Why keeping youth discontent in check remains Indian PM Modi's biggest challenge

Dharmendra Pradhan was forced to resign as India's education minister last month after angry Gen-Z protesters took to the streets over repeated entrance exam paper leaks.

His departure has allowed Prime Minister Narendra Modi to tide over an immediate crisis, but keeping youth discontent in check may well remain a long-term challenge for his government.

While Modi quickly announced fast-track courts , external to try those accused in the leaks and appointed tech billionaire Nandan Nilekani to lead a government effort to reform the examination system, a more concerted effort may be needed to quell the anxieties of the young, who say they are losing patience with a system that's unable to offer them better livelihood opportunities or education that leads to productive employment.

"The labour market has become brutal in the last 10 years. Non-farm jobs have not been growing and real wages have stagnated," Santosh Mehrotra, a veteran economist and author of a new book India Out of Work: Rethinking India's Growth Story, told the BBC.

"India has a simultaneous problem. The economy is structurally weak as a result of which demand for labour is not growing. And our education system is so poor, that it is unable to supply new labour that is employable."

So far, rapid GDP growth fuelled by heavy state expenditure on infrastructure has been the government's default defence against criticism about the uneven nature of India's economic growth trajectory.

But the upheaval of the last month may finally push them to confront the crisis in education and the challenge of youth unemployment, say experts.

The "unprecedented growth in India's welfare state", particularly direct cash transfers, is an indication, Mehrotra says, that at least privately the government has recognised the problem.

India has the world's largest youth population with over 360 million people between the ages of 15 and 29.

There's been great progress in education enrolment and the number of private colleges and vocational training institutes have gone up exponentially in the last two decades.

However, "the transition from education to employment remains a major challenge, particularly for graduates", according to the State of Working India 2026 report , external from Azim Premji University.

Unemployment rates among the young are nearly four times higher than the non-youth and also much higher than global averages.

The problem is not new. Graduate unemployment has hovered around the 35-40% level for the last 25 years.

But it has been "magnified" in recent years owing to India's demographic surge - or a growing size of the population entering the workforce - and improved education outcomes.

In 1983, 4% of 20 to 29-year-olds were graduates, and 13% of them were unemployed. In 2023, 28% were graduates and among them 67% were not employed.

Quality of education remains a major challenge affecting employability while the expansion in the number of graduates has not been matched by commensurate growth in graduate employment.

"Between 2004-05 and 2023, while approximately five million graduates were added each year, only around 2.8 million found employment, and an even smaller share entered salaried employment, contributing to rising graduate unemployment and slowing earnings growth," the report finds.

Moreover, there is no evidence that aspiration is being rewarded. Barely 3.7% of graduates or post-graduates found white collar work and under 7% landed permanent salaried jobs, according to the report.

This isn't a problem with short-term fixes.

"Some jobs can definitely come from a quick revival of the small and medium sized industries (SMEs) which have been completely knocked out since "demonetisation" [when 86% of India's currency was taken out of circulation in four hours in what was a widely criticised policy move] and the uneven implementation of a goods and services tax ," says Mehrotra.

However, India will need to think of a new industrial policy to focus on reviving overall manufacturing, he adds.

"Manufacturing's share of GDP has gone down from 17% in 2015 to 14% currently. And manufacturing employment fell for five years after 2015 and has only now climbed back up slightly above those levels."

Meanwhile, Mehrotra says, total employment in agriculture has actually risen by 80 million people after 2020, a sure sign of disguised unemployment. This is because workers in a fast industrialising economy typically move out of agriculture into services or manufacturing as seen across the world.

All of these challenges have been compounded by the fact that the business model of key job-creating industries like software - a mainstay of the Indian middle class dream for three decades - has been challenged by the advent of AI.

In a recent report, Wall Street Bank Goldman Sachs estimates that 8-12% of non-farm jobs in India are at the risk of being substituted by AI. And the effects of that are already showing.

IT hiring has risen in single digits in recent months, unstable contract work is rising, wages have remained stagnant for years and the knowledge-based jobs that Indian STEM graduates took for granted two decades ago are no longer around in big numbers, according to Neeti Sharma, CEO of Team Lease Digital, one of India's most prominent staffing agencies.

In fact a recent event , external of HCL Technologies, one of the country' biggest software companies, in Chennai was disrupted by hundreds of employees chanting "we want a hike" in unison, reflecting the frustrations of an industry that was once the golden ticket to a better life.

"Young graduates will have to rewire their brains to the new reality that white-collar knowledge jobs are going down. And education institutions will have to pivot to providing vocational skills rather than just knowledge-based learning. Because the hiring has also moved from degrees to actual skills," Sharma told the BBC.

That is short-hand for saying young Indians with even graduate degrees may have to contend with the reality of working as plumbers, electricians and mechanics and not necessarily expect to have cushy careers in air-conditioned offices.

This means, as Devina Mehra, a leading market investor, observed on X , external , we are talking of a generation that can no longer take for granted a lifestyle better than that of their parents.

To be plateauing in earnings at such an early stage of India's development, Mehra says, could be a "disaster" - one that the Modi government will have to work very hard to prevent.

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