Unemployed Youth Are Still the Achilles Heel of India’s Buoyant Economy
With an economy that grew by a stellar 8.2 percent in the financial year ending March 2024, India remains one of the world’s fastest-growing big economies this year—as well as one of the great hopes for global economic growth over the coming decades. At the same time, the labour market in South Asia’s biggest economy represents a distinct weak spot amid this ongoing boom. A growing chorus of analysts is warning of serious repercussions should India fail to resolve its glaring labour-market shortcomings, as unofficial figures show a sharp rise in the unemployment rate in June, questions arise over the glaring skills shortages possessed by young jobseekers and doubts grow over the veracity of the now widespread unemployment data.
According to the Centre for Monitoring Indian Economy’s (CMIE’s) latest monthly figures, India’s unemployment rate rose sharply between May and June, from 7 percent to 9.2 percent, the highest in eight months. The government, meanwhile, discloses national unemployment statistics only on an annual basis—the most recent being in October 2023, when it published India’s unemployment rate at 3.2 percent for 2022-23, dropping from 6 percent in 2017-18. The youth unemployment rate, according to New Delhi, declined from 17.8 percent to 10 percent over the same period.
Many analysts have expressed a lack of confidence in the government’s figures, however, and have increasingly come to rely instead on CMIE’s data, which suggests that India’s jobless numbers are much higher. Another key discrepancy arises from the fact that around 80 percent of India’s workforce operates within the unregulated economy, according to a recent bulletin from the Reserve Bank of India (RBI). “Official figures of unemployment don’t capture the absence of jobs in the informal sector, and since most of India’s workforce is in the informal sector, especially rural, you’re not going to be recording them as unemployed,” said Bina Agarwal, a professor of development economics and environment at the University of Manchester.
Indeed, the lack of employment opportunities in India’s rural areas was widely seen as a key contributory factor to the Bharatiya Janata Party’s (BJP’s) failure in the country’s recent general elections to secure a parliamentary majority, despite Narendra Modi winning a third term as India’s prime minister. “Unemployment is the biggest challenge facing the country,” Palaniappan Chidambaram, a former finance minister and Indian National Congress (INC) party’s past interim deputy leader of the opposition in the Rajya Sabha, recently declared. “The response of the government towards employment is too little and will have only little impact on the grave unemployment situation across the country.”
India’s youth are bearing the brunt of a lack of employment opportunities across the country, with the problem having become so severe that the protests by young Indian graduates that surfaced in December even managed to disrupt the Parliament of India briefly. The demonstrations highlighted the long-running problems that young, educated Indians face when trying to find work—namely, that the economy simply isn’t creating enough jobs for the millions of graduates who enter the labour market every year.
A damning report from the International Labor Organization (ILO), meanwhile, further underscored the extent of India’s jobless youths. Published in March, the report revealed that India’s graduates were experiencing much
higher levels of unemployment than those without formal educations. “The youth unemployment rate has increased with the level of education, with the highest rates among those with a graduate degree or higher and higher among women than men,” the report stated. “In 2022, the unemployment rate among youths was six times greater than among persons with a secondary or higher level of education (at 18.4 percent) and nine times greater among graduates (at 29.1 percent) than for persons who cannot read and write (at 3.4 percent).”
Educated female youths also experienced higher levels of unemployment compared with educated male youths, with the ILO report noting that India had a mammoth proportion of youths, particularly young women, who were not in employment, education or training. Women also accounted for around 95 percent of the total youth population who were not in employment, education or training in 2022.
A separate report from Azim Premji University in Bengaluru published last year, meanwhile, found that more than 40 percent of college graduates under the age of 25 were unemployed, compared with just 11 percent of those in the same age group who were literate but had not completed primary school. The report also disclosed that recruiters were finding that many job applicants with college degrees were simply not equipped to fill the advertised jobs. “What we have on the supply side of the labour market is a lot of young men and women with a lot of degrees,” Amit Basole, a professor of economics at Azim Premji University and a co-author of the report, told the
Wall Street Journal on April 3. “But it isn’t clear what they have been trained to do.”
