Tackling Unemployment Trap in India | 03 Oct 2025

Source: IE  

Why in News? 

As per a leading global financial services firm, India must grow nearly twice as fast (around 12%) to generate enough jobs for its youth and address underemployment, in comparison, the RBI projects only 6.5% GDP growth for FY25, slightly above the 10-year average of 6.1%, highlighting a significant growth-employment gap.

What is the Status of Unemployment in India? 

• About Unemployment: Unemployment is when an individual who is not employed and is seeking employment, cannot find work. Unemployment is a key indicator of the health of an economy. It is calculated as: 
  • Unemployment rate = (Number of Unemployed Workers/Total Labour Force)×100. 
    • The total labour force includes both employed and unemployed individuals, while those neither employed nor seeking work—such as students—are excluded. 
• State of Unemployment in India: 
  • High Youth Unemployment: As per the latest Periodic Labour Force Survey (PLFS), India’s overall unemployment rate fell to 5.1%, but among 15–29-year-olds it remained much higher at 14.6%. 
    • The India Employment Report 2024 by the International Labour Organization (ILO) highlights that one in every three unemployed persons in India is a youth. 
  • Comparative Context: Asia’s youth unemployment stands at 16%, higher than the US’s 10.5%, with India, China, and Indonesia facing the most pressing youth job challenges. 
• Types of Unemployment:

What are the Reasons for Unemployment in India? 

• Demographic Pressure: The World Bank warns that South Asia, including India, is failing to capitalise on its demographic dividend, as employment grew only 1.7% annually (2000–2023) against a 1.9% rise in the working-age population, widening the employment gap. 
• Skill Mismatch: Only 4.7% of India’s labour force has received formal skill training, resulting in an underutilized workforce. The education system’s gap in industry-relevant skills has created a paradox of high unemployment alongside talent shortages. 
  • Educated youth often prefer white-collar jobs over manual or blue-collar work, leading to high educated unemployment. 
• Jobless Growth: India’s economic growth of 6.5–7.8% is not creating enough jobs, especially in manufacturing, as India’s global export share of only 1.8% limits manufacturing employment. 
• Gender Disparity: Urban female unemployment (ages 15–29) is 25.7%, much higher than males at 15.6%, highlighting social and structural barriers to workforce participation. 
• Looming Technological Disruption: The rise of automation and Artificial intelligence (AI) threatens up to 69% of jobs in India (World Bank), particularly in manufacturing, data entry, and customer service, making reskilling and policy adaptation urgent. 
• Seasonal Employment and Agriculture Dependency: In 2022–23, about 45.76% of India’s workforce was in agriculture and allied sectors, offering mostly seasonal, underpaid jobs, while limited non-farm opportunities worsened rural underemployment and migration pressures. 

How does Unemployment Impact the Economy and Society? 

• Economic Stagnation: Unemployment leads to lost GDP and wasted human capital, creating a cycle of low demand as reduced consumer spending forces further business cutbacks. 
• Increased Poverty and Inequality: Joblessness directly causes poverty and widens income gaps, as families without stable incomes struggle to afford basic necessities. 
• Social Instability: High unemployment, particularly among youth, fuels social unrest, crime, and political instability due to widespread frustration and alienation. 
• Mental Health and Skill Crisis: Prolonged unemployment causes psychological distress and deskilling, eroding individuals' employability and self-esteem over time. 
• Fiscal Burden on Government: Unemployment simultaneously increases government spending on welfare benefits while reducing tax revenues, worsening the fiscal deficit. 

What Reforms are Needed to Tackle Unemployment in India? 

• Boost Labor-Intensive Manufacturing: Focus on high employment multiplier sectors like textiles, apparel, leather, food processing, and electronics assembly, while improving export competitiveness through trade agreements. 
• Bridge the Skill Gap: Align education with market needs by integrating vocational and practical skills (AI, data analytics, IoT) and expand reskilling/upskilling programs like Mantri Kaushal Vikas Yojana (PMKVY) for future-ready workers. 
• Support MSMEs: Ease credit access and reduce compliance for MSMEs, while promoting start-ups through Startup India, mentorship, patent support, and a stronger venture capital ecosystem. 
• Address Underemployment in Agriculture: Diversify the rural economy through agro-based industries, food processing, and infrastructure projects, while strengthening alternative livelihoods like animal husbandry, fisheries, and beekeeping. 
• Strategic Government Initiatives: Sustain public investment in infrastructure (roads, railways, ports, housing) and focus on flagship schemes like the Production Linked Incentive (PLI) Schemes to boost manufacturing and generate employment. 

Conclusion

Unemployment in India, especially among youth and urban females, remains a pressing challenge due to jobless growth, skill mismatch, underemployment, and technological disruption. Addressing it requires high GDP growth, labor-intensive manufacturing, skill development, MSME support, rural diversification, and strategic government initiatives, ensuring sustainable employment and optimal utilization of the demographic dividend.