Why Do Fewer Women Work in India? A Supply–Demand Perspective

Executive Summary

India’s ambition to become a developed nation by 2047 hinges, among other things, on tapping its underutilised female labour force. At a per capita gross domestic product (GDP) of roughly USD 9,800 [1] (World Bank Group, 2024), India’s female labour force participation rate (LFPR) stands at 35% (International Labour Organization [ILO], n.d.)—well below the global average of 59% and also lower than peer economies such as Vietnam, Indonesia, the Philippines, and Bangladesh, where LFPR ranges from 42–68% [2,3] (The World Bank Group, 2024). The current low level represents a notable improvement from the 21% participation rate in 2017–2018. A higher female LFPR is beneficial not just for faster GDP growth, but for achieving better outcomes on health and education also. If India manages to achieve the average female LFPR for the developed world, it would add between USD 700 billion and USD 1.4 trillion in incremental GDP at current productivity levels.

This raises two fundamental questions: 1) What explains India’s low female LFPR relative to its peers? and 2) Why did it decline from 2004–2005 to 2017–2018 and then rebound? Since female LFPR is about employed women and those looking for work, there ought to be demand- and supply-side factors that drive the female LFPR. In this paper, we decompose the female LFPR into a country’s per capita GDP, the labour intensity of the overall economy (labour force/GDP), the female intensity (female labour/total labour), and the country’s demographic composition. [4,5] A higher GDP/capita implies a higher demand for goods and services, and thus a higher demand for labour (and capital). Differences in labour intensity reflect the relative costs (and benefits) [6] of using labour vs capital in production processes, and hence is a function of both labour demand and supply. Finally, differences across countries in terms of female intensity are largely driven by societal norms. [7] We use this core decomposition framework to answer our two central questions.

What Explains India’s Low Female LFPR Relative to its Peers?

The decomposition framework helps us understand the reason(s) responsible for India’s low rate compared to its peers. We find that if India had Bangladesh’s labour intensity, India’s female LFPR would rise by 13% (keeping other components constant), whereas if India had Bangladesh’s female intensity, it would increase India’s female LFPR by 4%. Conversely, the Philippines’ female intensity in India’s context would increase India’s female LFPR by 13%, with labour intensity playing a secondary role in increasing India’s female LFPR by 6%. This is the first big finding of the paper—contrary to the bulk of the literature, which gives primacy to India’s norms as a binding constraint keeping female LFPR low, our decomposition shows an equally important role of labour intensity in pulling down female participation. This also passes the smell test—in labour-abundant countries like India, where the bulk of the labour force is in the informal sector with low wages, an increase in female labour supply alone in response to relaxation of norms would imply an increase in female employment but the expense of a reduction in wages. An increase in demand, on the other hand, increases employment and wages.

Why Did it Decline From 2004–2005 to 2017–2018 and Then Rebound?

Between 2004–2005 and 2017–2018, India experienced a sharp decline in female LFPR from 37% to 21%, even as real GDP per capita doubled while overall labour employment fell by 3%. That is why this pattern is often described as “jobless growth.” The decline was concentrated among rural women, many of whom are employed in agriculture, making a sudden drop in labour demand unlikely as the cause. Analysing the decline in female participation with macro correlates like education enrolment, growth of rural GDP, and wage growth during this period suggests a supply-side contraction as a more plausible explanation for the decline in female LFPR. First, there was a significant rise in education enrolment: Secondary and higher education enrolment increased by 50% and 100%, respectively, adding around 45 million more students—many of whom would otherwise have entered the workforce. Second, rural incomes increased at a much faster pace compared to urban areas—per capita GDP growth in rural areas grew 1% faster than their urban counterparts during 2000 and 2012. Rapid increases in rural household income may have reduced the need for women to work. Third, significantly higher wage growth during this period points to a tight labour market. [9]

Between 2017–2018 and 2023–2024, India’s female LFPR increased significantly from 21% to 34%, thereby reversing much of the earlier decline. Our decomposition analysis indicates that the bulk of this increase was due to a rise in female intensity in the subsistence sector [10] (Lewis, 1954). Since this was accompanied by a commensurate decrease in agricultural productivity by 9%, and a decline in wages of the self-employed by 32%, we argue that this increase was led by supply-side forces.

What is Required to Spur Female Participation?

Our cross-country decomposition makes a fundamental point. The demand for labour has a pivotal role to play in determining female LFPR. This perspective shifts the policy focus from interventions solely aimed at increasing women’s participation in total employment to expanding the overall employment opportunities in the economy. Since demand-side levers pertain to the ease of deploying labour vs capital for production processes, governments and businesses have a big role to play in enabling them to hire more labour and correcting policies that hurt the labour intensive industries.

A few key recommendations emerge to push labour demand in India:

• Enhancing labour market flexibility: India’s labour laws are onerous, with 15% of firms citing them as a major constraint—far higher than 3.4% in Bangladesh and 6.4% in the Philippines. While the four New Labour Codes (effective from November 21, 2025) are a welcome step, more reforms are needed to boost labour intensity by improving capital–labour ratios in favour of labour.
• Promoting labour-intensive industries through tariff reforms: Peer countries excel in low-skilled labour-intensive sectors. India’s high tariffs hinder this. For example, a 20% tariff on man-made synthetic yarn for textiles (vs 13% in Bangladesh) raises costs and hurts competitiveness. The Union Budget 2026–2027 announced the National Fibre Scheme to boost domestic production of man-made and synthetic fibre in India. It remains to be observed whether this scheme will reduce the overall production cost, which is critical for competitiveness. India must also correct tariffs and sign deep Free Trade Agreements (FTAs) for enhanced market access. The recent FTA with the EU and bilateral trade talks with the US are important steps. Domestic investments, such as the just-announced MITRA parks, may also play an important role in supporting export-driven demand in textiles.
• Increasing public investment in health and education: These sectors are labour- and female-intensive. In both these areas, India’s current outcomes need significant improvement. One of the key reasons for their lack of performance is less-than-adequate state expenditure. As against a recommended level of 3% of GDP, governments in India (both the Government of India [GoI] and the State governments combined) spend about 1% of their GDP on public health expenditure (Raj, Dalal, & Gupta, 2024). Thus, a higher spend on these core services will directly increase female LFPR by increasing the demand for women’s work, and indirectly by raising the quality of human capital in the long run.

For long, a low female LFPR has been attributed to India’s patriarchal norms. The women’s reservation bill, passed in 2023, giving them 33% reservation in the parliament and state assemblies, will be historic when implemented. Nonetheless, a sustained rise in female labour force participation will also require a broader expansion in labour demand, essential in enabling more women to enter and remain in the workforce.