India is the world’s fastest-growing large economy but there are serious concerns whether adequate employment is being generated to absorb job seekers from the countryside. The question is whether unemployment or employment is the better metric to capture this process. The Economic Survey 2023-24 estimated that the economy must generate 7.85 million non-farm jobs every year but the actual numbers indicate a shortfall.
Paradoxically, this situation of relative labour surplus is reflected in falling than rising rates of unemployment in the data of the ministry of statistics and programme implementation (MoSPI). On a current weekly status basis — capturing those above 15 years who sought or were available for work during the reference period of a week — India’s latest unemployment rate was a tad lower year-on-year at 5.5% in May. There is a downward drift to 5.1% in January-May 2026 from 5.7% in 2022.
As overall growth has not been employment-intensive, these declining rates of joblessness do not square with impressions of a growing reserve army of unemployed. It is no doubt true that MoSPI’s surveys have undergone many changes that affect comparisons over time. But the issue is whether the unemployment rate — that captures those without work who seek employment as a share of the labour force — captures distress in the labour market.
The better educated job seekers may get frustrated by the dearth of suitable opportunities and opt out. This is referred to as the discouraged worker effect. This is not reflected in surveys which do not ask probing questions like whether or not workers are willing to seek work again if it were made available. The falling rates perhaps reflect fewer aspirants seeking or available for work to count as unemployed.
Discouraged Worker Effect
The reality of jobless growth can perhaps be better captured by the employment rate, which refers to those with a job as a share of working-age population above 15 years. In this respect, the Centre for Monitoring Indian Economy’s data — as reported in the Indian Express — is preferable as it has a comparable series from 2016 unlike MoSPI’s surveys. Employment rates fell during the last decade to 38.7% in 2025-26 from 42.7% in 2016-17.
This is true for the educated although interestingly, the cohort with primary education shows the sharpest decline in employment rates. The fact that a much lower share of people hold a job now than a decade ago is more consistent with the perception of a growing reserve army of educated youth who are discouraged in their efforts to secure employment in the labour market.
Industrial Transitions
In this milieu, policy interventions must be certainly made to make overall growth more employment-intensive. What raises the bar in this regard is for the economy to “generate employment that is sufficient in number, formal in character, and durable enough to carry a young worker into a lifetime of rising productivity and security”, to borrow an expression of the Chief Economic Advisor V Anantha Nageswaran.
Although the Pradhan Mantri Viksit Bharat Rozgar Yojana has shown early promise, the critical necessity is to trigger a shift away from agriculture towards industry and services employment in towns and cities — a process associated with modern economic development. This is challenging as it has so far been uneven with long periods of stasis followed by a quickening pace and now a reversal with people moving back to agriculture.