Manufacturing growth is one of India’s most important and elusive economic goals. Why can’t India achieve this? A new report from the Office for National Statistics, the preliminary findings of which were covered in HT yesterday, reaffirms an important idea about the problem. India’s million-plus cities show a reasonably negative relationship between the share of employment in the manufacturing sector and the hourly wage rate of salaried workers.
Simply put, this means that cities with a higher share of manufacturing employment tend to have lower hourly wage rates for their salaried workers. Why is this finding important when it comes to India’s lack of manufacturing prowess?
The manufacturing sector has the highest share of wage workers among major sectors in India if we exclude public administration, defence, and other services group. This makes intuitive sense because setting up a factory requires hiring workers and is not something that can be implemented as a kitchen garden project. However, workers will only feel motivated to participate in manufacturing if they believe compensation will be better than elsewhere.
Data from the NSO report, which provides insights into over a million cities in India from Periodic Labor Force Survey (PLFS) data for 2025, shows that the dominance of manufacturing in the city may generate headwinds rather than tailwinds in terms of wages of salaried workers. Cities like Ludhiana and Surat, where manufacturing contributes more than 50% of employment, are the worst when it comes to the hourly wage rate of salaried employees. Faridabad and Agra are closely following. Anecdotally, these cities are known as SME hubs in India.
In a city like Navi Mumbai, where the share of employment in the manufacturing sector is only 13%, below the urban average in India, wage rates are the highest. Even Prayagraj and Patna in Uttar Pradesh and Bihar, which are often criticized for being backward in manufacturing, are doing much better than manufacturing hubs like Ludhiana, Agra, Surat etc in terms of wage rates for wage workers.
The One Million Cities report is certainly not the first to point this out. PLFS data shows that monthly wages for wage earners are lowest relative to wages in manufacturing.
In hourly terms, manufacturing’s share of employment may not be the only factor behind wage variation. Even at similar levels of manufacturing employment share, cities show significant variation anecdotally in terms of their overall economic size and dynamism. Wages in Navi Mumbai are more than double what they are in Jabalpur with a similar share of employment in manufacturing. But the relationship between the share of employment in the manufacturing sector and wage rates is not insignificant at all.
Is there a fundamental discrepancy between the importance of manufacturing from a macroeconomic perspective and its attractiveness to workers from a profits perspective? India must take this issue seriously.
