In ’Walden’ the American classic of 1854, Henry Thoreau says, “The price of anything is the amount of life you exchange for it,” indicating a fundamental relationship between effort, value, and the allocation of human capital. In the context of India’s skills mismatch, it highlights the importance of investing in education and training that leads to meaningful and productive work. It suggests that the skills developed must translate into real economic opportunities and contribute to a better quality of life. It also underscores the need to consider the kind of work being created in the shift away from agriculture. Are these jobs that offer dignity, fair compensation, and growth opportunities? Or are they simply exchanging one form of precarious labour for another? Thoreau’s quote encourages us to think deeply about the value of skills and productivity, not just in monetary terms but also in terms of human well-being.
The Problem of Skills Mismatch and Sector Shift
India faces a dual challenge in its economic transition: the persistent skills gap and the slow sectoral shift away from agriculture. Despite a growing pool of young graduates, a significant portion remains unemployable due to outdated curricula, inadequate vocational training, and limited exposure to industry demands. This skills mismatch arising from an imbalance between education and employment reduces the supply of high-productivity employees essential for driving growth in manufacturing and services. Simultaneously, while agriculture’s contribution to GDP has declined, a large percentage of the workforce continues to depend on it for subsistence, translating into disguised unemployment or employed poverty. The slow absorption of labour into higher-paying, productive sectors like manufacturing exacerbates income inequality and hinders urbanization. Addressing these issues requires systemic reforms, including aligning education with market needs, fostering innovation in vocational training, and removing the hurdles in the way of creating sustainable non-farm jobs. By investing in skill development and supporting inclusive industrialization, India can unlock its demographic dividend and achieve balanced economic growth.
Solving Education and Employment Mismatch
The India Skills Report 2024 highlights that nearly half of the country’s university graduates are unemployable due to outdated curricula and insufficient industry exposure. Dr. Raghuram Rajan, cautions that persistence in this state will soon turn India’s demographic dividend into a liability. The prevalent skill mismatch leads many young graduates to accept low-wage positions unrelated to their fields of study, exacerbating the problems of low productivity and employed poverty.
In December 2020, the UGC introduced apprenticeship-embedded degree programs to align university education with industry needs. This will ensure that the competencies, knowledge, and attitude demanded by the industry get embedded into university degrees through apprenticeship linkages. The guidelines are in the right direction and can help improve graduate employability. This will come from 1/3rd college, 1/3rd ITI, and 1/3rd employment exchange. Strong partnerships between academia and industry leading to internships, work-based learning programs (WILP), and degree apprenticeships (DA) are necessary to bridge the skill gaps and prepare students for the workforce by aligning educational outcomes with employment opportunities.
Fueling Job Creation
While India’s economic structure has been shifting away from agriculture towards manufacturing and services, a significant 46.5% of the population still depends on agriculture for its livelihood. Agriculture’s contribution to India’s GDP has declined from 35% in 1990-91 to 15% in 2022-23 indicating the steep drop in productivity and the prevalence of employed poverty in our rural centers. For India to achieve high growth rates and become a developed economy by 2047, it is essential to transition the large segment of the population that still depends on agriculture to high-paying jobs. India’s services sector has grown rapidly but has not been able to accommodate workers displaced from agriculture. There is a need for a balanced approach between manufacturing and services to absorb the labour force by strengthening industrial clusters and improving the ease of doing business.
India’s relatively low number of large cities—just 50 compared to China’s 375—presents a significant opportunity for economic growth and high-wage job creation. China’s larger number of cities directly correlates with its ability to absorb labour more efficiently. Job creation tends to cluster, making urbanization a powerful engine for generating employment. However, it’s crucial to accelerate quality urbanization. Cities that catalyze a virtuous cycle of productivity and higher wages are those with effective governance, mixed-use zoning to minimize commutes, robust public transport, and efficient waste management to ensure public health.
Regulatory Reforms and Entrepreneurship
The rationalisation and digitisation of India’s excessive regulatory cholesterol (678 Acts, 25,537 compliances, 6,618 filings) is necessary as it will change the calculation of entrepreneurs that currently conclude the costs of formalisation are higher than the benefits. Massive formalisation of our enterprises is an important source of our poverty because such enterprises remain dwarfs that lack the scale and productivity to pay the wage premium. Regulatory reforms will foster entrepreneurship to create non-farm jobs making India a fertile habitat for formal, high-wage job creation.
India’s workforce challenge is inextricably linked to its pursuit of mass prosperity. The path to that prosperity lies in dramatically increasing the productivity of our regions, cities, sectors, firms, and citizens. A virtuous cycle of skill development and formal job creation will drive India’s economic future. By investing in our workforce, we pave the way for a more prosperous nation. To conclude in the words of Peter Druker, “The best way to predict the future is to create it,” and we are indeed blessed to have the opportunity to shape that future by investing in our workforce and building a more prosperous India.
