India, home to a population of 1.4 billion, is facing a deep and multifaceted unemployment crisis. Even though it stands as one of the fastest-growing economies in the world, job creation has not matched the aspirations and needs of its young and vibrant workforce. In this blog, we’ll examine the various reasons why so many Indians are finding it difficult to secure employment. We'll explore structural, economic, and social factors while providing a balanced perspective on this urgent issue.
The Youth Bulge and Demographic pressure
India has one of the youngest populations globally, with over 50% of its citizens under the age of 25. Each year, millions of young Indians enter the workforce, creating immense pressure on the job market. According to the International Labour Organization (ILO), India needs to create around 10-12 million jobs annually to absorb this influx. However, job creation has consistently fallen short, leading to a surplus of job seekers and limited opportunities.The demographic dividend, often touted as India’s strength, risks becoming a liability without adequate employment opportunities. Rural-to-urban migration further exacerbates this, as young people move to cities in search of better prospects, only to find saturated job markets.
Education-Employment Mismatch
One of the factors that have led to unemployment is the mismatch between the education system and the industry in India. Most of the graduates including those with higher degrees do not possess practical skills or technical knowledge that is required by employers. The curriculum in most institutes is still outdated and focuses on rote learning rather than critical thinking, innovation or vocational training. An example is India which currently graduates millions of engineers every year and yet in research, such as one conducted by Aspiring Minds (now SHL) revealed that only a fraction of them are employable in high-skill areas because they have not been trained in more areas like coding, problem solving, or soft skills. In the meantime, vocational training programs, which have the capability of filling this gap, are under funded and underutilized.
Industrial and Manufacturing Growth is slow.
The economy of India has evolved to be more service-based and the IT, finance and retail industries have dominated this growth. The manufacturing sector which has the capacity of taking in large numbers of semi-skilled workers has however stagnated. An attempt at increasing manufacturing to 25 per cent of GDP by 2025 was made with the launch of the Make in India programme in 2014, yet little has changed. The World Bank notes that the contribution of manufacturing to GDP has not changed significantly, staying at 13-15 percent over the past decades.This slow expansion constrains the creation of employment of the millions of people who do not qualify to work in high-skill services. India has also not exploited its labour intensive industries as it is the case with other countries such as China which saw it as an opportunity to take advantage and allow massive employment.
Automation and Technological Disruption
The emergence of automation and artificial intelligence is transforming the world labor market, and India does not remain an exception. As technology is opening new opportunities in areas such as artificial intelligence, data science and cybersecurity, it is destroying low-skilled and repetitive jobs. Automation is becoming more prevalent in sectors such as manufacturing, retail, and even IT-enabled services (e.g. call centers) which decreases the number of workers needed at the entry-level.In a 2023 report by the McKinsey Global Institute it is estimated that 30 percent of existing jobs in India will be displaced by 2030 due to automation, especially in routine-based occupations. This is an imbalance that mainly affects the semi-skilled workers, who constitute a large percentage of Indian workers.
Informal Economy and Underemployment
A large percentage of the Indian workforce is also from the informal sector which employs close to 90 percent of the working population as estimated by ILO. Although this is a source of livelihood to many, informal jobs are not usually stable, do not have benefits or growth potential. There is also widespread underemployment, i.e., workers being overqualified to perform their jobs or having to work less hours than they want. For example, highly educated people tend to take up poorly paying jobs in the gig economy (e.g. delivery services or ride-hailing). This misuse of human resource kills economic development and breeds aspirations among the young generation.
Policy and Structural Problems
Government policies have been well intended but at times have failed to help in curbing unemployment. The labor laws which were recently overhauled have always been very strict which discouraged business entities to employ permanent workers. There are also bureaucratic obstacles, poor access to credit and high compliance costs to small and medium enterprises (SMEs), which would stimulate job creation. Furthermore, the pace of job creation in the public sector has slowed. Although the government jobs are very much in demand due to the stability and benefits they offer, the positions are few and the process of recruitment is usually dragging. This places millions of hopefuls in competition of a few jobs.
Urban and Rural Divide and Regional Disparities
In India, unemployment does not occur in all the regions in the same way. The cities, especially the Tier-1 ones, such as Bengaluru and Mumbai, have more opportunities in the tech and service fields, whereas the rural areas and smaller towns are left behind. Job creation is limited by infrastructure shortages, insufficient industrialization, and the provision of quality education in rural areas.In addition, agriculture, the occupation of almost 42 percent of the Indian working population (as per 2023 statistics), is no longer a sustainable income source to many owing to the low productivity, lack of land consolidation, and climate issues. This drives the rural youth into the urban centers and this adds pressure to the already congested job markets.
Economic Shocks The impact of economic shocks on the economy is an issue that has been debated in the past.
The COVID-19 pandemic is one of the economic shocks that have scarred the Indian labour market. Lockdowns 2020-2021 caused the loss of millions of jobs, especially in the informal sector, as millions of migrant workers returned to their villages. Although the economy has healed, the rate of job creation is not as high as it was before the pandemic.Slowdowns in the global economy and geopolitical tensions also impact the export-oriented industries in India, including the textile industry and the IT sector, which can no longer create jobs at the same rate.
Pathways Forward
The solution to India unemployment crisis:Reforming education: Curriculum should be industry-friendly, with a focus on vocational training and skills such as AI, coding, and critical thinking.Increasing manufacturing: Subsidies and infrastructure development, as well as easing regulations, should encourage labor-intensive manufacturing.Empowering SMEs: Simplify compliance and access to credit should be used to make SMEs the engine of job creation.Inclusivity: Policies to raise female workforce participation and support marginalized groups should be implemented.Technology: Reskilling programs should be used to
Conclusion
The unemployment crisis in India is a complicated combination of demographic forces, inefficiencies of the structure, and global trends. The challenges are huge but not impossible. Through strategic reforms and investment in human capital and an emphasis on inclusive growth, India can change its demographic dividend into the engine of opportunity. The future is urgent, innovative, and requires government, industry and society to come together to make sure that all Indians find meaningful work.