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The firm warns India needs to nearly double its growth rate to 12.2% annually to adequately address underemployment and high youth unemployment, despite strong GDP growth of 7.8% in Q1 2025-26.  

Highlights of the report:
 
Urgent Growth Needed

• India needs an extraordinary 12.2% annual GDP growth rate to adequately tackle underemployment and the surge in youth joblessness.
• The current growth rate of around 7.8% (Q1 2025-26) is insufficient to absorb the 84 million new workers who will enter the labor market over the next decade.

Underemployment and Youth Unemployment

• Youth unemployment stands at 17.6%, the highest in South Asia.
• Underemployment is widespread, with many workers engaged in jobs that don't fully utilize their skills, education, or available hours.
• India's broad employment criteria include informal and unpaid labor, masking the gravity of underutilization in the workforce.

Employment Challenges

• There is a dual challenge in India: high unemployment and significant underemployment, particularly among youth.
• Agricultural sector employment has surged to a 17-year high, reflecting underemployment rather than productive jobs.
• Female youth unemployment is a major concern, with urban female youth unemployment soaring to 25.7%.

Structural Obstacles

• Weak industrial growth, limited export expansion, and rising US tariffs affect job creation prospects.
• The rise in US work visa costs for Indians limits international employment opportunities.
• Rapid automation and AI adoption threaten traditional service-sector jobs, especially for educated youth.

Socioeconomic Implications

• Around 603 million Indians live below the lower middle-income threshold, increasing the urgency for inclusive job growth.
• Failure to create adequate jobs risks social strains and may push the government to implement redistributive measures to maintain stability.

Required Reforms

• India must accelerate industrial and export growth, infrastructure development, and workforce reskilling.
• Manufacturing export jobs have important multiplier effects, creating additional jobs in transport and logistics.
• Despite India's large working-age population, its share in global exports is only 1.8%, indicating untapped potential for employment creation.

Morgan Stanley warns that without rapid and inclusive growth, India risks falling into a "jobs trap," undermining its position as an emerging global economic powerhouse and exacerbating youth unemployment issues.

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