Unemployment Crisis in India: 3 Root Causes

In a startling sign of worsening unemployment crisis in India, nearly two lakh candidates applied for just 91 peon positions in Raipur. In another shocking case, around 63,000 people competed for only 62 similar posts in Uttar Pradesh—jobs that required just a 5th-grade education. Even more surprising, 3,700 of the applicants held PhDs.

These numbers don’t just surprise—they expose the harsh reality of India’s job market. They show how desperation has pushed even the most educated citizens to chase low-level government jobs, simply for the promise of security.

At the heart of this alarming situation lies a hard truth: India isn’t creating enough jobs to keep up with its growing workforce. As a result, millions of young Indians are sitting idle, anxious, and disillusioned about their future.

Unemployment in a Growing Economy

India is racing ahead as one of the fastest-growing major economies. It recently became the fifth-largest economy by GDP and now sets its sights on the $5 trillion milestone. But behind this economic success story lies a harsh reality—there is a deep and growing unemployment crisis in India.

The India Employment Report 2024 reveals a shocking truth: 82.9% of India’s youth remained unemployed in 2022. This figure stands in stark contrast to the country’s glowing economic numbers.

Even more alarming is the surge in unemployment crisis in India among educated youth. Top-tier institutions like the IITs now struggle to secure placements for their students. According to recent data, nearly 38% of IIT graduates across 23 campuses may remain unemployed in 2024.

This disturbing trend tells us something critical—even India’s most qualified minds can’t find jobs that match their skills. It points to a systemic failure in the job market, where opportunities are shrinking while qualifications continue to rise.

Lets first understand-What is Unemployment?

Unemployment is defined as a situation where an individual is both willing and able to work but is unable to find a job that suits their skills or qualifications and skills.

Three Categories of people:

1. Working and employed
2. Unemployed but seeking work
3. Unemployed but not seeking work

Categorgy 1 and category 2 are considered part of workforce.

Calculation of unemployment:-

It is done by dividing the unemployed workers with total labor force multiplied with 100.

In India, several agencies and institutions estimate the country’s unemployment rate using different methods and data sources.

How much is Unemployment rate in India?

The Periodic Labour Force Survey (PLFS), conducted by the National Sample Survey Office (NSSO), reported a steady decline in the unemployment rate among individuals aged 15 and above. It fell from 4.2% in 2021 to 3.6% in 2022, and dropped further to a three-year low of 3.1% in 2023.

At first glance, this data paints a positive picture. But in reality, it hides the deeper issue—India’s youth continue to face alarmingly high levels of unemployment. The overall rate may be falling, but it fails to reflect the crisis young and educated Indians are experiencing in the job market.

Causes of Unemployment: A Deep-dive

Unemployment in India stems from a complex web of factors, not a single cause. Isolating issues in silosoversimplifies the problem. From an outdated education system and structural economic flaws to demographic pressures and policy gaps, the challenges are deeply interconnected. A true understanding requires a holistic view, considering social, economic, and political influences, not just economic data.

Let’s talk about these causes one by one in India’s context.

ECONOMIC CAUSES

Unemployment in India is deeply linked to structural and cyclical issues within the economy. From jobless growth to an overdependence on the informal sector, the economic landscape often fails to create adequate and quality employment opportunities.

1. Overdependence on Agriculture and Disguised Unemployment

Agriculture employs 46.1% of India’s population (Economic Survey 2025), yet it contributes only a small portion to the country’s GDP. This stark contrast exposes a serious imbalance in the economy. The sector doesn’t absorb workers because it creates enough jobs—it does so because people have nowhere else to go.

Most farmers (86%) own less than 2 hectares of land, which keeps productivity low and incomes meager. As a result, many people seem employed on paper, but in reality, they are disguisedly unemployed—their labor adds little or no real economic value, worsening unemployment crisis in India.

2. Dominance of the Informal Sector and Lack of Job Security

Over 90% of India’s workforce works in the informal sector, where jobs come without formal contracts, social security, or legal protection. While this sector absorbs a large chunk of the labor force, it typically offers low wages, poor working conditions, and zero long-term security.

This overwhelming dominance of informal employment traps millions in a cycle of underemployment and economic vulnerability. It limits upward mobility and exposes workers to even the smallest economic shocks, fueling persistent job insecurity across the country.

3. Low Skill Levels in the Workforce Compared to Global Standards

India’s workforce lacks the skills needed for a modern economy, and that’s one of the biggest drivers of unemployment. Only 2–5% of Indian workers are formally skilled, compared to 96% in South Korea, 80% in Japan, 75% in Germany, and 52% in the United States.

This massive skill gap puts India at a clear disadvantage—both at home and globally—as industries now demand specialized, tech-driven capabilities. The country’s education and training systems fail to align with market needs, leaving millions willing to work but effectively unemployable deepening unemployment crisis in India.

4.The “Missing Middle” and the Absence of Mid-Sized Firms

India’s job market suffers from a structural imbalance known as the “missing middle”—a critical lack of mid-sized enterprises that can generate stable, scalable employment leading to unemployment crisis in India.

