Unemployment Rate in India, Types, Causes, Impact, Initiatives

As of 2023-2024, the Unemployment Rate in India is 3.2%, the same as the previous year. Unemployment in India refers to the condition where individuals actively seek employment but are unable to secure a job. It is a key indicator of the nation’s economic health, shaped by factors such as caste-based discrimination, overpopulation, and sluggish economic growth. 

Unemployment in India also highlights significant disparities across rural and urban areas, compounded by automation and skill mismatches. To address these challenges, efforts must focus on diversifying rural employment, enhancing private sector participation, and aligning skill development with industry demands to create sustainable job opportunities.

What is Unemployment?

The term unemployment refers to the condition where individuals actively seek employment but are unable to secure a job. It serves as a crucial indicator of a nation’s economic health. The unemployment rate a widely used metric, is calculated by dividing the number of unemployed individuals by the total labour force. 

According to the International Labour Organization (ILO), unemployment is defined as being out of a job, available for work, and actively searching for employment. Therefore, an individual who has lost work but does not look for another job is not unemployed.

Types of Unemployment in India

Unemployment in developing countries, including India, manifests in various forms such as voluntary (job refusal due to dissatisfaction) and involuntary (lack of opportunities despite active seeking). Other types include structural (skill mismatches), seasonal (demand fluctuations), cyclical (economic downturns), disguised (low productivity), and frictional (job transitions), highlighting complex labour market dynamics:

• Involuntary Unemployment: This represents a scenario where individuals actively seek jobs but cannot find any due to the excess labour supply.
  • For Example, Fresh graduates in urban areas struggle to secure employment despite multiple applications.
• Voluntary Unemployment: This occurs when individuals choose not to work despite job availability, often due to dissatisfaction with pay, job quality, or dignity concerns.
  • For Example, A highly qualified engineer refusing a low-paying customer service job.
• Structural Unemployment: Results from changes in the economy, creating mismatches between job requirements and workforce skills.
  • For Example, Factory workers lose jobs due to automation in manufacturing industries.
• Seasonal Unemployment: Affects workers in industries with seasonal demand, leading to temporary joblessness during off-seasons.
  • For Example, Tourist guides and hotel staff face unemployment during the off-peak travel season.
• Cyclical Unemployment: This occurs due to economic downturns when businesses lay off workers during recessions but rehire them during recovery phases.
  • For Example Layoffs in the retail sector during economic slumps due to reduced consumer spending.
• Disguised Unemployment: Found in sectors where excess workers contribute little or no additional productivity.
  • For Example, Multiple interns in an office duplicate tasks that do not add value to operations. 
• Frictional Unemployment: Temporary unemployment during job transitions, as individuals leave one job to search for another.
  • For example, A software developer quit to find a better role in a different company.

Causes of Unemployment in India

Unemployment in India stems from socio-economic challenges like caste-based discrimination, sluggish growth, and overpopulation. Seasonal agriculture, informal sectors, flawed education, skill gaps, automation, and limited accessibility further hinder job creation, reflecting the complex dynamics of India's labour market. The detailed explanation of these factors is provided below:

