Indian companies are producing more, and they are hiring to do it. The workers are simply missing from the official data. To handle recent demand spikes without taking on long-term liabilities, manufacturing and service firms are substituting permanent jobs with third-party India contract jobs, creating an illusion of jobless growth.
Where are the manufacturing jobs actually going?
Instead of a stalled labor market, India’s flexi-staffing firms’ balance sheets show a booming one. The Indian Staffing Federation tracked an 8% year-over-year growth in new formal flexi-employment for FY26, adding 1.18 lakh workers across the sector. [1]
Vendors like TeamLease reflect this surge. In its recent quarterly reporting, TeamLease posted consolidated revenue reaching ₹11,720 crore, a 5.66% improvement driven by volume growth, with projections of a further 5.4% workforce expansion in the second half of FY27. [2, 3] These third-party vendors act as the legal employers for workers operating assembly lines and logistics hubs.
The demand for flexi-staffing services is accelerating exactly as direct hiring appears to flatline.Why doesn’t the PMI capture India contract jobs?
The S&P Global India PMI is a monthly survey tracking business activity. [4] October’s index hit a four-month high for output. Financial media noted the paradox of high production and stagnant payrolls, commonly referred to as “jobless growth.”
That paradox exists because of a methodological blind spot in how the index measures employment.
The survey asks purchasing managers about their formal payrolls. Because contract workers are legally employed by third-party staffing agencies, they do not appear on the principal employer’s balance sheet. A factory can double its daily output using hundreds of rented workers, and the PMI employment data sub-index will register zero new hires.
Why are companies choosing contract labor over permanent hires?
Corporate employers point to volatile global supply chains and rigid labor laws as the driver for this shift toward flexi-staffing. Without third-party labor options, companies argue they would have to refuse surplus orders, resulting in zero job creation rather than contract job creation.
That structural caution is reshaping factory floors.
Companies now treat labor as a variable operational expense rather than a fixed overhead cost. This structure allows Indian manufacturing firms to scale down instantly if the current demand spike fades, maintaining profit margins without the friction of formal layoffs.
How much do companies save by using flexi-staffing?
The decision to outsource labor relies directly on statutory arbitrage, the financial advantage gained by exploiting differences in labor regulations.
Under Indian labor regulations, including the Contract Labour Act and the Industrial Disputes Act, the contractor is the immediate employer. [5] When a company uses direct payroll, it assumes direct liability for Provident Fund contributions, gratuity payouts, and retrenchment compensation, mandated at 15 days of average pay for each year of continuous service.
By routing labor through vendors, the principal employer shifts the burden of severance and long-term compliance overhead to the staffing agency. The financial incentive drives companies to hire contractors even when a permanent role offers better continuity.
What is the downstream reality for the workforce?
For the workers operating the machinery, this shift means completing the exact same tasks as their permanent peers under different terms and lower pay.
An International Labour Organization research report on Indian manufacturing notes the core disparity. [6]
“Invariably, contract workers are paid lower wages than directly recruited workers doing similar work on the same premises.”
The Chief Labour Commissioner has publicly flagged this increasing trend as a major concern, citing the stark difference in salaries between permanent and contract staff within the corporate sector. [5]
The result is a workforce handling the physical reality of India’s manufacturing boom while remaining mathematically excluded from its primary economic indicator.
Frequently Asked Questions
Is India experiencing jobless growth in manufacturing?
No. While official indicators like the PMI show stagnant direct hiring, Indian manufacturing is actively adding workers through third-party flexi-staffing vendors. The jobs exist, but they are off-balance-sheet.
Why does the S&P Global India PMI show hiring has stalled?
The PMI surveys purchasing managers about their direct, formal payrolls. It does not count contract workers who are legally employed by third-party staffing agencies, creating a blind spot in the data.
Why do companies prefer contract workers over permanent employees?
Companies use contract workers to turn labor into a variable expense, bypassing long-term liabilities like Provident Fund contributions, gratuity payouts, and mandated severance, allowing them to scale down quickly without formal layoffs.
Do contract workers earn the same as permanent employees in India?
No. According to the International Labour Organization, contract workers are invariably paid lower wages than directly recruited workers doing similar work on the same premises.
Praseetha K
Praseetha K is the Managing Editor of Clarity Times. She edits, verifies and publishes the newsroom's articles, and also writes analysis on policy, law, business and technology. Articles she writes are edited by the Editor-in-Chief before publication.
