External factors such as climate change, increasing automation, and global economic policies will all play a role in determining India’s employment landscape in the coming years. To mark International Workers’ Day on 1 May, I4I Deputy Managing Editor Nikita Mujumdar summarises some research on addressing these challenges to ensure worker wellbeing and productivity, and equitable access to future-proof jobs. 

The structural transformation of the Indian economy has come with rapid growth of the services sector – the sector’s contribution to Gross Value Added (GVA) has increased from just over 30% in the 1980s to 55% in FY2024-25. While this has spurred economic growth, not all workers have benefited. Agriculture remains the largest employer in India, with a large proportion of the workforce still engaged in low-productivity agricultural activities. Although the share of agricultural employment declined over the last four decades, manufacturing employment has been more or less stagnant. Other factors affecting India's labour market, including lack of access to skilling, stringent regulations, and poor social protection, have also been summarised in an I4I synthesis blog for International Workers' Day last year. As a result, many low-skilled and rural workers find themselves excluded from productive, formal employment opportunities. 

This labour-market challenge is compounded by external factors: rising temperatures and extreme weather events that threaten worker productivity and earnings, technological displacement due to the rapid integration of automation, and foreign policy decisions that influence high-skilled migration. These require innovative solutions and dynamic policies to create future-proof jobs. 

Adapting workplaces and the workforce to climate change

Average temperatures in India have been rising over the past few decades, with heat waves and days of above-normal temperatures becoming more frequent. In addition to impacting health and living conditions, a 2024 UNESCAP report reveals that India is expected to lose around 5.8% of daily working hours due to rising temperatures by 2030, with agricultural and construction workers facing the greatest losses. This is consistent with the findings in Aggarwal (2024), which reveal that climate shocks disproportionately impact rural industrial workers, who experience consumption losses in the range of 2-21%.
In his presentation at the India Sustainable Growth Conference in 2024, E. Somanathan showed that excessive heat also reduces productivity among manufacturing-sector workers. The decline in workdays for informal workers due to heat and poor health brings down earnings for at least one month of the year. 

Technology can be leveraged to mitigate this issue to an extent: A study by Adhvaryu et al. (2023) found that mitigation efforts by firms – such as the adoption of cooling technologies and energy-saving methods, like LED lighting – could reduce the negative impact of temperature on hot days by 85%, contributing to a conducive working environment in factories. Similarly, for outdoor tasks, Custer et al. (2021) found that technology which reduces workers' cognitive load – like using a tablet to collect data in the field – can reduce heat-induced productivity losses. 

Going beyond mitigation, efforts at climate change adaptation can also support employment generation. A World Economic Forum White Paper (2021) estimates that India’s transition towards net zero has the potential to create over 50 million jobs. In their I4I post, Masood and Sabarwal (2024) share an example of progress in this direction – India’s Skill Council for Green Jobs (SCGJ) has developed 44 nationally approved qualifications, trained over 500,000 candidates (including more than 100,000 in renewable energy), and created an e-learning system that has provided virtual training to over 4,000 individuals working towards clean energy initiatives. Similarly, the National Green Hydrogen Mission aims to create 600,000 jobs by 2030. 

On the other hand, Chandra et al. (2023) note that the phase-down of fossil fuel-intensive sectors also risks worsening unemployment – the coal industry in India employs about 1.2 million people and indirectly supports 13 million jobs in allied sectors. In an IGC blog, Oliveira-Cunha (2022) highlights the importance of ensuring equitable access to new labour market opportunities, especially for low-skilled workers who are more likely to be displaced by tighter environmental regulations. This call to action to minimise the skill gap is also echoed by Masood and Sabarwal, who emphasise the need for learning and upskilling to help drive the green transition. 

Harnessing and safeguarding against automation and AI

Low-skilled workers are vulnerable to another threat in the labour market: displacement due to increased automation and reliance on artificial intelligence (AI). Research by Dev and Kathuria (2025) finds that there has been a consistent decline in the share of low-skilled workers across all sectors, with their more skilled counterparts filling the gap. However, Copestake et al. (2022) point out that the growing demand for AI skills worldwide has negatively affected the growth of non-AI roles, particularly among high-skilled occupations such as managers and professionals. 

A Pearson Report suggests that as many as 16.2 million workers would need to be upskilled in AI and automation to meet India's skill deficit. This conclusion is supported by Gupta (2024), who implies that India lacks adequately qualified individuals to work in the high-productivity services industry – a deficiency exacerbated by the low representation of technically skilled women in these fields. Her findings, as well as those of a study by Ho et al. (2024), also bring out a positive externality of providing women opportunities to work in ICT (information and communication technology) services and digital jobs such as data entry on online platforms – they provide women with greater flexibility to work from home and/or choose their work hours to accommodate domestic and caregiving responsibilities. 

While the expansion of the digital labour market has been a boon for women, it can also have unintended consequences. Studies have found that AI recruiting tools exhibit significant gender biases while screening applicant information. A study by Chaturvedi et al. (2025) found that employers may also use implicit signals (such as gendered words) in job applications, which deter qualified women from applying to high-paying jobs. As more women seek to enter the workforce, recruiters and large language models (LLMs) need to be trained to reduce gender stereotyping and encourage more inclusive hiring. 

Foreign policy and labour-market perceptions

The growth of the high-skilled services sector in India has also been shaped by the foreign policy decisions of other countries – particularly the United States. Over half of India’s software exports are directed to the US, making the sector highly sensitive to American economic policies and market dynamics. In 2017, Khanna and Morales (2017) found that the possibility of moving to the US under the H1-B visa encouraged Indian workers to acquire computer science skills. As the number of visas was capped, the workers who failed to emigrate, along with those who returned from abroad, contributed to expanding the tech workforce in India. 

Immigration policies in the US have always impacted the flow of workers from India – but what is the impact of more conservative, anti-immigrant policies such as those implemented by the Trump administration? During President Trump’s first term, Ghatak (2017) contended that the crackdown on H-1B visas for low-end salary workers and hiring of US citizens played a role in the layoffs in India’s IT sector at the time. Conversely, Chaurey et al. (2025) found that increased uncertainty around immigration policies during Trump’s second term caused firms to relocate jobs away from the US, leading to an increased demand for workers in India.   

As India’s labour market remains sensitive to both global and domestic forces, a central policy challenge is to ensure that workers can be trained and reskilled to shift towards high-paying, high-productivity sectors that meet the challenges of the future, to reduce (or prevent the deepening) of existing inequalities in access to good jobs.