By Nirvikar Singh, Professor of Economics, University of California, Santa Cruz
A persistent characteristic of India’s economic growth has been the lack of adequate job growth to accompany it. Since growth in per capita income partly comes from growth in productivity, some of this is unavoidable. Even China, the most spectacular case of economic growth in history, has struggled with generating adequate levels of employment, but India’s problem is more severe. Those who are most likely to be openly unemployed rather than working in low-wage jobs are those with college degrees. India has been generating larger numbers of college graduates, but their unemployment rates have risen. This is one of the striking findings of the Azim Premji University’s report on the State of Working India 2026 (SWI) released in March, garnering headlines abroad as well as in India.
The report was particularly important in light of the Economic Survey of India, which has been highlighting the strategic necessity of addressing skill gaps, bridging the education-employment gap, and generating productive employment. But the Survey does not offer a clear analysis of how to fix or change the current situation. The SWI report offers some insights. It reminds us that the expansion of higher education in India has not always preserved quality, so that graduates can lack the basic skills needed for employability. This is true even in the case of vocational education and training, which might have been expected to be more sensitive to the needs of employers.
The SWI report points out that vocational institutions such as Industrial Training Institutes are often not located in areas with clusters of firms that could hire their graduates. As the report notes, the feedback loop between employers and training providers is weak with geographic proximity, affecting curricula and placement opportunities. The conceptual distance between private sector employers and colleges has long been a problem for India, with engineering colleges and management schools being limited exceptions. The solution to these problems is for the government to give more freedom to providers of higher education of all types, but that idea has made little headway among government policymakers.
The SWI report also notes shortages of teachers. These shortages matter at every level of education and are exacerbated by poorly designed incentives for those who teach. The problems of incentives in the classroom have expanded to a deterioration in the internal organisation of many higher education institutions, so that selection processes are highly inefficient or subject to rent-seeking. Of course there are many high quality institutions as well, but they are not in a position to expand their reach, or to be emulated, because of other resource constraints.
Employability is an important issue that needs more attention from policymakers who artificially restrict the quality and quantity of educational services. But clearly there is much more to India’s jobs deficit. India produces graduates in areas such as engineering, information technology, and healthcare who find well-paying jobs in developed countries. The newest headline case was Germany, where its demographics have forced it to look to countries like India for qualified employees. Even in agriculture, which continues to be India’s residual employer, Europe’s demographics provide opportunities—Punjabi farmers are growing crops and making cheese in Italy.
Arguably, the largest contributor to India’s jobs deficit has been its deficit of dynamic firms—firms that grow in ways that generate new jobs. Earlier, India’s problem on this front was described as a missing middle in the size distribution of firms. But now this is being understood in more dynamic terms, as firms that fail to grow. One can add barriers to entry along with barriers to growth, and, in addition to a lack of skilled labour (where there is a Catch-22 problem), constraints on land use, access to finance, and rent-seeking by government officials all raise the height of these barriers.
These considerations are beyond the scope of the SWI report, but are being articulated in places like the Economic Survey, which speaks of creating clusters of productive middle-sized firms in India, with the case of Germany as a role model. When China began its growth acceleration, local governments acted as coordinators of land and capital, while potential workers already had enough education to be trained directly by firms to be reach employability standards. This model ran into its own problems, but it was supported by an effective public education system. As China grew and sought to compete in more advanced technologies, its government also invested heavily in higher education, as well as incentivising students who had gone abroad to return.
India’s jobs deficit is a symptom of gaps in its economic policymaking. Sometimes these gaps have been unconscious legacies of the country’s colonial past, and its indigenous cultural biases and social hierarchies. But none of those factors needs to be allowed to persist. If India’s job deficit is not addressed, not only will its growth rate not reach the 8% that is roughly needed to achieve the “Viksit Bharat” goal, but other dimensions of being “Viksit” will also be lost—being employed in a meaningful way is a basic aspect of human welfare in addition to the material rewards it brings.