For decades, India has faced a human development deficit relative to its level of per-capita income. It has been the outcome of policy choices. Now, as the country approaches the end of its demographic dividend by 2040, it is facing a polycrisis manifesting this deep human development deficit: an employment crisis, a structural crisis in the economy (of sustained low aggregate demand), and an education system crisis.
The Centre for Sustainable Employment at Azim Premji University has, since 2018, set a benchmark for Indian academia in examining the employment crisis in its various dimensions through excellent State of Working India (SWI) reports. They just published this year’s report titled The Youth in the Labour Market: Pathways from Learning to Earning. Apart from highlighting the high and rising youth unemployment, SWI 2026 points to several unexplored dimensions of the crises.
First, it points to poor distribution of quality education across India. While India’s gross enrolment ratio is comparable to global peers’, the key challenge lies in the quality of education. The top institutions are concentrated in a few states—predominantly in southern India—leading to regional disparities in access to quality higher education.
Second, employability after higher education depends on discipline choices. Over 30 percent graduate in social sciences in India, a level vastly different from China. A large share of Indian social science graduates are in the northern states, where general degree programmes, like a BA with multiple subjects, often have limited depth and are oriented towards preparation for public service examinations. As a result, many graduates lack research, technical and vocational skills, restricting their employability in a dynamic labour market.
One result this leads to, as I have pointed out in my research, is the shortage of secondary school teachers in science, technology, engineering and maths subjects, with the knock-on effect that too few teenagers at secondary and higher secondary levels opt for STEM subjects, resulting in a vicious cycle over generations.
Third, there is the government job and social discrimination angle. Over-dependence on government jobs is one of the key factors contributing to youth unemployment, as many individuals wait for prolonged periods to enter the public sector, which often resembles a lottery because of the limited vacancies. The preference is not driven solely by considerations of job security or social status; it also reflects the need for protection against social and economic discrimination. In many cases, individuals perceive that support from members of their caste or community within public institutions can facilitate access to services and opportunities.
This dependence is particularly pronounced among vulnerable social groups, who often lack the capital to start enterprises and face multiple barriers and discrimination in markets and administrative systems. Consequently, representation in public employment provides them with a sense of security, enabling them to safeguard their families and, in turn, support their communities. SWI 2026 argues that addressing youth unemployment, therefore, requires ensuring equal access to opportunities, strengthening safeguards against discrimination and improving the efficiency and accessibility of public service delivery.
This is useful, but I am afraid it does not capture the entire picture. There has been a dramatic fall in non-farm job creation in the private sector since 2016, as a comparison with previous government surveys shows, just as the number of entrants increased into the labour force, all armed with higher education certificates. Evidence suggests that there has been dramatic rise—a doubling, if not more—in youths aspiring for jobs in Union and state civil services, railways and public sector banks than there were in the early 2010s.
Fourth, the advance of artificial intelligence and inequality is another theme. Technological leaps such as digitisation and AI tend to disproportionately benefit higher-income groups, potentially reinforcing existing inequalities. This underscores the need to expand equitable access to quality technical education and skill development to ensure inclusive participation in emerging opportunities.
Fifth, SWI 2026 finds that though occupational segregation has declined, huge disparities persist across social groups. Consider that young members of Scheduled Caste communities, about 33.5 percent are engaged in casual labour and 41 percent in self-employment, compared to 9.8 percent and 51 percent among other social groups. Sectoral distribution shows that around 26 percent of SC youth are employed in construction and 31 percent in agriculture, while only 12 percent are engaged in modern services, compared to 6.6 percent, 27.5 percent and 25.5 percent, respectively, for other groups. These patterns reflect an uneven pace of structural transformation across social groups, driven by persistent inequalities in access to quality education, finance and productive assets among vulnerable populations.
Gross enrolment ratios capture only part of the picture, as dropout rates remain high among marginalised communities. Consequently, the share of graduates among Schedule Tribe members aged 15-29 is just 7 percent—a number that’s 10 percent for SCs and 18.3 percent for other social groups.
Given their socio-economic constraints, these groups also have limited access to vocational and technical education, which further restricts their employment and earning opportunities. Addressing these disparities requires focused policy attention on improving the quality of elementary education, expanding access to higher education—particularly in underserved regions—and supporting marginalised populations.
The only way forward for young graduates is for governments to stop providing any unemployment allowance, even for limited periods, to graduates, and use that money and more funds to offer apprenticeships, with employer participation, in organised manufacturing and services sectors. In any case, that is a requirement of the Apprentices Act of 1961, too.
Santosh Mehrotra | Research Fellow, IZA Institute of Labour Economics, Luxembourg and Visiting Professor, HSE University, Moscow
(Views are personal)