7 Reasons Why Unemployment in India Is Rising Faster Than Ever

India continues to grow at an estimated 6.5-7% GDP rate in FY 2025-26, positioning itself among the fastest-growing major economies. However, employment growth has not kept equal pace with economic expansion. According to the latest Periodic Labour Force Survey (PLFS) released by the Ministry of Statistics and Programme Implementation, the overall unemployment rate in 2025-26 stands around 4.5-5% (usual status, age 15+). While this appears moderate globally, in a country of over 1.4 billion people, even a 1% change represents millions of individuals.

The deeper concern lies not in overall unemployment alone, but in youth, educated, and urban unemployment, which remain significantly higher than the national average.

India adds roughly 10–12 million young people to the labour force every year. However, job creation does not fully absorb this influx.

• Youth unemployment (15–29 years): 12–15% nationally
• Urban youth unemployment: Often higher than 18–20%
• Some states report youth unemployment exceeding 20%

This gap between new job seekers and available jobs creates intense competition, delayed employment, and growing frustration among young graduates.

One of the most striking 2026 trends is that graduates face higher unemployment rates than those with minimal schooling.

• Graduate unemployment (15–29 years): 15–25%
• Unemployment among less-educated workers: Often below 5%

This happens because:

• Less-educated workers quickly take informal or manual jobs.
• Educated youth seek formal sector or government employment.
• There is a mismatch between degrees and industry demand.

India is therefore facing an educated unemployment crisis, not merely a lack of jobs.

India’s working-age population (15–59 years) continues to expand rapidly. While Labour Force Participation Rate (LFPR) has slightly improved — especially among women — job growth still struggles to match population growth.

In simple terms:

• Required annual job creation: 10–12 million jobs
• Estimated formal job additions: Significantly lower

This structural imbalance keeps unemployment pressure high, even during periods of economic growth.

More than 80% of India’s workforce is engaged in informal employment. These include

• Agricultural labour
• Daily wage workers
• Gig economy participants
• Small self-employed traders

Many individuals are technically “employed,” but:

• Work fewer hours than desired
• Earn unstable incomes
• Lack job security and benefits

This leads to underemployment, which is not fully reflected in official unemployment statistics.

India’s growth sectors - IT services, finance, digital platforms, and advanced manufacturing — are increasingly capital-intensive rather than labour-intensive.

Government initiatives such as:

• Make in India
• Production Linked Incentive Scheme

have boosted industrial output. However, automation limits large-scale hiring, especially for low- and mid-skill workers. Economic growth is rising, but employment elasticity remains weak.

India produces millions of graduates every year, yet employers consistently report skill gaps.

Common gaps include:

• Lack of practical industry exposure
• Weak technical proficiency
• Poor communication skills
• Limited digital adaptability

Government programs like:

• Skill India Mission
• Pradhan Mantri Kaushal Vikas Yojana

aim to bridge this gap, but employability concerns remain a major bottleneck in converting education into employment.

Government jobs remain highly attractive due to stability and benefits. However:

• Lakhs to crores of applicants compete for limited vacancies
• Recruitment cycles are slow and highly competitive.

At the same time, rural employment support through:

• Mahatma Gandhi National Rural Employment Guarantee Act

provides wage employment security but does not generate permanent career opportunities.

Data clearly indicates that educated youth — particularly urban graduates — face higher unemployment than the uneducated population.

The reasons are structural:

• Aspirational job preferences
• Degree inflation
• Limited formal sector capacity
• Skill-market mismatch

Meanwhile, uneducated workers enter informal sectors quickly, reducing their official unemployment rate.