Why in news?

Morgan Stanley (a global financial services firm) warns that India must nearly double its growth rate to meet rising employment needs and tackle underemployment.

The analysis projects that a 7.4% average GDP growth is required to maintain stable unemployment, assuming steady labour participation. If participation rises to 63%, growth of 9.3% would be necessary. To meaningfully reduce underemployment, growth must reach 12.2%.

Currently, GDP growth averages 6.1% over the past decade, with the RBI projecting 6.5% for this fiscal year, though recent data shows a stronger 7.8% in April-June 2025.

What’s in Today’s Article?

• India’s Youth Unemployment Challenge
• Unemployment and Underemployment Crisis
• Asia’s Growing Youth Unemployment Crisis
• Way Forward for India

India’s Youth Unemployment Challenge

• Despite being the fastest-growing major economy, India struggles with high youth unemployment, a concern flagged by Morgan Stanley in its latest note.
• According to the Periodic Labour Force Survey (PLFS), the all-India unemployment rate fell to 5.1% in August, but youth unemployment (ages 15–29) stood much higher at 14.6%.
• In urban areas, the female youth unemployment rate surged to 25.7%, over 10 percentage points higher than that of young urban males, which fell to 15.6% from 17.1%.
• This pushed overall urban youth unemployment down slightly to 18% from 19%.
• In rural India, female youth unemployment rose to 14.3%, while male youth unemployment declined to 12.6%. Both figures were at 13% in July.
• Demographic Pressure
  • India’s median age is 28.4 years, making it one of the youngest countries globally.
  • However, its youth unemployment rate is the highest in the region, creating a mismatch between demographic advantage and job creation.
• Weak Employment Creation
  • Over the last two years, employment creation has been subdued, with only modest improvements recently.
  • Morgan Stanley cautions that GDP growth averaging 6.5% over the next decade—though among the fastest globally—will still fall short of creating sufficient jobs.
• The Workforce Surge Ahead
  • Even without rising participation rates, India’s workforce is expected to grow by at least 8.4 crore in the next decade.
  • Without stronger job creation, this surge will deepen the unemployment and underemployment crisis.

Unemployment and Underemployment Crisis

• India faces a dual challenge of high unemployment and widespread underemployment.
• Youth unemployment has surged to 17.6%, the highest in South Asia, while a return to agriculture has pushed farm employment to a 17-year high.
• Much of this reflects underemployment, where skills and time remain underutilised.
• India’s broad definition of employment — counting even one hour of work a week, including unpaid family labour — further masks the true scale of labour underutilisation.
• Poverty Adds to the Challenge
  • With about 603 million Indians living below the $3.65 per day income threshold, the urgency of job creation and economic transformation is amplified.
  • Solving unemployment and underemployment is not just an economic priority but also a social imperative to prevent rising tensions and ensure inclusive growth.

Asia’s Growing Youth Unemployment Crisis

• Youth unemployment is not unique to India; it is a regional challenge across Asia.
• According to Morgan Stanley, Asia’s youth unemployment rate stands at 16%, far higher than the 10.5% in the US.
• For the three most populous economies — China, India, and Indonesia — the problem is especially severe.
• Despite falling headline unemployment rates, joblessness among youth has remained stubbornly high.
• The challenge is expected to intensify with the growing adoption of artificial intelligence (AI), which could displace jobs unless reforms boost investment and reskilling.

Way Forward for India

• The report warns that if joblessness worsens, governments may need to adopt redistributive measures to maintain social stability.
• For India, while reforms have been undertaken to promote growth, a bigger push is needed in the industrial and export sectors.
• The report highlights that every manufacturing export job creates two additional jobs in related fields like transport and logistics.
• Yet, India’s share in global exports is just 1.8%, far below its weight in GDP and working-age population — showing significant untapped potential for job creation.
• The report stresses urgent reforms in industrial and export growth, infrastructure expansion, and workforce skill upgrades.
• Without stronger investment in advanced manufacturing and technology, India risks falling behind in providing meaningful work for its young population.