India’s aspirations to become a $5 trillion economy by 2024-25 and ‘Viksit Bharat’ by 2047 have been under discussion for a while. Many economists and policymakers believe that these targets are highly ambitious. Achieving them requires significant improvements in education. In a service-driven economy, a well-educated workforce is the key to boosting productivity, driving innovation, and supporting long-term growth. Aligning education with the evolving needs of the labour market is crucial to realising India’s economic aspirations.
In his famous book, The Economic Value of Education, the Nobel laureate economist, T.W. Schultz, suggests two important channels through which education contributes to economic growth: through the advancement of knowledge and technology that originates from research and by increasing the supply of skilled labour through the expansion of schooling levels, which improves the quality of both human and machine factors. Today’s economic development is largely shaped by technological advances where education serves significantly in terms of generating and diffusing new technologies. Additionally, the rate at which economies can absorb technology developed elsewhere depends on the knowledge and the skills of their populations.
Research shows that investing in education directly boosts economic growth. In their 1992 research paper, “A Contribution to the Empirics of Economic Growth”, published in The Quarterly Journal of Economics, the economists, N. Gregory Mankiw, David Romer, and David N. Weil, extend the Solow growth model by incorporating human capital alongside physical capital. They show that differences in education, measured in years, help explain variations in living standards across countries. This suggests that countries like India can accelerate their development by enhancing the quality of education. Education Counts: Towards the Millenium Development Goals, an independent, annual publication by UNESCO, stated in its 2010 publication that each additional year of schooling raises average annual gross domestic product growth by 0.37%. Additionally, one extra year of schooling increases an individual’s earnings by up to 10%.
The importance of education in a country’s growth and development is well-recognised. This has led to a significant expansion of educational institutions and enrolment. According to the ministry of education, in 2021-2022, primary enrolment stood at 104.8%, upper primary at 94.7%, secondary at 79.6%, higher secondary at 57.6%, and higher education at 28.4%. The National Education Policy 2020 has set an ambitious goal to achieve universal enrolment from preschool to the secondary level by 2030 and a 50% gross enrolment ratio in higher education by 2035. To realise the targets of NEP, enrolment capacity at the secondary, higher secondary, and higher education levels needs substantial expansion.
Despite consistent improvements in enrolment rates, there is rising concern relating to the quality of learning outcomes. Many students struggle with basic literacy and numeracy skills, leading to high dropout rates and low levels of academic achievement. Since enrolment is nearly universalised at the elementary level, the focus should now shift to ensuring the universalisation of learning. Students should acquire the minimum learning required for every stage of schooling. Otherwise, universal enrolment will serve no purpose. The Annual Status of Educational Report (Rural) 2023 reveals that 28.8%(25) of students aged 14-18, who are enrolled in Class X, are unable to read the text at the level of a second-grade student. Additionally, 56% of these students are unable to solve simple arithmetic problems. Similar failures afflict 50% of students enrolled at the higher secondary level. This implies that half of the students enrolled at the higher secondary level fail to meet the expectations of the primary level itself.
Despite considerable progress in education, India’s workforce remains dominated by individuals with low levels of education. According to the Periodic Labour Force Survey 2022-23, 24.2% of workers are illiterate, and only 12% have educational qualifications at the graduation level or higher. Paradoxically, higher education is associated with higher unemployment rates: 13.4% among graduates and 12.1% among postgraduates, compared to the overall unemployment rate of 3.2%. For those with secondary education and above, the unemployment rate is 7.3%, more than double the national average. Perhaps the clearest evidence of the widening skill gap between the education provided in Indian institutions and industry demands is that about 38% of IIT graduates were unable to secure campus placements this year.
This high unemployment among the educated can be attributed to a mismatch between the skills acquired through education and those demanded by the job market. Many highly-educated individuals are often seen as overqualified or lacking in relevant work experience. Additionally, poor learning outcomes in some educational systems contribute to graduates lacking necessary skills and competencies, exacerbating the challenge of finding suitable employment.
Addressing these issues requires more than improving learning outcomes within the formal education system. There is a need to align education with market demands by providing targeted training and development opportunities. While initiatives like vocational training programmes have been introduced by the Indian government, only 27.4% of workers have received vocational training and just 3.8% have received formal training, according to PLFS 2022-23.
To address skill mismatches and improve employment outcomes, initiatives like the National Apprenticeship Promotion Scheme are a step in the right direction. It provides financial incentives to establishments hiring apprentices, thereby supporting skill development through on-the-job training, supports apprenticeships in MSMEs and underserved areas, and provides up-skilling for those trained by government programmes. The data show that there has been rising participation in this scheme, with total enrolments tripling over the past three years to reach 0.9 million in FY24. This year’s Union budget aimed to tackle the problem by emphasising the skilling, re-skilling, and upskilling of job seekers and by enabling the creation of quality jobs through the introduction of the employment-linked incentive scheme that complements the existing production-linked incentive scheme.
While Artificial Intelligence may disrupt certain jobs, research suggests it can also create new opportunities across industries like transportation, logistics, retail, data analytics, and manufacturing. Economists have advocated for educational programmes, innovative employment models, and support for displaced workers to ease the transition.
To realise India’s ambitious economic goals, a strategic and multi-faceted approach is essential. Expanding educational access and improving quality are foundational, but aligning educational outcomes with the labour market’s needs is equally important. This includes addressing skill mismatches through targeted vocational training and reskilling initiatives, such as those supported by NAPS. As AI continues to reshape the employment landscape, it is vital to not only expand educational access but also make the education-industry connect to frequent alignments of curricula with the needs of employers and industries. By integrating education reforms, skill development, and technological advancements, India can build a resilient economy capable of achieving its growth aspirations while ensuring equitable opportunities for all.
