Students and youth participate in Justice Morcha’s Gen Z Connect Yatra, aiming to focus on issues concerning education, employment, transparency in recruitment and youth-related matters, in Lucknow on September 30, 2026. (ANI)
India’s GDP growth has been robust, supported by political stability and sustained capital formation. But this impressive performance has not translated equally into employment generation, as the unemployment rate is rising. This disconnect between strong GDP growth, rising investment, and increasing unemployment needs closer examination.
Historically, the data reveal that unemployment has evolved from predominantly rural and seasonal to more complex forms, reflecting changes in the structure of the Indian economy, employment patterns, technology, education and skill requirements. Thus, the unemployment problem is much more complex than what the data suggest.
The National Sample Survey Office (NSSO) surveys reveal that India’s unemployment rate was moderate, at around 2-3%, during the 1990s and 2000s. The unemployment rate increased to 2.3% in 2011-2012 and rose sharply to 6% in 2017-18, as per the new Periodic Labour Force Survey (PLFS) Framework. In the following years, unemployment declined to 5.8% in 2018-19 and continued to decline, reaching 3.1% in 2025.
Members of the Unemployed Apprenticeship Union Punjab block Mall Road during a protest in front of PSPCL headquarters, demanding jobs from the Punjab government, in Patiala on April 09, 2026. (ANI)
On the other hand, the average unemployment rate among qualified youth aged 15 to 29 years was 9.9% in 2025, a 0.4 percentage point decrease from 10.3% in 2024. The unemployment rate in urban areas was 13.6%, compared to 8.3% in rural areas for the same period.
However, the most critical issue is the persistently high rate of graduate unemployment, which is alarming. The official PLFS data reveal that unemployment among graduates aged 15 and above was 17.2% in 2019-20 and declined to around 13% in 2023-24. Therefore, the unemployment problem is more pronounced among qualified youth, with rates significantly above the overall average.
The International Labour Organisation (ILO) estimated that around 29.1% of young graduates were unemployed in 2022. The unemployment rate among women graduates was 34.5%, compared with 26.4% among young men.
Interpretation of the above-stated unemployment figures is difficult and may not be accurate. In a true sense, the reported unemployment rates do not capture underemployment or the real problem of highly qualified individuals working in low-paying jobs that do not match their skills and qualifications. As stated in the ILO-IHD India Employment Report 2024, highly educated young people accounted for more than half of unemployed non-student youth in 2022.
A large young population represents a valuable demographic dividend, as it is viewed as a potential productive workforce. However, to realise its benefits, young people must have access to quality, skills-based education and vocational training that align with the changing requirements of the labour market. Therefore, converting the demographic dividend into sustained economic growth requires a combination of human capital development, industry-relevant skills, and the creation of productive and decent employment opportunities.
Candidates arrive at an examination centre to appear for the Bihar Police Constable recruitment examination in Patna on Wednesday, June 17, 2026. (IANS)
To meet the growing demand, the higher education system has expanded significantly, with student enrolment reaching an all-time high of 4.5 crore in 2023-24, up from 3.42 crore in 2014-15. The gross enrolment ratio for ages 18 to 23 has also increased to 30% for the first time, reflecting improved access to higher education. As a result, the new challenge that emerged is converting this quantitative expansion into quality, employability and equitable opportunities by aligning education and skills with the requirements of the labour market.
Thus, in recent times, India’s unemployment challenge has become increasingly complex. The number of educated young people entering the labour market has been increasing over the years. The rapidly evolving labour market landscape, particularly in the wake of artificial intelligence, has further widened the gap between the skills graduates possess and those that employers increasingly demand.
The Information Technology sector has been a major source of employment for young graduates. But in recent times, the IT sector itself has been under tremendous pressure. It is undergoing significant transformation, with traditional entry-level roles becoming increasingly constrained by automation, artificial intelligence and ever-changing industry requirements. Thus, there is a fundamental shift in hiring practices, moving away from legacy mass recruitment toward highly specialised, capability-led hiring. Primarily driven by the rapid adoption of artificial intelligence, cloud modernisation, and infrastructure growth.
