How India’s Hiring Model Is Creating Its Own Skills Shortage

In February 2026, the World Bank approved financing to overhaul India’s network of skills training institutes. Weeks later, the Union Budget 2026–27 allocated ₹1.39 lakh crore to education, an 8.27 percent increase over the previous year, with a focus on aligning training with industry needs. Taken together, the two interventions underscore the growing priority being attached to skilling and employability.

Yet, despite the expansion of training programmes and financial investments, outcomes remain uneven in India. The issue is not simply whether young people are being trained, but whether training systems are equipping them with skills that employers are willing to hire and retain.

If we compare India’s youth unemployment across education levels, the pattern is striking. Graduate unemployment, according to the Periodic Labour Force Survey, stands at 22.7 percent, far higher than the 2.3 percent among those who are illiterate. This is not a paradox. It is evidence of a system that produces credentials without necessarily building job-ready capabilities.

According to the India Skills Report 2026, only 56.35 percent of Indian youth are considered employable under existing industry standards. More than 5.36 million candidates have been trained under the Pradhan Mantri Kaushal Vikas Yojana over the past five financial years, yet only about 0.38 million were reportedly placed—a placement rate of roughly 7 percent.

The gap points to a deeper structural problem: India is expanding its training infrastructure, but this expansion is not translating into commensurate labour-market outcomes.

Laid-back Recruiters

India’s skilling crisis is often framed as a social issue. It is not. It is fundamentally a business problem. The crisis is routinely blamed on workers and training systems, but that diagnosis is incomplete. The mismatch is also being produced inside firms, through the way jobs are designed, hiring is sequenced, and training is treated as an afterthought.

Companies say they cannot find the right workers. Young people say there are no jobs. Both are right. The gap lies in how skills are built and how jobs are structured. Fixing it requires industry to move beyond being a late-stage recruiter and become an early-stage partner in training.

Most firms enter the process only at the hiring stage. By then, the gap between what training has produced and what the job requires is already wide. New hires often take months to become productive. Many leave within the first year. Firms hire again and repeat the cycle. These are not abstract labour market problems; they are direct business costs.

There is also a structural issue in how entry-level roles are designed. In many cases, apprentices and entry-level workers are not part of structured training systems. Firms often lack formal learning plans, dedicated supervisors or clear progression pathways. Evidence shows that when training is unstructured, outcomes suffer. Apprentices are more likely to drop out because of low stipends, unclear roles or better opportunities elsewhere.

For companies, this translates into direct operational challenges. High early attrition increases hiring and training costs, disrupts production cycles and reduces the return on investment in onboarding. Firms then have to restart recruitment, often without addressing the underlying mismatch.

Policy Problems

India does not lack a framework for solving this problem. It lacks sustained participation from industry.

The Apprentices Act requires firms above a certain size to engage apprentices and provide structured, time-bound, on-the-job training along with a stipend. The idea is simple: workers learn in real workplaces, while employers get an opportunity to assess them before making hiring decisions.

The National Apprenticeship Promotion Scheme, launched in 2016, was designed to scale this model by sharing stipend costs and encouraging broader participation. The intent is clear, but the outcomes remain uneven yet again. In 2024–25, about 985,000 apprentices were enrolled under the scheme. But only around 581,000 completed their training, while more than 349,000 dropped out. In a labour market where close to 10 million young people enter the workforce each year, this remains far from sufficient.

The low completion rates are not just a policy failure. They also reflect weak employer commitment to designing apprenticeships that workers can realistically stay in.

One major reason is an expectation mismatch. Many young workers, especially first-generation employees and women, enter jobs expecting regular wages, predictable hours and a clear pathway to stable employment. Instead, they often encounter delayed stipends, unclear roles, long or irregular working hours and little visibility on future opportunities. Under such conditions, leaving becomes a rational choice.

A well-designed apprenticeship can reduce this gap. Workers understand the realities of a job before committing to it long term, while employers can evaluate performance before making a permanent hiring decision. This creates better matches, faster productivity gains and higher retention.

For this model to scale, especially among MSMEs and in the services sector, the process needs to be simpler. Incentives should reward completion and retention, not just enrolment. Most importantly, firms need to participate earlier in shaping what skills are taught and how they are delivered.

Rethink and Redesign

The case for skilling is often made in terms of social responsibility. That framing is limiting. Treating skilling as a corporate social responsibility (CSR) initiativehas allowed firms to remain disengaged while continuing to complain about talent shortages. As long as skilling sits in CSR departments rather than in workforce strategy, the mismatch will persist.

Companies that engage only at the hiring stage end up spending more on retraining, supervision and repeated hiring cycles. These are avoidable costs arising from training systems that remain disconnected from actual workplace demand.

A more effective approach is to treat skilling as part of workforce planning. When firms invest early, help shape training systems and use apprenticeships effectively, they reduce hiring risks and improve productivity. The returns are direct and measurable.

The government still has an important role to play in reducing administrative friction, ensuring quality and supporting participation by smaller firms and disadvantaged groups. But policy can only enable; industry has to lead.

India’s demographic window will not remain open indefinitely. The country has the workforce. What it lacks is alignment between training and jobs.

The choice for firms is clear. They can continue to treat hiring as a downstream activity and absorb the costs of mismatch. Or they can recognise that the skills crisis is, in part, of their own making and redesign how talent is built from the start.

Skilling is not just an act of philanthropy. It is a competitiveness strategy. India does not need more training schemes alone. It needs employers willing to co-create the workforce they claim is missing.

Isha Gupta is the research lead for the skills vertical at the JustJobs Network. The views expressed are personal.