India is heading into a demographic debacle

In the next few years, India lived up to the promise as it virtually became the tech brains and back office muscle of global corporations, which employed young engineers and graduates in the millions, birthing a flourishing middle class that drove the economy to run on all cylinders. The outsourcing job market was so hot that the running joke was “trespassers would be recruited”. Two decades later, the job market has chilled so much that the demographic promise is on the verge of fizzling out.

The 2026 edition of Azim Premji University’s State of Working India (SoW) report says India’s demographic bulge will stop expanding in four years. The share of its working-age population will begin declining in 2030. But 263 million of the 367 million 15-to-29-year-olds, who comprise the potential workforce, are not in classrooms despite rising enrolment of young people in higher education courses, primarily driven by women.

Young men are not so enthusiastic about higher education, especially after the pandemic. Their share has fallen from 14% just before the national lockdown to 12% in the last quarter of 2024. They largely feel obliged to support family incomes rather than attend classes, the survey found.

As of 2023, 77% 15-to-24-year-old men swapped the classroom for a workspace. It perhaps also speaks to the financial despair in the wake of the pandemic. Government data shows that while reasons vary, more than 200,000 companies shut down in the five years up to December 2025.

The labour market changed dramatically in that period, with formal-sector jobs shrinking relative to the share of job seekers, while gig work rose with the rapid expansion of e-commerce and tech-based service platforms. New mental models replaced old ones as the market's nature changed. Youngsters are increasingly relying on self-learning and social media-based networking to find jobs and make money. So much so that public sector jobs are now coveted, while private sector work is stigmatized. There is weariness about the utility of a formal degree or certification.

Yet, according to Rosa Abraham, co-author of the SoW report, possessing a skill certificate is an edge in landing an entry-level job. It does not help negotiate a better pay, however, but is useful in switching employers or sectors.

It has become easier—though significantly more expensive—to acquire formal higher education as the number of institutions has expanded rapidly. The availability of colleges in 2021 stood at 45 per 100,000 youth compared to 29 per 100,000 in 2010. Industrial training institutes also multiplied by 300% in 20 years to nearly 14,582 in 2025.

Education, however, is no guarantee of landing a job. The higher the education level, the higher the unemployment rate. Fresh graduates tend to be more unemployed compared to older ones, the report says, which it interprets as the willingness and ability to wait for a good job. They eventually do get employed. This need not mean the wait is always fruitful. More often than not, social pressures with advancing age make educated, unemployed individuals desperate to land any job, if not the ones commensurate with their academic training.

This friction is likely to increase as political parties compete to offer unconditional cash welfare transfers to voters, especially women, in exchange for their votes. Along with free food, education, and healthcare, the cash transfers act as a basic income. The 16th Finance Commission estimates that expenditure on subsidies has increased from about ₹4 trillion in 2018‑19 to nearly ₹10 trillion in 2025‑26. Much of it was driven by cash transfers that originated as poll promises. Unconditional cash transfers by states have increased from ₹3,000 crore in 2018‑19 to a whopping ₹4.14 trillion in 2025‑26.

That perhaps explains to some extent the return of workers to agriculture. Over 68 million households in India primarily depend on farming for their income. Although more young workers were moving from farms to factories and services, the trend reversed between 2017 and 2023 when the share of women workers in agriculture increased and that of young men stagnated, relatively speaking. There could be multiple reasons for this, including the benefits showered on women by the central and state governments. For those who own or rent land, government benefits supplement farm incomes, making migration less attractive, especially after the pandemic.

India needs to quickly reboot its education and skills training system to align with the market. The private sector needs to chip in not only with investment but also with working conditions that are attractive to a generation coming of age in the era of the Internet and social media. They will also need to diversify geographically to smaller cities and towns to attract talent. This is desirable as it will help build new cities in areas that are currently low on economic activity.

With the global economy in turmoil, India will have to look inwards to keep its economic engine going. It should generate high-quality employment and help its youth earn well, or they will end up falling back on (dis)contented subsistence. That is a recipe for ruin when the population begins to age before the country becomes rich. The window is closing fast, and conditions are getting tougher. Goldman Sachs just lowered India’s growth forecast for the next two years in the wake of the Iran war.