However, approximately six million tech professionals are employed in the IT sector. Despite growing fears of automation and global headwinds, the IT industry continues to be a net job creator, adding 1,35,000 new jobs in the past year. On the other hand, Global Capability Centres (GCCs) in India employ over 1.9 million professionals and are expected to increase in the coming years. At the same time, hiring is expected to shift from volume to skill mix, to pass on AI-driven productivity gains to clients.
While the above-stated reasons reflect the dynamics of the labour market, unemployment and underemployment are deeply rooted in long-standing structural issues and are not new phenomena. Primarily, low household incomes, underemployment, apparent skill gaps, and a widespread casual workforce lead to low productivity across sectors of the economy. Therefore, the measured unemployment rate does not mean that the underlying employment problems have been resolved. The real challenge is to ensure that India’s growing workforce moves from unemployment or low-productivity jobs into stable, productive, and adequately remunerated employment.
Thus, in India, the issue of people not having jobs is not the only problem; it runs much deeper than it appears, hidden in the employment statistics. The main issue is that India has been facing challenges in creating enough productive, well-paid, and suitable jobs for its large and increasingly educated workforce. As we witness, needy people typically move from being willingly unemployed to low-paid, informal, self-employed, or under-employed work without experiencing a proportional improvement in their economic well-being.
Improving employment opportunities for qualified youth requires not only skill upgradation but also stronger alignment with the industry’s evolving needs. Educational institutions should focus on imparting practical, job-relevant skills and expanding opportunities for work-based learning through industry projects and internships. Thus, educational institutions need to establish closer collaboration with industry, and industry needs to be more proactive in providing sufficient opportunities for young graduates.
At the same time, creating more high-quality jobs that offer meaningful career progression, competitive wages, and opportunities for continuous learning is essential to ensure that employment opportunities match the skills and aspirations of the growing educated workforce.
The fundamental reason for underemployment and rising unemployment among young graduates is that the labour market hasn’t followed the usual path of workers from agricultural jobs to industrial employment. Instead, it skipped manufacturing entirely and moved directly into office and service-related employment.
This structural shift has left millions of ordinary people still engaged in casual and day labour because there aren’t sufficient factories to hire them, and they lack the high-tech skills required for modern office work. Therefore, India has been facing a unique situation in which robust economic growth does not automatically translate into increased job opportunities. This explains the disconnect between official job data and reality: widespread underemployment and economic uncertainty stemming from geopolitical tensions make the unemployment crisis feel far more acute than the numbers indicate.
Gross Fixed Capital Formation is a measure of investments in productive assets, which in turn generate employment opportunities. India’s capital formation has increased significantly, reaching 34.3% of GDP in 2025-26, above the pre-pandemic average of 28.6%. This reflects a substantial expansion of productive capacity in recent years. However, increased investments in productive assets do not necessarily imply corresponding employment generation. The impact of growing investment on employment primarily depends on the sectors in which the investment is made. Unless investments in labour-intensive sectors increase, we cannot expect a proportionate increase in employment.
India Skills Report 2026 recommended that reducing the graduate unemployment rate requires shifting from giving educational credentials to developing job-ready skills that match changing employer demand. Nevertheless, the report noted that overall youth employability rose to 56.35% from 54.81% in its previous edition. This improvement has been attributed to the acquisition of skills such as artificial intelligence, digital skills, gig work, freelancing, and remote work, as well as a growing culture of entrepreneurship among the youth.
Therefore, it is necessary to shift from a degree-centric education system to a dynamic skill ecosystem that ensures continuous upskilling and reskilling in response to ever-changing technological advancements. The way forward lies in a stronger, closer connection among industry, academia, experiential learning, and AI-enabled education to enhance the employability of graduates. At the same time, developing human skills such as creativity, critical thinking, and adaptability is equally essential for enhancing the job fitness of young graduates.
M. Venkateshwarlu is a Professor of Finance at the Indian Institute of Management Mumbai.
(Disclaimer: The opinions expressed in this article are those of the writers. The facts and opinions expressed here do not reflect the views of ETV Bharat)
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