• Sluggish Economic Growth: The underdeveloped economy fails to generate sufficient jobs to meet the demands of a rapidly growing population, resulting in widespread unemployment.
• Overpopulation: Rapid population growth exacerbates job scarcity, with the unemployment rate reaching concerning levels, such as 11.1% during the 10th Five-Year Plan period.
• Seasonal Nature of Agriculture: The agriculture sector is largely seasonal and offers only temporary employment, leaving a significant part of the rural population jobless during off-seasons.
• Underemployment: Limited access to production resources, such as raw materials and energy, prevents many individuals, especially in rural areas, from working full-time.
• Informal Sector Challenges: The majority of the workforce (Gig Workers) operates in unorganized sectors with low wages and poor job security, which makes them perceive their employment as inadequate.
• Underperforming Service Sector: Despite contributing significantly to GDP, the service sector in India employs only a small fraction of the workforce compared to developed countries.
• Flawed Education System: Education systems fail to equip students with industry-relevant skills, rendering a large number of graduates unemployable. 
  • For example, 80% of India's 1.5 million engineering graduates lack employable skills. 
    • By 2026, India may face a shortage of 1.4–1.9 million tech professionals (NASSCOM).
• Skill Gaps in Emerging Industries: Job seekers often lack the technical and soft skills needed for new-age industries like IT, data analytics, and robotics, limiting their employability.
  • The Economic Survey 2024 highlights AI's potential to disrupt India's job market, urging strategies to mitigate its risks while leveraging its benefits. It emphasizes government intervention to ensure job security across sectors.
• Limited Accessibility: Barriers such as illiteracy, poor communication skills, inadequate childcare, and lack of transportation hinder workforce participation, particularly among marginalized groups.
• Impact of Automation: Automation and AI have reduced traditional jobs while creating demand for specialized skills in machine learning, blockchain, and similar technologies.
• Region-Caste Based Discrimination: To some extent this also leads to job allocation based on regional basis and societal affiliations rather than merit, reducing employment opportunities for deserving candidates.

Unemployment Rate in India

The unemployment rate in India, as per CMIE, rose to 9.2% in June 2024, marking an eight-month high compared to 7% in May 2024 and 8.5% in June 2023, reflecting persistent challenges. The status of unemployment in India is as follows:

• According to recent Reserve Bank of India (RBI) data, India's unemployment rate has declined, with the employment growth rate rising to 6% in FY2024 from 3.2% in FY2023, indicating significant job additions. 
  • This estimate, derived using the KLEMS database, measures productivity across 27 industries and key inputs like Capital, labour, Energy, Materials, and Services.
  • The database aggregates data from sources like NSO, NSSO, and ASI for sectoral analysis.
• The India Employment Report 2024, jointly prepared by the Institute for Human Development and the ILO, highlights that India's working population grew from 61% in 2011 to 64% in 2021 and is projected to reach 65% by 2036. 
  • However, youth participation in economic activities declined to 37% in 2022.
• According to data the Centre for Monitoring the Indian Economy (CMIE), the unemployment rate rose to 9.2% in June 2024, an eight-month high, up from 7% in May 2024. This marks an increase compared to 8.5% in June 2023.
  • Rural Unemployment: Rural areas experienced a significant rise in unemployment 9.3% in June 2024, up from 6.3% in May 2024 and 8.8% in June 2023.
  • Gender Disparities:
    • Female Unemployment Rate: Rose to 18.5% in June 2024 from 15.1% in June 2023, higher than the national average.
    • Male Unemployment Rate: Marginally increased to 7.8% in June 2024 compared to 7.7% in June 2023.
• Periodic Labour Force Survey (PLFS) 2024: Data pertains to individuals aged 15 and above for 2023 and 2024.
  • Labour Force Participation Rate (LFPR)
    • Overall: Increased from 49.3% to 50.4%.
    • Male: Increased from 73.8% to 75.0%, showing a positive trend.
    • Female: Increased from 24.0% to 25.5%.
• Worker Population Ratio (WPR): Overall increased from 46.0% to 47.2%.
• Unemployment Rate (UR)
  • Overall: Decreased from 6.6% to 6.4%.
  • Male: Decreased from 6.0% to 5.7%.
  • Female: Decreased from 8.6% to 8.4%.

The government has implemented several programs to increase female employability, including:

Measuring Unemployment in India

India employs various methodologies to measure unemployment, reflecting its complex labour market dynamics across formal and informal sectors. Multiple agencies and surveys provide insights into employment trends and labour force engagement.

Primary Agencies

Primary agencies responsible for collecting and analyzing unemployment data are as follows:

• Ministry of Labour and Employment: Through the Labour Bureau and Directorate General of Employment and Training (DGE&T) collect data on organized sector employment and unemployment under various labour laws.
• National Sample Survey Office (NSSO): This office conducts annual and quinquennial surveys on employment and unemployment, providing detailed data on labour force dynamics.
• Central Statistical Organisation (CSO): Conducts Economic Census, collecting employment data across agricultural and non-agricultural enterprises.

