Andy Mukherjee: The dream of a college degree is starting to look like a bad bet for India’s youth

First, the country has the world’s largest youth population. Second, its growth model has been dominated by software services, and AI tools like Anthropic’s Claude Opus are getting exceedingly good at writing code and finding bugs. But the third and possibly the most crucial point is this threat to entry-level positions comes amid an alarming oversupply of college graduates.

The wage bump that graduates enjoy over school-leavers is shrinking and AI could further narrow the gap. According to Azim Premji University’s State of Working India 2026 report, the premium peaked in 2011. There has been a surge in the number of colleges—to 450 per million youth in 2021, from fewer than 300 in 2010.

But the uneven quality of the new institutions, which are mostly private, didn’t do much to create demand for their graduates. Too many young educated males went into agriculture, construction and retail, the least promising sectors from the perspective of productivity and wages.

History played a role. As China became the world’s factory in the 21st century, India emerged as its remote office. Both pulled their masses out of poverty by creating new income streams for young people leaving villages. But India’s education system, as developed in the 19th century by its British colonial government, was designed to produce clerks and junior administrators.

The pattern continued even after India’s independence. While China built a foundation of vocational skills and mass literacy that fuelled its rise, India doubled down on elite tertiary institutions.

The result was the creation of a sliver of wealthy individuals who serve each other and global markets. That left almost everyone else with more credentials than craft. Only a third of the 5 million graduates coming out of colleges every year are finding salaried positions.

This structural flaw has led to a brutal occupational sorting. In a healthy economy, surplus labour moves from the farm to the factory. In India, because the manufacturing revolution was skipped, graduates find only two doors open: high-end services like IT and finance or the informal abyss of gig work.

According to the State of Working India report, graduate unemployment for the 15-25 age group is hovering near 40%. Only a few hopefuls secure stable salaried jobs within a year of finishing college.

A generation of young people can envision a middle-class future but lacks the capacity to realize it. Indians now spend four hours a day on mobile devices. The creator economy is essentially the commercialization of this boredom.

India’s elite, hemmed in by its own risk aversion and stifling bureaucratic controls, has shown little ambition to build the kind of mass-employment manufacturing base that could provide an alternative.

At the same time, outsourcing firms have largely prioritized high dividends and stock buybacks over risky moonshots. As global tech giants ramp up capex to survive the AI revolution, programmers’ skills have become expendable. Thousands of Oracle’s India employees lost their jobs last month.

The labour market is already reacting. Young men are opting out of higher education to supplement household income. Why spend years on a degree when, according to last year’s World Inequality Report, the return on an additional year of schooling is lower than in Sub-Saharan Africa?

The good news is that while young men retreat, not only are more women going to college, they’re also using their degrees to close the gender-pay divide. While they’re increasingly found in high-growth industries like IT, business services and automobile manufacturing, their overall participation in the workforce is rather low.

The country is nearing the peak of its multi-decade demographic dividend, when a bulge in the working-age population enables faster growth. But without the right jobs, the dividend is turning into discontent.

At the lowest rung of India’s hierarchical birth-based social order of caste, younger workers are keener than ever to escape their parents’ occupations. But they lack the financial resources to use education for upward mobility. The high cost of technical training for poor and lower-caste households must fall drastically. To improve the quality of graduates, the ratio of 3 teachers to 100 students needs to double.

Without a radical pivot towards vocation-oriented training and a factory sector large enough to absorb those not lucky enough to be part of the elite, the college degree will remain a pricey ticket to a lottery that has stopped paying out. For millions of graduates trapped in ‘timepass,’ lifetime earnings already looked weak. Now they may just get hollowed out by AI algorithms and agents. ©Bloomberg

The author is a Bloomberg Opinion columnist covering industrial companies and financial services in Asia.