By News Karnataka Editorial Team

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India would need to sustain an average GDP growth rate of 12.2 per cent over the next decade to meaningfully address its underemployment challenge, according to a report by investment banking and financial services firm Morgan Stanley. The report underlined that while India is already among the fastest-growing economies globally, the current pace is insufficient to absorb its large and growing workforce.

Growth not enough to create jobs

In its base case, Morgan Stanley projected that India’s economy will expand at an average of 6.5 per cent over the next ten years. “This will keep India among the fastest-growing economies, but not enough to generate adequate jobs,” the report said. The firm argued that growth momentum needs to be far stronger to ease unemployment, particularly among young people.

India’s unemployment problem is deeply tied to its demographics, with more than 65 per cent of the population in the working-age bracket. The report highlighted that the challenge is not only unemployment but also underemployment, with millions stuck in low-paying, informal work.

Push for industrial and export-led growth

The report noted that India’s potential lies in scaling up its industrial and export sectors. “Studies show that every job created by manufacturing exports creates two more jobs in related areas such as logistics and transportation,” it observed.

Currently, India’s share in global exports stands at just 1.8 per cent, significantly lower than its share in world GDP and its working-age population. Morgan Stanley suggested that capturing a greater share of global trade could be a crucial driver of both growth and employment.

Need for comprehensive reforms

To achieve higher growth and employment creation, the report called for a wide-ranging reform package. This includes:

Accelerated infrastructure development, especially last-mile connectivity.
Policy incentives for state governments to improve the business environment.
Investment in skilling programmes to prepare the labour force for new opportunities.

While policymakers have initiated several steps in these directions, the report said the “magnitude of the jobs challenge” requires much stronger and faster action.

AI and automation add risks

The report warned that artificial intelligence and automation pose structural headwinds to India’s jobs market. The IT services sector, historically one of India’s largest job creators, could see reduced employment prospects. Similarly, domestic services may face challenges as automation spreads.

“Asia’s youth unemployment is high, and the underlying situation is worsening. Slowing global growth adds to the cyclical challenge, while AI and automation are structural challenges. Policymakers must act either by reforming growth models or through redistributive measures to manage social stability risks,” the report cautioned.

Morgan Stanley concluded that India has the potential to become a much larger global economic player, but the scale of reforms and policy push will determine whether this growth translates into meaningful job creation. Without stronger industrialisation, higher exports, and a rapid build-out of infrastructure, the gap between economic expansion and employment opportunities is likely to persist.