India faces a significant challenge in addressing unemployment and underemployment, particularly among its youth. While recent data indicates a decline in the overall unemployment rate, the jobless rate for those aged 15-29 remains high, at 14.6%. This necessitates a substantial increase in the country's GDP growth rate to generate sufficient employment opportunities and absorb the growing workforce.

According to a recent report by Morgan Stanley, India needs to achieve an average GDP growth rate of 12.2% to begin tackling the issue of underemployment. This is significantly higher than the current growth projections. For instance, the Asian Development Bank (ADB) forecasts India's GDP to grow at 6.5% for both FY2025 and FY2026. The Reserve Bank of India (RBI) also expects a GDP growth of 6.5% in the current fiscal year. While these figures indicate that India is among the fastest-growing economies globally, they fall short of the required growth rate to make a significant impact on unemployment and underemployment.

Even to maintain a stable unemployment rate, assuming constant participation rates, India would need a GDP growth of 7.4%. However, if the labor force participation rate increases to 63%, the required GDP growth rate would rise to 9.3%. This highlights the importance of not only generating jobs but also encouraging greater participation in the workforce. The current labor force participation rate was around 55% in August 2025. Encouragingly, female labor force participation has been rising, indicating a positive trend.

Several factors contribute to India's unemployment challenges. One key issue is the mismatch between skills and industry needs. Many graduates lack the skills required for high-growth sectors such as artificial intelligence, advanced manufacturing, and renewable energy. Structural unemployment, where workers' skills do not align with industry demands, is a persistent problem. Moreover, the increasing automation and the rise of AI pose a threat to job growth, particularly in the IT services sector, which has been a significant source of employment.

To achieve the required higher growth rate and address the jobs problem, India needs a multi-pronged approach. This includes:

• Stronger industrial and export growth: Boosting manufacturing exports can create numerous jobs in related sectors like transportation and logistics.
• Increased investment ratios: Reforms are needed to lift investment ratios in India.
• Infrastructure development: Accelerated infrastructure development, especially for last-mile connectivity, is crucial. The FY25-26 budget allocated ₹11.21 lakh crore for capex, enhancing logistics and urban infrastructure.
• Improved business environment: Incentivizing state governments to improve the business environment is essential.
• Skill development: Ensuring the labor force is adequately skilled to meet the demands of the evolving job market is critical.
• Policy incentives for female employment: Implementing policies that encourage companies to hire women, improve transport infrastructure, and expand childcare facilities can boost female labor force participation.

In conclusion, while India has made progress in reducing its unemployment rate, a significantly higher GDP growth rate is necessary to tackle the deeper issues of unemployment and underemployment, particularly among young people. Achieving a sustained growth rate of 12.2% requires comprehensive reforms, increased investment, and a focus on skill development and job creation in key sectors. Without these measures, India risks facing a "jobs trap," hindering its economic potential and exacerbating social challenges.