Perhaps most concerning of all, moreover, is that even if the economy continues to hum along at an annual rate of 7 percent for the next decade, India will still have to create a whopping 12 million jobs per year during this time to absorb the influx of new labour-market entrants. That’s according to Citigroup, which published a report in early July written by economists Samiran Chakraborty and Baqar Zaidi that found that only eight to nine million jobs will be generated per year based on a 7-percent growth assumption.
For some, the problem lies in a broad mismatch of government resources that are allocated to capital-focused areas instead of being provided to labour-intensive sectors
. “In India, we have a very peculiar problem—supposedly very high aggregate growth rates and no increase in employment. Modi came to power offering aspirational youth jobs and a better life, but it’s gotten significantly worse since then,” Jayati Ghosh, a professor at the University of Massachusetts Amherst (UMass Amherst), told
Reuters on June 20. “You have to have a job-specific strategy…. You have to dramatically increase public employment in basic social services, health, education, nutrition, sanitation.”
With around 40 percent of India’s 1.4 billion citizens under 25 years old and with millions of India’s youths entering the job market every year, clear skill mismatches and a lack of suitable job creation for young Indians remain the biggest labour-market challenges. “Youth unemployment rates in India are now higher than the global levels,” the ILO also noted. “The Indian economy has not been able to create enough remunerative jobs in the non-farm sectors for new educated youth labour force entrants, which is reflected in the high and increasing unemployment rate.”
These glaring mismatches were further highlighted in the Citi report, which found that around 46 percent of the workforce was still being employed in agriculture despite the sector contributing less than one-fifth to national economic output. Manufacturing still accounted for only 11.4 percent of total jobs as of 2023, the economists also revealed, lower than the share recorded in 2018. As such, the sector had still not recovered from the pandemic to the degree that many might have expected. Fewer people were employed in the formal sector than prior to the pandemic, with a 25.7-percent share in 2023, the lowest level in at least 18 years, Citi also confirmed
.
The ILO also reported the worrying trends of not only the share of young unemployed Indians aged 15-29 in 2022 reaching a massive 82.9 percent of all unemployed in the country but also the share of educated youths climbing to 65.7 percent in 2022 from 54.2 percent in 2000. As such, the lack of employment opportunities could well prove a definitive drag on India’s demographic dividend of possibly hundreds of millions of young workers, who, it is hoped, will power economic expansion over the next few decades.
“Simply put, for the country to benefit from the demographic dividend, it needs to generate productive employment for 7-8 million youth who will join the labour force every year,” Kodoth Prabhakaran Nair, an agricultural scientist, explained in a May 27 article for the
Deccan Herald. “Tragically, India seems to be losing this demographic advantage. India’s youth unemployment is unacceptably high. Indian youth account for nearly 83 percent of the total country’s unemployed population. Every third young Indian is neither pursuing education nor employed; worse, they have no skill-based training.”
With the desperation among young Indians now starting to reach a critical mass, a former governor of India’s central bank, Raghuram Rajan, recently warned of the impending problems India will face from believing the hype of its strong economic-growth record whilst ignoring key structural issues that will continue to hold the country back, with the insufficiently skilled workforce being the biggest issue of all. “We’ve got many more years of hard work to do to ensure the hype is real,” Rajan asserted in March. “Believing the hype is something politicians want you to believe because they want you to believe that we have arrived.” But it would be a “serious mistake for India to succumb to that” belief, he added.
In the interim, Citi has proposed several measures to boost job creation in India, including strengthening the export potential of the country’s manufacturing industry, boosting incentives to attract foreign companies and ensuring that the current one million or so government vacancies are eventually filled. The government should also consolidate several employment-generation programmes for a more incisive impact, Citi economists suggested.