Key Methodologies Used to Measure Unemployment in India

The following methodologies collectively provide a comprehensive picture of employment and unemployment trends in India's complex labour market, addressing both formal and informal sectors.

• Periodic Labour Force Survey (PLFS): Conducted annually by the Ministry of Statistics and Programme Implementation (MoSPI) since 2017-18. Measures Labour Force Participation Rate (LFPR), Worker Population Ratio (WPR), and unemployment rates using "usual status" and "current weekly status."
• Usual Status (UPSS): It categorizes individuals based on their primary economic activity over the last year, distinguishing between principal and subsidiary activities to capture long-term employment trends.
• Current Weekly Status (CWS): Identifies employment or unemployment based on activities during the seven days preceding the survey, effectively capturing short-term unemployment trends.
• Worker Population Ratio (WPR): This represents the proportion of the working-age population that is currently employed, providing insights into overall workforce utilization.
• Labour Force Participation Rate (LFPR): Measures the proportion of the working-age population that is either employed or actively seeking employment, reflecting overall workforce engagement.
• Census Data (Decennial): Conducted every 10 years by the Registrar General and Census Commissioner, offering insights into workforce distribution, unemployment levels, and main and marginal workers.
• Economic Census by CSO: Gathers employment data periodically across agricultural and non-agricultural enterprises, providing a broad understanding of enterprise-based workforce dynamics.
• NSSO Employment-Unemployment Surveys: Conducted quinquennially and annually, provide detailed employment and unemployment data, analyzing labour market dynamics using demographic, social, and economic parameters.
• Employment Exchange Data: The Employment Market Information Programme (EMIP), collects statistics on job vacancies and registrations, reflecting trends in the organized sector but limited to formal employment.
• Centre for Monitoring Indian Economy (CMIE): Conducts frequent surveys with shorter reference periods, offering real-time insights into unemployment trends, particularly in informal and dynamic labour markets.

Challenges in Measuring Unemployment In India

Measuring unemployment in India is fraught with challenges due to the informal nature of jobs, short-term employment patterns, and socio-economic factors. These complexities often hinder the accurate representation of the labour market. The key challenges in measuring unemployment in India are as follows:

• Informal Nature of Jobs: A large informal sector complicates consistent employment classification as individuals often work intermittently across various activities.
• Short-Term Employment: Workers may alternate between casual labour, seasonal jobs, and unemployment within a year, making accurate categorization challenging.
• Exclusion of Willing Workers: Social norms, especially for women, prevent many from actively seeking work. 
  • For example, several rural women reported willingness to work if jobs were available at home, yet they remain excluded from the labour force.
• Economic Disruptions: Events like the 2020 lockdown led to temporary job losses not fully captured by PLFS due to aggregation over time.

Impact of Unemployment in India

Unemployment in India has far-reaching consequences, impacting individuals, society, and the economy. It leads to exploitation, social unrest, and underutilization of human resources, hindering national development. The key consequences of Unemployment in India are as follows:

• Under-utilization of Human Resources: The potential of the workforce remains unutilized, resulting in a loss of valuable human resources. Proper utilization of these resources could significantly contribute to national economic growth.
• Rising Poverty: Lack of income due to unemployment leads to increased poverty, higher debt burdens, and a rise in economic hardships for affected individuals and families.
• Social Issues: Unemployment fuels societal problems such as corruption, gambling, and unethical behaviour. These issues undermine law and order and disrupt societal harmony.
• Industrial Disputes: Unemployment contributes to increased disputes between employers and employees, disrupting workplace harmony and further escalating joblessness.
  • Exploitation of labour: Unemployed individuals are compelled to accept low wages and work under poor conditions, leading to their exploitation.
• Political Instability: Joblessness breeds dissatisfaction with the government, prompting individuals to engage in disruptive activities and weakening political stability. This, in turn, hinders economic progress.

