Unemployment crisis in India: The upcoming Union Budget 2025-26 comes at a critical juncture in India’s economic growth trajectory, with addressing unemployment becoming a central priority for the government. Following nine rounds of pre-Budget consultations concluded by the finance ministry, the focus on job creation comes amid mounting calls from economists for meaningful measures to address unemployment challenge.
Union labour minister Mansukh Mandaviya recently claimed a significant increase in employment, saying that the number of employed individuals rose from 47 crore in 2014-15 to 64 crore in 2023-24 — a 36% jump. He noted a steady rise in the worker population ratio (WPR) and labour force participation rate, alongside a decline in the unemployment rate since 2017-18. However, many experts remain sceptical, pointing out that these figures mask underlying issues.
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Unemployment crisis in India
Economists argue that employment growth must be assessed relative to population growth. With India surpassing China as the world’s most populous country during this period, the rise in employment numbers does not necessarily signify proportional progress. Employment rates, rather than absolute figures, offer a clearer picture. Data further reveals that unemployment fell between 2004-05 and 2011-12, only to spike to a 45-year high in 2017-18, revealing the complexity of India’s employment scenario.
Quality of jobs a growing concern
While the government claims improvements in employment figures, several experts highlight the poor quality of jobs being created. The rise in farm employment — a sector marked by low productivity — suggests a regression in India’s economic development. Simultaneously, low-paying self-employment and unpaid family labour have increased, reflecting a lack of opportunities in formal, better-paying sectors.
This trend runs counter to India’s long-term goal of structural transformation, which entails shifting the workforce from agriculture to more productive sectors like manufacturing and services. Without significant changes, this regression risks undermining India’s economic ambitions.
Strategic interventions for job creation
To address the unemployment challenge, the government must focus on sectors with high growth potential while aligning policies to promote quality jobs. Here are some key strategies suggested by economists:
Harnessing technology and innovation: India’s leadership in the fourth industrial revolution presents a major opportunity to create high-quality jobs in areas like software engineering, data science, and digital marketing. The digital economy alone is expected to generate 60–65 million jobs by 2025. Government initiatives should emphasise skill development and industry-specific training to capitalise on this potential.
Expanding the financial sector: Rising demand for banking, insurance, and financial services can drive substantial job growth. Financial services rank among ten high-opportunity sub-sectors for employment, alongside renewable energy, healthcare, e-commerce, and MSMEs. Policymakers must ensure targeted investments and skill development in these areas.
Unlocking tourism potential: Tourism offers significant employment opportunities, particularly for individuals without formal education. Many countries demonstrate how sectors like transportation and hospitality can provide livelihoods with relatively low entry barriers. By addressing inefficiencies in the tourism industry, India can create jobs while boosting local economies.
Supporting gig and platform workers: The gig economy is booming in India but lacks adequate safeguards. Establishing a supportive framework with social security benefits, health insurance, and fair labour practices can attract more workers to gig platforms, enhancing job opportunities and worker security.
Strengthening MSMEs: Micro, small, and medium enterprises (MSMEs) are the second-largest source of employment in India after agriculture. Providing targeted support — such as tax breaks for job-creating MSMEs — can spur growth. Partnerships between MSMEs and educational institutions can align skill development with industry demands, ensuring workforce readiness and boosting global competitiveness.
A sustainable path forward
Sustainable employment growth in India hinges on prioritising sectors with high employment elasticity, such as manufacturing and high-value services. Structural transformation requires shifting labour away from agriculture to more productive sectors, supported by robust skill development initiatives, enhanced public-private partnerships, and a conducive policy framework for MSMEs and start-ups.
The government must also address underlying inefficiencies in current policies. Fixing these gaps can drive the structural transformation needed to tackle joblessness and support India’s economic growth.
As India awaits Union Budget 2025-26, the government has a unique opportunity to redefine the country’s employment situation. By focusing on creation of quality jobs and leveraging high-growth sectors, India can not only address its unemployment challenge but also strengthen its position as a global economic power. Structural reforms, strategic investments, and skill-building initiatives are the need of the hour to ensure inclusive and sustainable growth.