TOKYO -- India's economy continues to grow at over 7% annually, but slow job creation is impeding even higher levels, largely because of rapid progress in increased efficiency, automation and structural shifts taking place in the textile and other labor-intensive industries. In manufacturing, which is the core of Prime Minister Narendra Modi's "Make in India" campaign, the lack of sufficient job training is widening the gap between available jobs and skilled personnel.

With over 200 million youths aged 6 to 14 in mandatory education and about 100 million of them set to enter the working world by 2025, the nation's low rate of job creation is not just a missed opportunity, but a cause for concern as well.

Woefully low growth

The latest Quarterly Report on Employment Scenario by the Ministry of Labour & Employment indicates that net job creation stood at just 109,000 in eight key nonfarm sectors -- manufacturing, construction, trade, transport, accommodation & restaurant, IT/BPO, education and health -- between April and September 2016. New hires accounted for only about 0.5% of the total working population in those eight industries.

Net employment growth in the manufacturing sector, key among the eight and employer of roughly half of all workers, was only 12,000 over the same six months. Meanwhile the service sector created 128,000 jobs, but the construction sector, known for having high turnover, lost 24,000 in the period.

The education and health sectors accounted for about 75% of net job growth in that time, with 49,000 and 33,000 new hires, respectively. However, these were attributable to a series of recent changes in government policy, which is promoting the construction of new primary and middle schools and paid for by levying a 3% cess to income tax. This has led to more teaching jobs and improved equipment in schools. The government has also worked to improve regional health care services. These two sectors, often the domain of working women, can help improve the quality of labor and advance gender balance in employment.

Jobless growth has surfaced over the past few years as an unsettling element in India's economic picture. The 2011 census showed that the Indian economy grew at an average rate of 7.7% annually over the prior decade, while employment grew by only 1.8%.

The leading cause of the problem is insufficient skill development and a discrepancy between supply and demand in the labor market. "Clearly, not enough jobs are being created to meet the needs of people entering the workforce. The manufacturing and construction sectors are not doing well," said Dharmakirti Joshi, chief economist at CRISIL.

Since its formation, the Modi administration has undertaken various job creation initiatives. But Joshi finds them lacking. "These are far from adequate," he said, due to "inadequate low-skilled job opportunities outside agriculture and widening skills mismatch." Traditionally large employers are also at risk. "There is the threat of automation impacting high employment-generating sectors such as textiles, food processing and IT-enabled services," Joshi said.

FY2015/16 Economic Survey also shows only 6.8% of those aged 15 and above have received or are receiving vocational training. While differences exist among industries, much is still needed in terms of worker protections and working conditions. In its February report, the Organization for Economic Cooperation and Development wrote, "Inequalities in wages and in social and labor law coverage are large. Only one-third of all workers have a written job contract."

Incongruous industries

In the manufacturing sector, where training is particularly important, a lack of skills is a major hurdle to improving productivity. In addition, the Land Acquisition Act is raising the cost of real estate for new plants, and investment in equipment is drying up as banks cut back on lending while they dispose of bad debts. Combined, these factors inhibit job creation in the short term.

And the problem is not limited to low-skilled workers as the prospects for holders of college degrees and higher -- those who could join the white-collar workforce immediately -- are also in question. In 2013, Aspiring Minds, a company specializing in talent assessment, released a shocking report indicating that 47% of these highly educated people in India were "not employable for any industry role" due to a "lack of English language knowledge and cognitive skills." This ignited a heated discussion nationwide over university curricula and the employability of young people.

A survey in FY2013/14 by the Ministry of Labour and Employment, on the other hand, mentioned the issue of overqualification, pointing out that about 60% of job-hunting people with graduate and postgraduate degrees unemployed because there are no jobs that match their education, skills or desired compensation levels.

It has long been said in India that large corporations are of little help in creating jobs. In estimates by the Reserve Bank of India and others, of the 500 million workers in India, only 30 million -- about 0.6% -- are a part of the formal economy, and more than half of those have government jobs.

Employees in the government and at state-run companies numbered nearly 20 million in the mid-1990s. That figure has been cut to about 17 million following reforms implemented within state-run Indian Railways and Air India. The number will likely decrease further as state-owned oil companies and banks merge or integrate. Therefore, private companies hold the key to job creation.

Because large corporations do so little on the job front, much is expected of the small and medium-sized enterprises that employ 40% of India's labor force. Unfortunately, current policies do not effectively support these businesses.

It is difficult to grasp the reality of unemployment in India because there are no established systems for compiling employment statistics and many seasonal workers move from job to job in the agricultural and construction sectors. "My estimate is that the unemployment rate is in the 10-15% range," said Kentaro Konishi, CEO of Daiwa Capital Markets India.

It is possible that the "Make in India" campaign and better job training programs can address the mismatch between supply and demand in the country's labor market. However, "There is still quite a high risk that the labor market will remain weak for the next five years," Konishi predicted.