Job creation has emerged as a major test for Indian Prime Minister Narendra Modi's third term, as India's young workforce struggles to find employment.

Last year, India overtook China as the world's most populous country, with more than 40% of the estimated population of 1.4 billion younger than 25 years old.

Joblessness was a significant factor behind Modi and his Bharatiya Janata Party (BJP) performing below expectations and falling short of an overall majority in India's general elections.

As India's government announced its 2024 budget on Tuesday, it earmarked $24 billion over five years to foster job creation.

"In this budget, we particularly focus on employment, skilling, small businesses, and the middle class," Finance Minister Nirmala Sitharaman said on Tuesday.

In the budget, Finance Minister Sitharaman announced that the government will launch a scheme to provide internship opportunities to 10 million youth in 500 top companies over five years.

Reacting to the budget in a series of tweets, opposition Congress party General Secretary, Jairam Ramesh criticized the BJP government.

"After ten years of denial … the union government seems to have finally come around to tacitly admitting that mass unemployment is a national crisis that requires urgent attention."

"It's far too late, and as it turns out, far too little – the budget speech is more focused on posturing than action," added Ramesh.

Shrijay Sheth, founder of LegalWiz, a consultancy firm, told DW, that he expects "larger incentives given to companies to choose India for obvious cost benefits and access to a large young workforce, along with preferential access to Indian markets."

"This is significant. Hyundai eying an Indian IPO, or talks with Tesla to establish Indian manufacturing with production are indicative examples," added Sheth. 

India's growing job crisis

In Mumbai last week, a job event at Air India Airport Services was called off after 25,000 job-seekers showed up to apply for 2,220 maintenance jobs.

In February, nearly 4.7 million applicants appeared for an exam to select around 60,000 police constables in the northern state of Uttar Pradesh. 

These are not isolated incidents as India faces a growing unemployment crisis.

"The government and all its agencies are living in denial about unemployment," Arun Kumar, an economist, told DW. "All ground reports and data suggest that unemployment is a major issue where youth are struggling to get work," he added. 

According to the latest data from the Centre for Monitoring Indian Economy (CMIE), an independent think tank, India's unemployment rate came in at 9.2% in June, a sharp increase from 7 % in May this year. 

"All this is contrary to the official [government] narrative of massive employment generation. Why not admit the problem and act, lest the growing youth frustration boil over?" added Kumar. 

Economic growth not leading to jobs

India's government is predicting a GDP growth rate of between 6.5% and 7% for the 2024 fiscal year, after seeing 8.2% expansion in the previous fiscal year that ended in March.

Despite these strong numbers, India has struggled to generate enough jobs for the millions of young people entering the labor market every year. 

Development economist Santosh Mehrotra told DW that India needs to develop a labor-intensive manufacturing strategy similar to China's.

"In India, the demand for jobs will only be met if several different factors come together. Construction activity needs to continue at its current brisk pace. But, for the next year or two, it must be led by public sector investment, as private investment remains sluggish," said Mehrotra, a visiting professor at the Centre for Development Studies, University of Bath, England. 

According to World Bank data, India's manufacturing sector comprises 13% of GDP. In China, manufacturing is over a quarter of GDP. 

He added that labor-intensive manufacturing by small and medium enterprises (MSME) require a sustained support, through development programs fostering MSME manufacturing, along with training schemes for young people.

"A right to apprenticeship is essential," he added. 

Lekha Chakraborty, a professor at National Institute of Public Finance and Policy said that training programs are essential to solving unemployment.

The labor market is dynamic and unless we prepare the youth with required skills, unemployment problems cannot be solved," she said, emphasizing that it is important to bridge the gap between formal education and developing skills across agriculture, industrial and service sectors.

Formalizing India's economy

India's informal sector, where the vast majority of jobs are found, has shed 16 million jobs, with 6.3 million informal sector enterprises shutting down between the financial years 2016 and 2023, according to a report by credit markets rating agency, India Ratings

An informal economy comprises unincorporated enterprises owned by households, or jobs that are not officially taxed or monitored, and include domestic workers, street vendors and day laborers.

"This period also coincided with the rise in the formalization of the economy, which has led to robust tax collections. While formalization of the economy is the way forward, the reduced unorganized sector footprint has implications for employment generation," said Sunil Kumar Sinha, the principal economist of India Ratings. 

The finance minister said Tuesday the government's budget will implement schemes for employment incentives, including providing a month's wage to new entrants to workforce in all formal sectors.

The scheme aims to create jobs in the manufacturing sector by incentivizing the hiring of first-time employees.

Edited by: Wesley Rahn