Rich Get Richer, Poor Poorer, As Growth Turns Capital-Intensive
High-rise apartments in Mumbai are an outward sign of India’s growing prosperity, but challenges with wealth distribution and unemployment linger (Logan King/Flickr)
India has witnessed remarkable economic growth over the past few decades, yet this prosperity has been accompanied by a disturbing rise in inequality. A recent study from the World Inequality Database co-authored by Thomas Piketty and others shows inequality has skyrocketed since the early 2000s and in 2022-23, India’s richest 10 percent citizens’ share of total income was close to 60 percent, and the share of the richest one percent was 22.6 percent. The bottom 50 percent were getting only 15 percent of India’s national income in 2022-23.
The study further notes that India’s top one percent’s income share is not only highest since 1922 but also among the very highest in the world, higher than even South Africa, Brazil and the US. Caste, gender and regional divides further compound the problem, with marginalised communities continuing to face severe economic disadvantages.
While multiple factors have contributed to rising inequality, one of the most significant is India’s shift toward capital-intensive growth. Driven by the rapid rise of automation worldwide, capital-intensive industries—banking, financial services and insurance (BFSI), technology and pharmaceuticals—have increasingly turned to automation, computerisation and advanced digital technologies to boost productivity and cut costs.
According to the Future of Jobs report 2025 by World Economic Forum, Indian firms are adopting AI, robotics and energy technologies in certain industries at a faster rate than global peers, with 35 percent prioritising semiconductors and 21 percent focusing on quantum tech. Firms are also ahead in tapping diverse talent (67 percent vs. 47 percent globally) and adopting skills-based hiring (30 percent vs. 19 percent globally).
In the automobile sector, for instance, Maruti Suzuki—India’s largest car manufacturer—has significantly automated its production lines over the past decade, reducing its reliance on human labour. Its Manesar and Gujarat plants now employ thousands of robots, performing tasks from welding to painting and assembly. Similarly, Tata Motors and Mahindra & Mahindra have integrated AI-driven production planning and robotic automation, enabling mass production with minimal workforce expansion.
This shift has undoubtedly benefited firms, as evidenced by record-high corporate profits in the latest Economic Survey. It has also created new opportunities for high-skilled workers, particularly engineers, data scientists and automation specialists, who are now in greater demand. However, for low-skilled and semi-skilled workers – the vast majority of India’s labour force – these changes have been far less favorable.
As automation and computerisation replaces routine tasks, the demand for medium- and low-wage labour in booming capital intensive industries has dramatically declined, leaving millions of workers with limited job prospects. The result is a widening gap in income, where corporate profits and high-skilled wages continue to rise, while real wages for low-skilled workers remain stagnant or even fall in some sectors. An important study by Radhicka Kapoor for the Indian Council for Research on International Economics Relations provides compelling evidence of these troubling trends.
The effects of this trend are amplified by the underperformance of labour-intensive industries, which have historically absorbed displaced workers. In a well-functioning economy, those losing jobs due to automation in capital-intensive sectors would find employment in expanding labour-intensive industries.
However, India’s labour-intensive manufacturing sector—particularly textiles, apparel, and leather goods—has struggled to remain competitive. For instance, India’s share in global textile and apparel exports has declined from 5 percent in 2017-18 to around 3.9 percent in 2023, while Bangladesh and Vietnam have expanded their market presence, benefiting from lower labour costs, simplified regulations and targeted policy support.
Burdened by complex labour laws, high compliance costs and infrastructural bottlenecks, many Indian firms have been unable to scale up, reducing their ability to absorb displaced workers. The result is a labour market where job creation lags behind workforce growth, keeping wages subdued and unemployment high, particularly for less-educated workers.
The consequences of this transformation extend beyond the immediate rise in inequality, as its long-term effects are likely to entrench economic disparities across generations. Studies have repeatedly shown that both intra- and intergenerational upward economic mobility in India remain low, especially for individuals living in rural areas and those belonging to marginalised social groups.
Those at the lower end of the income, education, or occupational spectrum face significant barriers to improving their economic status over their lifetimes and over generations. The decline of labour-intensive industries, coupled with the growing reliance on automation-driven, capital-intensive growth, has further constrained opportunities for upward mobility.
As stable employment becomes increasingly scarce for low- and semi-skilled workers, a large segment of the population risks being trapped in cycles of low-wage, insecure work with little chance of advancement. If these trends persist, they will not only reinforce structural inequalities but also pose serious risks to long-term economic stability and social cohesion.
A crucial step toward reducing inequality and fostering inclusive growth in India is to prioritise labour-intensive sectors that can generate employment for the millions of workers struggling to find stable jobs. The India Employment Report 2024, jointly released by the International Labour Organisation and Institute for Human Development, underscores the urgent need for India’s growth model to shift towards labour-intensive manufacturing, as this sector has the potential to absorb a significant portion of the workforce entering the labour market each year.
However, this transition requires targeted policy interventions to remove structural barriers that have hindered the expansion of labour-intensive industries. Easing restrictive labour regulations, streamlining bureaucratic processes, improving infrastructure and expanding access to credit for small and medium enterprises (SMEs) are essential steps to revitalise this sector. SMEs, in particular, play a critical role in employment generation, yet they often face financial constraints and regulatory burdens that limit their growth. Addressing these challenges can enable a more dynamic and inclusive industrial landscape.
Beyond policy reforms, significant investments in vocational training and skill development programs are also necessary to equip workers with the capabilities needed in labour-intensive industries. Government and private-sector collaboration will be key in designing training programs that enhance both technical and soft skills, ensuring that displaced workers in capital-intensive industries can transition into stable and productive employment in labour-intensive industries.
Science, technology, engineering and mathematics (STEM) education, along with technology workforce training, must be expanded to prepare workers for emerging roles. Further, targeted initiatives for women, rural workers and marginalised communities are essential to make these opportunities accessible to those who have historically been excluded from formal employment.
Additionally, policymakers must ensure that capital-intensive industries adopt a balanced approach to automation—one that enhances productivity while safeguarding employment opportunities. While in today’s fast-evolving world, technological advancements are crucial for maintaining global competitiveness, it is important to mitigate their impact on job losses and wage stagnation as much as possible.
A well-calibrated policy framework can help achieve this balance by linking tax breaks, subsidies and other incentives to firms’ employment commitments. Companies that invest in workforce expansion and skill development alongside automation should be rewarded, ensuring that productivity gains lead to higher wages and broader economic benefits rather than merely inflating corporate profit margins.
Moreover, protecting informal worker rights is essential to ensuring that automation-driven growth does not further marginalise vulnerable labour segments.
Without such interventions, India risks further entrenching economic inequality, where a small fraction of the population reaps the benefits of growth while the majority remains excluded from its gains.
(Published under Creative Commons by 360info™. Read the original article here)
