Automation gains ground as factory jobs lag behind investments

By: Team India Tracker

The 10 largest factory sectors raise fixed capital 12.6%—covering machinery, plant, and land—while employment climbs just 7.8%, underscoring a clear shift toward automation over hiring.

The manufacturing sector is investing more in machines than in people. The latest data show that while factories are expanding and modernising rapidly, hiring is not keeping pace—a sign that automation and efficiency are driving industrial growth faster than jobs. Nearly 70 per cent of the factory workforce is concentrated in sectors that registered double-digit growth in new investments, yet employment in these sectors grew by only single digits over the year, according to the Annual Survey of Industries (ASI) 2023–24 report.

The 10 largest factory-employing sectors recorded a median 12.6 per cent increase in fixed capital—which covers investments in plant and machinery, land, and other long-term assets after depreciation—while the number of persons engaged rose only 7.8 per cent. The median, which represents the midpoint of a data range, gives a more accurate picture of central trends than averages, which can be skewed by extremes. The takeaway is clear: companies are spending far more on equipment than on workers.

Machines take the lead

In nine of the 10 top sectors, fixed capital grew faster than employment, underlining how companies are prioritising technology and automation over manual labour. The only exception was motor vehicles, trailers and semi-trailers, where employment rose 8.6 per cent, slightly ahead of a 6.8 per cent rise in fixed capital. By contrast, the textiles sector expanded its capital base but actually cut jobs, highlighting how even traditionally labour-intensive industries are automating.

Across organised manufacturing, fixed capital formation grew at its fastest pace in seven years, signalling a strong rebound in industrial investment since the pandemic. But the weaker growth in jobs reveals a shift in the way India’s factories are scaling up.

Why firms are choosing machines

Economists say firms are increasingly choosing machines because of a mix of global, technological, and domestic factors.

Since manufacturing operates in a globally competitive space, firms must continually modernize to remain efficient. Even in traditionally labour-heavy industries like apparel, the amount of capital invested per worker is steadily increasing — a shift that’s both structural and irreversible, say analysts.

Rigid labour laws have also played a role. Many manufacturers find the country's labour rules cumbersome, making automation a safer and more flexible option. Firms are also under pressure to invest in energy-efficient and cleaner technologies to meet global standards, which often means higher capital spending on equipment rather than on expanding the workforce.

Government policies are reinforcing this trend. The Production-Linked Incentive (PLI) schemes, aimed at encouraging manufacturing in key sectors, reward higher output—something often achieved faster through technology and process automation than through hiring.

The circular economy option

Not all economists see this shift as inevitable or wholly negative. Some argue that India could still create meaningful factory jobs if it invests in a circular economy—one centred around reuse, repair, and recycling.

The gap between investment and job growth—6.3 percentage points in FY24—is the widest in seven years. Before 2020, the difference had narrowed, suggesting that investment and hiring were moving in tandem.

Since the pandemic, however, companies have prioritised automation to rebuild supply chains and reduce risks, widening the gap once again. The result: the factories are now expanding output without expanding payrolls at the same pace.

This is the second consecutive year where fixed capital has outpaced job growth, showing that the manufacturing recovery is being powered more by machines than by manpower.

Policy dilemma ahead

For the government, the trend poses a dilemma. Flagship initiatives such as Make in India and the PLI scheme aim to drive both output and job creation. While rising investments signal confidence in industrial growth, the slow pace of factory hiring indicates that productivity gains are coming more from automation than from adding workers.

That imbalance threatens to limit manufacturing’s ability to absorb India’s growing labour force. To generate broad-based employment, experts say India will need to nurture smaller, repair-oriented, and service-linked production ecosystems that complement automation instead of being replaced by it.

For now, the message from the numbers is clear. The manufacturing sector is on the move, but machines are pulling ahead of workers—and unless policy catches up, the next phase of industrial growth may deepen the divide between technology and employment.