Weak Consumption, Not Tariffs, Was the Bigger Drag on Jobs: TeamLease’s Balasubramanian

There are two aspects. First, headline growth is driven by consumption and Gross Fixed Capital Formation (GFCF). Recently, growth has largely come from government infrastructure spending rather than consumption.

Private investment has been weak, and consumption hasn’t picked up meaningfully. Without consumption growth, job creation also weakens.

Second, increasing women’s labour force participation is a major lever. It’s around 35–40% now. If it rises to 75–80%, household incomes and consumption will rise significantly, driving GDP growth.

Investment is important too as infrastructure spending creates construction and allied jobs but consumption and private investment are still missing.

Also, the historical linear relationship between GDP growth and job growth may not hold going forward. With technology, automation, and AI, companies can grow output without proportionate workforce expansion. That’s not necessarily bad — higher productivity can support higher wages.

So we shouldn’t expect a strict one-to-one relationship between economic growth and job growth anymore.

If you look at specific pockets of the economy, then yes—there has been some impact. Sectors such as textiles and jewellery, for instance, do appear to have felt the pressure. But this is not a broad-based phenomenon across the labour market.

In fact, some of the sectors that were expected to be affected have held up far better than anticipated. Take automobiles and auto components. Domestic consumption has been exceptionally strong. Hiring sentiment there remains robust and clearly positive.

There is also a strong undercurrent of growth in electric vehicles, which continues to gather pace. In 2025, luxury car growth has moderated, while mass-market vehicle sales have picked up. That shift is actually a healthy signal—it points to deeper, more resilient demand in the economy.

Beyond autos, India is also steadily emerging as a larger export hub for smartphones, consumer durables and electronic goods.

Having said that, if we step back and look at the macro picture, the bigger issue over the last six quarters or so has not been exports, but domestic consumption. Consumption growth has been weak, and that is the underlying reality. The festive season, too, has been a mixed bag and it hasn’t delivered the kind of boost one would normally expect.

This is despite a series of strong fiscal and monetary interventions: income tax relief for those earning up to ₹1 lakh a month, reductions in cash reserve requirements to improve liquidity, multiple repo rate cuts—including the recent 25 basis-point reduction—and even favourable rainfall over the past year. Yet, inflation has remained at multi-month lows over the last three to four months precisely because consumption has not picked up meaningfully.

That said, the outlook for the coming year is still positive. A recovery is very much possible. But if there has been any softness in hiring or workforce trends, it is far more a reflection of weak domestic consumption than the result of external trade shocks.

See, if you look at it realistically, nothing other than agriculture is truly a large-scale employment generator. The government’s effort has been to move as many people as possible from farm to non-farm jobs. That’s where future growth lies.

We cannot afford to have such a large workforce stuck in low-productivity farm jobs. In that sense, auto and electronics provide large landscapes where a significant portion of this farm-to-non-farm workforce can be absorbed.

If you look at manufacturing as a whole, the key employment-relevant segments include automobiles—along with auto components and ancillaries—electronics manufacturing, textiles, pharmaceuticals, and related industries. Services, of course, are extremely important and will continue to play a central role. But for a country of India’s size, with nearly 1.5bn people and the ambition to escape the middle-income trap, this is not a choice between manufacturing and services. We need both.

The issue you’re highlighting has deeper structural reasons. In southern and western India, we already face labour shortages. Demand for workers has outpaced supply. Fertility rates in many of these regions are below replacement levels, so populations are stagnant or shrinking.

On top of that, there is continuous migration out of these regions either abroad or to other parts of the country. This forces employers to bring workers from the north and east. But that creates challenges.

If someone migrates across the country, they need housing, food, and social support — all of which raise costs. Staying in their village costs them very little by comparison. Language and cultural differences also create friction initially, and settling down takes time.

Ideally, we should be taking jobs to people rather than people to jobs. That’s the real policy challenge. We see many workers leave within two or three days if the ecosystem isn’t supportive. Even if they stay, questions arise — where will they live long term? How will they raise families? Can they visualise a future there?

So it’s not that people aren’t interested in manufacturing. It’s that jobs are concentrated in regions with labour shortages, and regions with surplus labour don’t have enough jobs.

We cannot remain in low-skill, labour-intensive manufacturing forever. Productivity and GDP per capita will remain low if we do. These sectors are entry points and still better than farm jobs but you have to move up the value chain over time.

That’s exactly what China did. You start at the periphery and gradually move upwards.

India’s population growth has already slowed. Last year, our fertility rate hit 2.1 — the replacement rate. Population growth is now driven mainly by longer life expectancy, not higher births. Our life expectancy has risen to around 72 years, compared to the 60s earlier, and developed countries are at around 80.

Population will peak, stagnate, and eventually decline. If by then we have built a base of high-productivity jobs, we will be a population-stagnant but prosperous country.

Many studies show that over 90% of agentic AI projects have failed so far. India still has a cost advantage and a large talent pool. AI adoption here is strong, and people are using it as a partner, not just a tool.

Truly agentic AI is still rare. AI will displace some jobs, but overall the net effect will be positive and augment human work rather than replace it entirely.

It’s very difficult to predict. One extreme view is that AI and automation could create so much productivity that work becomes optional, leading to Universal Basic Income [UBI]. The other extreme is that inequality worsens, with wealth concentrating at the top.

Reality will likely lie somewhere in between. For India, UBI for 150 crore people isn’t realistic in the near future. Instead, we should aim for universal basic welfare.

Labour codes have good intentions. They introduce a national floor minimum wage, standardise wage definitions, and simplify compliance by unifying registers, filings, and returns. This significantly reduces operational overhead.

They also bring gig and platform workers under social security, which is essential.

I see it differently. Retrenchment compensation is now clearly defined and substantial. Full and final settlements must be paid within 48 hours, compared to 45 days earlier. Appointment letters are mandatory, salaries must be paid by the 7th, and penalties for non-compliance are steep.

Overall, these are pro-employee measures. It’s unfair to judge the codes based on one clause in isolation.

No. In fact, if you look at how compliance has been operating in this country, when we ran the numbers for many of our customers, we found that their costs were either marginally increasing or, in many cases, actually coming down.

The reason is this: most companies have anyway capped provident fund calculations at ₹15,000, which means the PF contribution is limited to ₹1,800. Second, the ESI contribution is actually going down, because instead of paying 4% on gross salary, you are now paying it on 50% of the CTC. So that cost comes down.

So it’s not that everything is going up. Some statutory remittances are actually reducing — ESI is a good example. What the labour codes really do is bring standardisation in the definition of what constitutes remuneration and wages, and they ensure that statutory dues are remitted within very stringent and short timelines.

If companies are uncomfortable with that, then I would question the intention of the company itself.

Consumption is expected to pick up, which means hiring sentiment for 2026 should be more positive than what we have seen so last this year.

Last year has not been particularly bullish. It has been slow. With labour codes coming into force, along with various fiscal and monetary policy interventions, the government is essentially trying to do two things. First, put more money and empowerment in the hands of employees. Second, make it easier for companies to do business by simplifying compliance — not necessarily reducing compliance costs, but reducing the operational burden.

And finally, incomes need to start rising in real terms, net of inflation. That hasn’t really happened over the last few years. Once that begins, you will see a strong pickup in consumption and, as a result, job growth as well.

It will take a bit more time, but you will definitely start seeing green shoots next year.