Youth Unemployment at 17.6%: India Faces Dual Crisis of Jobs and Underemployment
Report: A Morgan Stanley report warns that even though India's economy is growing at a 6.5% annual rate, a 12.2% growth rate is necessary to address the employment crisis. Youth unemployment has reached 17.6%. Global challenges are exacerbated by US tariffs and increased visa fees. Employment in the agricultural sector has increased, but this is not the solution.
Amidst the tariff crisis and global challenges, the Indian economy is progressing strongly. India's annual growth rate is expected to be 6.5% over the next decade, making it one of the fastest-growing economies worldwide. However, to address the employment crisis (underemployment), India will need an exceptional growth rate of 12.2% annually. Morgan Stanley economists noted that India's labor market faces the dual challenge of unemployment and underemployment.
The youth unemployment rate is 17.6 percent, the highest in South Asia. If this crisis is not addressed, millions of Indian youth could be deprived of productive work, increasing social tensions domestically. Meanwhile, employment in agriculture has hit a 17-year high due to a steadily increasing number of workers.
Morgan Stanley mentioned that the government has projected a growth rate of 6.3-6.8 percent, which falls significantly short of the rate needed to resolve the country's unemployment problem. The 50 percent US tariff on Indian goods and the substantial increase in H-1B visa fees have further complicated the situation. The Indian economy grew at a better-than-expected pace of 7.8 percent in the June quarter of this fiscal year, but this remains below the rate necessary to absorb the 84 million people expected to enter the workforce over the next decade.
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Morgan Stanley warned that without strong growth in industry and exports, infrastructure development, skills training, and a favorable business climate, India risks falling into an employment crisis. This could hinder India's ambition to become the world's next growth engine. Despite the rise in H-1B visa fees, pressure on Indians to leave the country for jobs will increase.
Unlike unemployment, underemployment is hard to measure. In India's context, anyone who worked at least one hour in the past week is counted as employed, including unpaid family labor.
The Asian Development Bank (ADB) estimates that India’s economy will grow at 6.5% during this and the next fiscal years. However, growth rates in Asia-Pacific developing economies might decline due to fluctuations in the global economy caused by tariffs.
The ADB initially projected a 7% growth rate in its Asian Development Outlook (ADO) of April. But, in July, the forecast was lowered to 6.5% because of the 50% US tariff on Indian exports.
The ADB stated that additional US tariffs could slow India's growth from October to March and again in 2026-27. However, increased domestic demand and service exports are expected to offset some of this impact. The ADB also estimates that the fiscal deficit may surpass the budget target of 4.4%, partly because of a decline in tax revenue growth and the GST cut, which was not included in the original budget. The current account deficit is projected to stay moderate at 0.9% in 2025-26 and 1.1% in 2026-27.