At one end, over 6.3 crore informal micro-enterprises (Ministry of MSMEs) employ more than 11 crore people, but mostly in low-paying, insecure jobs. At the other end, fewer than 10,000 large registered companies dominate the formal sector, but they either rely on automation or hire only highly skilled professionals, leaving out semi-skilled or moderately educated workers.

This wide gap leaves very few mid-sized firms to absorb India’s growing workforce. Without this middle layer, India struggles to create quality, stable jobs, leading to the persistent problem of “jobless growth” and creating the issue of unemployment crisis in India.

SOCIAL CAUSES

Social factors play a subtle yet powerful role in shaping employment trends. Issues like gender inequality, caste-based discrimination, and regional disparities create invisible barriers that prevent equal access to job opportunities.

1. Social Inequality and Discrimination

• Caste-based exclusion

Caste-based discrimination continues to plague India’s job market, despite constitutional protections and reservation policies. Many individuals from Scheduled Castes (SC) and Scheduled Tribes (ST) face systemic exclusion and often get pushed into low-paying, unskilled jobs. Caste bias and social stigma block their access to better opportunities, even when they meet the required qualifications.

Employers still reject qualified candidates simply because of their caste, trapping entire communities in cycles of poverty, intensifying unemployment crisis in India.

SOME DATA:

The numbers paint a stark picture. According to a 2023 parliamentary report, 37% of SCs and 7% of STs work as sanitation workers. Meanwhile, their presence in higher-level Group A government jobs remains just 13% for SCs and 5% for STs—despite the reservation system. This massive underrepresentation shows how structural discrimination continues to deny equal opportunity, even in public sector employment leading to unemployment crisis in India. CLICK TO KNOW KNOW MORE.

Even when people from SC/ST communities get jobs, they are mostly pushed into low-paying, menial roles. In the general job market, they face bias and limited opportunities. Many end up jobless or stuck in insecure, informal work despite their qualifications.

• Gender Inequality

Women in India continue to be victims of unemployment crisis in India, despite growing awareness about gender equality. Social norms, safety issues, and family responsibilities often prevent them from entering or staying in the workforce. Even when they’re educated and qualified, many women remain excluded from formal jobs, highlighting how deep-rooted gender inequality shapes India’s job market.

While female labor force participation in rural areas rose to 41.5% in 2022–23 (PLFS data), this increase largely came from informal, low-paying work. Most of these women work in agriculture, self-employment, or casual labor—roles that offer no job security, fixed wages, or social protection.

So, while the numbers may suggest progress, the quality of employment for rural women remains poor and unstable. This reality underscores the need to focus not just on participation, but on meaningful, dignified employment that leads to real economic empowerment.

2. Cultural Norms

• Social stigma around certain types of jobs

In India, many jobs still carry a social stigma. Roles like cleaning, waste collection, and manual labor are often viewed as “low status”, with people from lower castes or poor backgrounds expected to take them up.

This deep-rooted mindset discourages others from considering these jobs, even if they offer pay. It also denies dignity and equal opportunities to those already doing this work. As a result, certain sectors remain understaffed, and unemployment crisis in India continues to rise.

• Cultural pressure influencing career choices

In India, cultural norms heavily influence career choices. Many students follow paths set by their parents, favoring fields like engineering, medicine, and government jobs. Careers in arts, sports, or startups are discouraged, and gender roles limit women’s choices. These norms stop people from exploring their true interests and talents.

It often starts with a well-meaning comment like, “I want to see you in a doctor’s coat” or “You’ll achieve the dream I couldn’t.” It sounds loving, emotional, and perfectly normal. Doesn’t it?

Many students spend years preparing for exams their parents choose, delaying their entry into the workforce and chasing goals that aren’t their own. This causes lost years and missed opportunities. Even when they succeed, many feel unfulfilled, leading to dissatisfaction and regret over time.

3. Unequal Access to Networks and Resources

• Lack of social capital and professional networks

In India, rural people and women often lack access to job networks. In cities, many jobs fill through referrals, family contacts, or alumni circles—connections rural youth rarely have. They are usually first-generation job seekers with no professional links for guidance or support.

Women face extra barriers. Limited mobility, safety concerns, and social restrictions stop them from attending events, internships, or networking opportunities. As a result, they miss out on jobs even if they have the skills. Without strong networks, talent goes unnoticed.

4. Education–Employment Mismatch

India’s labour market faces a critical imbalance — the mismatch between education and employment.

A detailed analysis by the Institute for Competitiveness reveals a troubling contradiction. Despite thousands of graduates and postgraduates entering the workforce each year, many remain stuck in semi-skilled or basic jobs.

Some Data:

38.23% of degree holders work in specialized positions, but 50.3% are in semi-skilled roles, and 3.22% are in basic jobs. This shows how highly educated individuals struggle to find work that matches their qualifications.

The issue is worse for postgraduates. While 63.26% are in specialized roles, 28.12% are in semi-skilled jobs, and 7.67% are in basic positions. This points to a lack of opportunities that fully utilize their advanced skills.

