India’s Economy Has to Grow at 12.2 Percent to Avoid Underemployment Crisis, Warns Morgan Stanley

Indian economy has to expand at an extraordinary 12.2 per cent pace every year in order to resolve its crisis of underemployment, economists at Morgan Stanley cautioned while underlining the risk that millions of young Indians may remain locked out of productive work, thereby fuelling social strains at home.

Currently, the country’s labour market is facing a challenge of both unemployment and underemployment, the economists led by Chetan Ahya said in a written note on Monday. According to them, the youth jobless rate stands at 17.6 per cent, which is the highest in the region while a surge of workers into agriculture had pushed farm employment to a 17-year high.

The Wall Street firm also warned that India risks falling into a jobs strap without stronger industrial and export growth, accelerated infrastructure roll out, and sweeping reforms to upgrade skills and improvement in the business climate. This would slow the country’s ambition of becoming the world’s next growth engine and will also intensify outward migration pressures even at a time when H-1B visas are becoming costlier. 

Underemployment refers to those jobs that don’t fully utilise the skills, education, or available work hours of a person. Unlike joblessness, underemployment is difficult to understand; especially when the definition of employment is loose. Anyone working at least one hour in the past week is considered employed in India, including unpaid family labour, leading to significant underemployment where most of the jobs are informal.

Government’s own estimate of a 6.3 per cent-6.8 per cent growth rate is still far lower than what is needed to address the unemployment issue in the country. The situation has been further complicated by a 50 per cent US tariff on Indian goods and a sharp increase in US work-visa fees under Donald Trump.

In the June quarter, India’s economy grew 7.8 per cent out pacing expectations. However, that pace still falls far short of what’s needed to absorb the 84 million people set to join the workforce over the next decade, the note stated. The report also pointed to poverty levels as a lingering drag on household consumption in the country.  

Around 603 million Indians still live below the lower middle-income threshold of $3.65 a day, as per World Bank’s 2022 benchmark. As the global lender recently raised that bar to $4.20, the number of Indians counted as vulnerable is set to climb further.