Unemployment in India Government Initiatives

The Government has launched several initiatives to tackle unemployment, focusing on skill development, job creation, and livelihood enhancement. These programs address urban and rural employment challenges while boosting employability across sectors. Key Employment Schemes and Initiatives are as follows:

• National Career Service (NCS) Project: Transforms employment services with job matching, career counselling, skill development info, apprenticeships, and internships via the NCS Portal, Model Career Centers, and Employment Exchanges.
• Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA): Guarantees 100 days of annual wage employment for rural households, offering unskilled manual work to enhance rural livelihoods.
• Aajeevika - National Rural Livelihoods Mission (NRLM): Empowers rural poor by building institutional platforms for sustainable livelihoods and offering placement-linked skill development for youth under DDU-GKY.
• Deendayal Antyodaya Yojana - National Urban Livelihoods Mission (DAY-NULM): Reduces urban poverty by enabling self-employment and skill development, providing shelters for urban homeless, and strengthening grassroots institutions.
• Prime Minister’s Employment Generation Programme (PMEGP): A credit-linked subsidy scheme promoting self-employment by helping artisans and unemployed youth establish non-farm micro-enterprises.
• Pradhan Mantri Kaushal Vikas Yojana (PMKVY): Under the Ministry of Skill Development and Entrepreneurship, PMKVY facilitates skill certification and industry-relevant training for youth, enhancing their employability.
• National Apprenticeship Promotion Scheme (NAPS): This scheme promotes apprenticeships through financial incentives, covering employers' 25% stipend (up to ₹1500) and basic training costs (up to ₹7500).
• Future Skills PRIME: A MeitY initiative for reskilling IT professionals in emerging technologies like AI to boost employability in the digital age.

Unemployment in India Way Forward

Addressing unemployment in India requires a multifaceted approach focusing on skill development, rural diversification, private sector engagement, and creating quality jobs. These measures aim to build a sustainable and inclusive workforce as explained below:

• Skill Development: Vocational training must align with industry needs, and partnerships between academia and industries should be strengthened to address skill gaps and enhance workforce employability.
• Diversify Rural Employment: Promoting rural manufacturing and entrepreneurship can reduce reliance on agriculture and create diverse, sustainable job opportunities, reducing unemployment and underemployment in rural areas.
• Encourage Private Sector Involvement: Simplifying regulations and offering incentives can boost private sector job creation while encouraging investments in skill development initiatives to enhance employment opportunities.
• Quality Job Creation: Focus on creating stable and secure jobs that offer financial stability, career growth, and emotional well-being, addressing unemployment challenges holistically.

Unemployment in India UPSC PYQs 

Q1. Disguised unemployment generally means (UPSC Prelims 2013)

(a) large number of people remain unemployed
(b) alternative employment is not available
(c) marginal productivity of labour is zero
(d) productivity of workers is low

Ans: (c)

Q2. Most of the unemployment in India is structural in nature. Examine the methodology adopted to compute unemployment in the country and suggest improvements. (UPSC Mains 2023)

Unemployment in India FAQs 

Q1. Which state has the highest unemployment rate in India, and which has the lowest?
Ans. Lakshadweep has the highest unemployment rate in India, with a total unemployment rate of 12.3%, while Madhya Pradesh has the lowest unemployment rate of 2.6%, among states in India.

Q2. How does the unemployment rate impact the Indian economy?
Ans. A high unemployment rate hinders economic growth, reduces consumer spending, and can lead to social unrest, while a low rate indicates a robust job market.

Q3. What are the major causes of unemployment in India?
Ans. Key factors include caste-based discrimination, overpopulation, sluggish economic growth, skill mismatches, and the seasonal nature of agriculture.

Q4. How is unemployment measured in India?
Ans. It is measured through PLFS, NSSO Surveys, Economic Census, and Employment Exchange Data, capturing trends across formal and informal sectors.

Q5. What government schemes address unemployment in India?
Ans. Programs like MGNREGA, PMKVY, PMEGP, and DAY-NULM focus on skill development, rural and urban employment, and livelihood enhancement.