India stares at high youth unemployment as hiring in its IT sector slows

India is facing a youth unemployment problem as a decline in white-collar jobs in its information technology sector has left many fresh graduates and young people unemployed. 

In the October to December period last year, unemployment in India’s youth aged 20 to 24 years rose to 44.49%, from 43.65% in the previous quarter. Unemployment among 25- to 29-year-olds rose to 14.33% during the same period from 13.35% in the prior quarter, according to the Centre for Monitoring Indian Economy.

The world’s most populous country, which also has the world’s largest youth population, had 43.3 million university enrollments in fiscal year ending March 2022, according to the latest government data.

“We’ve seen consistently high growth of the economy, but I don’t think employment has kept up pace,” Chandra Garisa, CEO of recruitment firm Foundit said, explaining that white-collar job availability, especially in the IT sector, has been on a decline. 

“One of the largest segments that employ white-collar employees is IT and services, and hiring in the sector has slowed down quite a bit,” he told CNBC. 

As automation and artificial intelligence adoption picks up pace, many roles in IT are becoming redundant — a phenomenon that’s not restricted to India.

“Earlier, the vast majority of college graduates used to be hired for basic skills, but now those basic skills are being taken care of by technology,” Garisa noted. 

Data from Foundit showed that online hiring for both IT hardware and software sections plummeted by 18% last year from 2022. IT saw the biggest decline in hiring activity across the 14 sectors in the study. There was also an overall 5% drop in job postings in 2023 from the prior year.  

“There is a mismatch between demand and supply of jobs and it is becoming a larger social issue in India,” Suyash Rai, deputy director and fellow at Carnegie India told CNBC. 

The IT sector is estimated to have employed 5.4 million people in fiscal year ending March 2023, according to the Ministry of Electronics and IT. 

Youth unemployment in India is also driven by a “transitory mismatch of skills” as many students are equipped with skills for the IT sector, but job creation is happening in the manufacturing industry,” Garisa said.

“Two big things are creating a skills mismatch — shift in demand across sectors which are opening up more opportunities, and advancements in technology which is making basic skills irrelevant,” he added.

In February, there was a 6% rise in job postings in the manufacturing sector compared to the previous month while IT postings fell by 9%, according to Foundit.

“The sectors which were hiring traditionally in the past are not the same ones which are growing and hiring now,” Garisa said. “What is being demanded from a fresh graduate now is very different from five years back, or even two years back.”  

For instance, jobs in the manufacturing sector that required AI skills rose by 21% last year from just 8% in 2022, with positions for data analysts and junior technical software engineers seeing the highest jumps, according to Foundit.

Garisa highlighted that there is still a perception among the youth that careers in the manufacturing sector are not as good as those in IT — which means some candidates might not be able to capitalize on the emerging new jobs.

“That’s changing, but it needs to change a lot more for outgoing graduates from college to really look at these as quality career opportunities.”