution lies in increasing incomes and creating jobs.”

Policy Imperatives: Beyond Headline Numbers

The IIP data for September 2025 is a clarion call for a strategic policy pivot. Celebrating the headline manufacturing growth figure is a dangerous complacency. The focus must shift from aggregate growth to the quality and composition of that growth.

1. Targeted Support for MSMEs and Labour-Intensive Sectors: Policymakers need to move beyond broad-based incentives and provide targeted support to the struggling apparel, leather, and plastics sectors. This could include easier access to credit, technology upgradation schemes tailored to their needs, and aggressive marketing support to help them tap into global and domestic value chains. Simplifying the labyrinth of compliance and regulation for MSMEs is non-negotiable.

2. Reviving Rural Demand: The demand crisis is particularly acute in rural India, which is a massive consumer market. Policies must focus on strengthening rural incomes through robust agricultural support, ensuring timely and remunerative prices for farm produce, and massively scaling up the rural infrastructure and employment guarantee schemes to put money directly in the hands of people. A revived rural economy will immediately boost demand for consumer non-durables.

3. A Strategic Push for Mining: The government must treat the mining sector’s weakness as a strategic priority. This involves streamlining clearances, deploying technology for sustainable and efficient extraction, and creating a transparent and attractive policy regime to bring in private investment. Energy security is impossible without a functional mining sector.

4. Bridging the Skill Gap: For growth to become truly inclusive, the workforce must be equipped with the skills required by the evolving industrial landscape. A massive push for vocational training and skilling, developed in collaboration with industry, is essential to ensure that the youth can find employment even in the more capital-intensive sectors that are growing.

Conclusion: The Quality of Growth Matters

The September IIP data is a powerful reminder that in economics, the “how” is just as important as the “how much.” A 4.9% growth in manufacturing is a positive sign, but its value is severely diminished if it does not translate into widespread job creation and rising incomes for the average citizen. The current trajectory of a capital-intensive, job-light recovery is economically unsustainable and socially perilous.

True, resilient economic growth is inherently broad-based. It is powered by millions of small entrepreneurs and workers whose collective demand fuels a virtuous cycle of production, investment, and further employment. The data shows that this engine is sputtering. The path to a genuinely vibrant Indian economy does not run solely through large factories producing metals and machinery; it also runs through bustling garment units, thriving leather workshops, and a confident consumer base able to afford the products of a modern economy. The challenge for policymakers is to reignite this broader engine of growth, ensuring that the industrial recovery of tomorrow is built on the foundation of jobs and incomes for today.

Q&A Section

Q1: The manufacturing sector growth of 4.9% in Q2 seems strong. Why is there concern?
A1: The concern stems from the fact that the growth is not broad-based. While the headline number is positive, more than half of the 23 manufacturing sub-sectors actually contracted during this period. The growth is concentrated in capital-intensive industries like basic metals, while labour-intensive sectors like apparel and leather, which are crucial for mass employment, are shrinking. This creates a scenario of “jobless growth,” where the economy expands without generating sufficient new jobs.

Q2: What is the significance of the consumer non-durables sector contracting for six consecutive quarters?
A2: This prolonged contraction is a major red flag for domestic demand. Consumer non-durables include everyday items, many of which are considered essential. A sustained decline in this category indicates that households are under significant financial pressure and are cutting back on spending. This lack of consumer demand creates a vicious cycle, as low sales lead to reduced production, which in turn can lead to job losses and further weaken demand.

Q3: How does the poor performance of the mining sector affect the broader economy?
A3: The mining sector is a foundational part of the industrial ecosystem. Its contraction has a ripple effect. It can lead to:

• Energy Security Risks: It reduces the domestic availability of coal and other minerals critical for power generation.

• Increased Costs: Industries are forced to rely on more expensive imported raw materials, driving up production costs.

• Strategic Vulnerability: It hinders the development of industries reliant on critical minerals needed for sectors like electronics, defense, and renewable energy.

Q4: What is the “vicious cycle” that the data reveals?
A4: The data reveals a cycle where:

1. Weakness in labour-intensive sectors leads to poor job creation and stagnant wages.

2. Low income growth results in slack consumer demand, as seen in the contraction of non-durables.

3. This low demand forces manufacturers to cut production, further harming industrial growth and potentially causing more job losses, thereby reinforcing the cycle from the start.

Q5: What should be the primary focus for policymakers based on this data?
A5: The primary focus must shift from chasing headline growth numbers to fostering high-quality, inclusive growth. This involves:

• Boosting Demand: Implementing policies that directly increase household incomes, particularly in rural areas.

• Supporting Job Creators: Providing targeted assistance to struggling, labour-intensive MSME sectors.

• Strategic Investment: Revitalizing the mining sector and bridging the skill gap to ensure the workforce can benefit from the growth in capital-intensive industries. The ultimate goal is to make growth broad-based and employment-oriented.