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08 Aug, 2025
BENGALURU (Reuters) - Addressing India's chronic unemployment will be the government's biggest challenge over the next five years, even as the country continues to be the fastest-growing major economy, according to a Reuters poll of policy experts.
Despite being Asia's third-largest economy, India grew over 8% in the last fiscal year, primarily driven by government capital expenditure. However, this has not yet led to sufficient business investment to create enough jobs, particularly for the country's 1.4 billion people.
Prime Minister Narendra Modi's Bharatiya Janata Party lost its decade-long parliamentary majority in national elections that concluded in early June, due to increasing inequality, persistent inflation—especially in food prices—and a shortage of well-paying jobs.
A significant 91% of development economists and policy experts surveyed between May 15 and June 18, or 49 out of 54, identified unemployment as the government's primary economic challenge for its term.
"In India, we face a unique issue—high aggregate growth rates without corresponding employment increases. Modi promised jobs and a better life to aspirational youth, but the situation has worsened," said Jayati Ghosh, a professor at the University of Massachusetts Amherst. "A job-specific strategy is essential, including a substantial increase in public employment in basic social services like health, education, nutrition, and sanitation."
The BJP acknowledged that employment was a factor in the election, stating that "whatever best can be done is being done." However, many economists doubt the government's ability to create jobs or accurately measure its progress. They emphasize the crucial role of the private sector in generating employment.
"The government alone cannot create the necessary jobs to absorb the millions entering the workforce annually. This requires substantial and sustained private sector investment," said Rajeswari Sengupta, an economics professor at the Indira Gandhi Institute of Development Research in Mumbai.
Over the past decade, the BJP government has significantly increased spending on infrastructure, but business investment has not matched this growth. Gross fixed capital formation, a metric for private investment, has grown at an annual rate of about 8% since 2014, compared to 14% in the previous decade.
"The government needs to identify and remove obstacles to private investment, allowing the private sector to operate with minimal government interference," added Sengupta.
Survey respondents suggested that stimulating private investment follow-through is key to job creation. Other recommendations included improving education standards, reforming tax structures, and enhancing cooperation between central and state governments.
A major challenge in tackling unemployment is the absence of a universally accepted unemployment rate in India, making it difficult to measure progress. The Reserve Bank of India estimates that about 80% of India's workforce is part of the unregulated economy.
"Official unemployment figures do not capture joblessness in the informal sector. Since most of India's workforce is in this sector, especially in rural areas, many unemployed individuals are not recorded," said Bina Agarwal, a professor of development economics at the University of Manchester.
Government data reports a jobless rate of just 3.2% for the 2022/23 fiscal year, lower than the historically low rate in the United States. However, the Center for Monitoring Indian Economy, a private think-tank, reported a 7.0% unemployment rate in May, up from around 6% before the pandemic.
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