India's labor market is currently grappling with the intertwined challenges of unemployment and underemployment, requiring the nation to achieve a significantly higher growth rate to create sufficient job opportunities, according to economists at Morgan Stanley.
Economists at Morgan Stanley, led by Chetan Ahya, noted that India must grow at a rate of 12.2% annually to effectively address underemployment and high rates of joblessness among young people. Despite a growth rate of 7.8%, the economists warn that the nation's labor market faces the dual challenge of unemployment and underemployment.
Several factors contribute to the complexity of India's economic landscape. The Asian Development Bank (ADB) projects a 6.5% growth for the Indian economy in FY26 but also anticipates that US tariffs will negatively impact exports. These tariffs are expected to reduce India's GDP in both FY26 and FY27.
The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC), led by Governor Sanjay Malhotra, is navigating competing objectives as they consider potential rate cuts amid easing inflation following tariff implementations. The rupee recently hit a fresh closing low of 88.76 due to foreign outflows and corporate demand for US dollars, even with RBI intervention to limit losses.
Union Labour & Employment Minister Mansukh Mandaviya has stated that India's unemployment rate is at 2%, the lowest among G20 nations, according to the World Economic Forum. He highlighted the various schemes, including the Pradhan Mantri Viksit Bharat Rozgar Yojana (PM-VBRY), that have contributed to employment generation across different sectors.
Morgan Stanley's Global Investment Committee projects India to be the fastest-growing economy in 2025 and 2026, despite an anticipated global slowdown. They forecast a real GDP growth of 5.9% in 2025 and 6.4% in 2026.
Ridham Desai from Morgan Stanley believes that India's economy, which grew 7.4% in the March quarter, could contribute 20-25% of global growth, offsetting slowdowns in the US and China. Desai also noted India's strong macroeconomic position and limited trade exposure to the US, which reduces the direct impact of American policies.
The Indian stock markets experienced a sharp decline after US President Donald Trump announced significant tariffs. In FY25, Sidbi achieved a record high net profit of Rs 4,811 crore, a 19.5% increase, with its balance sheet exceeding Rs 5.6 lakh crore. EY raised India's FY26 GDP growth forecast to 6.7% from 6.5%, citing GST 2.0 reforms.