According to PLFS 2023-24, 65.3% of the workforce has received no vocational training, revealing a major gap in skill development and industry readiness.

The Economic Survey 2024-25 highlights a critical issue: the high prevalence of low-skilled workers. This is linked to the poor quality of education at various levels. The survey notes that this skill gap leads to a mismatch between qualifications and job market needs, worsening employment and income inequalities.

POLITICAL CAUSES

Political factors play a critical role in shaping the employment landscape of a country. In India, inconsistent policies, weak implementation, and administrative inefficiencies have often hindered job creation. To truly address unemployment crisis in India, it’s important to examine how governance and policy decisions impact the labour market.

1.Policy Instability and Implementation Failures

• Policy Instability

Policy instability significantly impacts unemployment crisis in India. Inconsistent or unpredictable policies create uncertainty, which deters businesses from investing and expanding.

This reduces job creation opportunities. Skilled workers may also be discouraged from joining or staying in the workforce due to the lack of a stable, supportive environment crreating cinditions of alarming unemployment crisis in India.

Uncertainty around future regulations and tax policies often causes businesses to hold back investments or new projects, leading to fewer job opportunities and a slowdown in economic growth.

Businesses are left confused.

In January 2025, the Indian government, led by Prime Minister Narendra Modi, made a significant policy shift by abandoning its privatisation plans. Instead, the government decided to inject billions of dollars into struggling state-run firms like Madras Fertilizers, Fertilizer Corp of India, and NBCC (India) to rescue and revitalise them.

This abrupt change created uncertainty among businesses and investors, causing them to reassess their expansion plans and investment strategies.

The lack of a consistent and predictable policy environment has hindered job creation. Businesses are hesitant to invest in an unpredictable market. This policy reversal highlights the challenges of policy instability in creating a conducive environment for job growth.

• Implementation Faliures

India has launched several schemes aimed at job creation and skill development, such as Skill India Mission, Startup India, and Make in India. However, these programs often fail to deliver real impact due to poor execution.

Many schemes duplicate efforts, with similar initiatives running under different departments without coordination. This spreads resources thin, and beneficiaries rarely receive focused support. In many cases, the quality of skill training is compromised, with outdated curricula and poorly equipped centers aggravating the unemplyment crisis in India.

Implementation is often fragmented across ministries and state agencies, leading to inefficiencies and delays. Even when funds are allocated, they are either underutilized or misdirected.

These failures mean that, despite large investments and ambitious goals, the benefits rarely reach the grassroots, and the creation of stable, meaningful jobs remains limited fuelling unemployment crisis in India.

For example, despite training nearly 20 lakh individuals under PMKVY, only 81,978 actually found jobs, according to PRATHAM. Similarly, the STAR scheme by NSDC trained 9.5 lakh youth, but failed to track job placements, raising doubts about the effectiveness of such initiatives.

2.Corruption and Bureaucratic Inefficiency

• Corruption

Corruption and red tape slow down job creation in India. Lengthy approval processes, unofficial payments, and lack of transparency discourage both domestic and foreign businesses from investing or expanding. Small and medium enterprises, crucial for employment, often bear the brunt of these inefficiencies.

• Bureaucratic Inefficiency

Bureaucratic delays in project clearances, land acquisition, and labour law compliances often stall or abandon initiatives. This not only hinders industrial growth but also limits the employment potential of large public schemes and infrastructure projects.

India ranked 96th out of 180 countries in the Corruption Perceptions Index (CPI) for 2024, with its score dropping to 38, according to a Transparency International report released on February 11, 2025.

The report by Hong Kong-based Political and Economic Risk Consultancy ranked bureaucracies across Asia on a scale from 1 to 10, with 10 being the worst. India scored 9.21.

India performed worse than Vietnam, Indonesia, the Philippines, and China.

The report stated that India’s bureaucracy was behind many complaints from businessmen, such as lack of infrastructure and corruption.

CONCLUSION

Unemployment crisis in India stems from a web of interconnected issues, not a single cause.

Economic challenges, like overdependence on agriculture, the dominance of the informal sector, and the lack of skilled jobs, create major barriers.

Social factors, such as caste-based exclusion, gender inequality, and cultural pressures, restrict opportunities.

Political shortcomings, including policy instability, poor implementation, and bureaucratic inefficiencies, worsen the problem of unemployment crisis in India.

Together, these factors create a complex, deep-rooted crisis that cannot be solved through isolated efforts. They require a systemic, coordinated response.

To bring real change, we need a multi-pronged approach.

Policy must be stable and consistent, focused on long-term job growth. Skill development needs an upgrade, aligned with industry demands. Government schemes must be monitored, with clear data on outcomes, not just numbers.

Social equity must be strengthened by improving the representation of marginalized groups and bridging the rural-urban divide.

If these steps are taken seriously, India can unlock the full potential of its young population.

The journey ahead is tough, but with strong will and smart governance, India can transform this unemployment crisis in India into an opportunity for inclusive and sustainable growth.