Services can become India's next engine of quality job creation

As labour intensity converges across manufacturing and services, it's time to rethink the role of services in job creation

Over the past month, the country witnessed widespread protests asking for fairness in the examination system for admissions to major courses and for entry into government jobs. The final trigger was the leak of the question papers for the National Eligibility cum Entrance Test for Undergraduate (Neet-UG) exam, but the protesters flagged a number of other exams as well. 

In response, the government has introduced a new Bill in Parliament — Public Examination (Prevention of Unfair Means) Amendment Bill, 2026 — to impose more stringent punishment on anyone found responsible for any leaks. The National Testing Agency (NTA) — the body that conducts the Neet exam and other critical exams like the Common University Entrance Test — is being overhauled with the suspension of 47 officials. 

Questions being raised about the examination system relate to the basic issue of fairness. The possibility of papers being sold for a price undermines the credibility of the system. Therefore, there is a need for an overhaul. Not just of the NTA, but of all the other agencies that conduct a range of examinations for entry into various higher education programmes/courses or into public sector jobs. Alongside, however, we need to ask a fundamental question —what drives the creation and sustenance of a market for leaks? Perhaps the answer lies in the nature of the job market in India. 

The Periodic Labour Force Survey (PLFS) provides some startling numbers on the composition of jobs in India. The PLFS classifies information on the composition of workforce into regular workers, self-employed and casual workers and the corresponding wages. The share of regular workers in total workforce was 23.6 per cent in 2025, a little more than half being in government or public enterprises. The self-employed account for more than half (56 per cent), with the remaining being casual workers. The average wage for regular worker was reported to be at ₹22,699, which is higher than the monthly earnings of self-employed ₹14,861, and of casual workers at  ₹10,000, assuming a worker works for 22 days in a month. Even among the regular workers, there is considerable variation — over 50 per cent have no written job contract and no social security benefits.

To understand the differences in wages across activities, the survey reports a number of occupation divisions — the ratio of the highest to the lowest wages within regular workers is 4:1. Juxtaposing the highest-wage-earning occupation with casual workers, the differential is 7.4 times, assuming that casual workers get to work 22 days in a month. To top this off, there is a public-sector premium, especially in lower-level jobs. On the other hand, the self-employed category includes a number of unpaid family workers, suggesting significant underemployment in the economy and poor returns to effort. 

Fewer well-paying jobs and a wage premium for public-sector jobs drive a sharp demand for these jobs and the getting in “by hook or by crook” principles come into operation. The interested candidates would be more than willing to tip the scales in their favour, if the opportunity presents itself. These create the incentive structures for paper leaks. Thriving coaching institutes are also another manifestation of this premium. 

So, while the short-term fix is the proposed law and the overhaul of the agencies conducting the examinations, we need to look at the number of job opportunities the economy is creating as well to address the root cause. 

The economics of job creation in the country has changed significantly over the years. The KLEMS database suggests that labour per unit of capital has declined steadily over time across all major sectors. In other words, the economic activity is becoming more capital-intensive over time. While agriculture and allied services continue to record a higher ratio compared to the rest of the economy, this ratio for manufacturing and services is converging rapidly. 

The trends in technological progress suggest further intensification in capital intensity over time. The evolution of artificial intelligence (AI) is likely to bring in a new wave of automation for routine tasks both in physical and mental activities. This is a challenging time for policymaking. Global competitiveness presents the need to be on the technological frontier. From this perspective, policy should encourage the creation and adoption of new technologies. This is an essential aspirational step, creating a share in global intellectual property rights for India along with corresponding income streams. However, these developments do not address the current need for decent jobs for the surge of youth entering the job markets. 

The similarity between labour per unit of capital for manufacturing and services suggests that the cost of generating new employment is comparable across both these broad sectors. Perhaps, it is time to look at services as the powerhouse for creating jobs in this new era of automation. According to KLEMS data, among the major services, some of the relatively labour-intensive sectors are construction, trade, hotels and restaurants, education and health. 

The first three could contain a larger component of unskilled work, while the latter would involve a skilled workforce. Could it be time for re-examining the role that education and health care play in this scenario? Improving the quality of services in both these sectors could make India a hub for health and education, while providing a range of employment opportunities for the youth. An ageing population globally and in India, too, would create opportunities. These sectors could provide a range of jobs that are AI-proof in the medium term. The need of the hour is better regulation for supporting the quality of services in both these sectors. 

---

The writer is director, National Institute of Public Finance and Policy. The views are personal