Is India producing more graduates than the economy can absorb?

O.R.S. Rao: The numbers point to a widening gap between the growth in graduates and the growth in jobs. In engineering alone, the number of graduates has risen sharply over the past few years while job creation has not kept pace. Earlier, the IT services sector was the principal employer of engineering graduates. Today, hiring by IT services firms has slowed considerably, even though sectors such as banking and financial services, manufacturing, defence and space technologies have expanded their recruitment. The challenge is that these new opportunities have not grown fast enough to absorb the increasing number of graduates entering the labour market.

A second issue is the nature of investment. Much of the recent investment in sectors such as semiconductors, advanced manufacturing and technology has been capital-intensive rather than labour-intensive. As a result, large investments do not necessarily translate into proportionate job creation.

Has AI made the problem worse?

O.R.S. Rao: We are in the middle of a major technological transition. AI is changing the nature of work much faster than how educational institutions can adapt. Companies now want graduates who can work with AI systems, validate AI-generated outputs, understand responsible and ethical AI use, and solve complex problems using technology. Four years ago, when many of today’s graduates entered college, these skills were not widely discussed. Universities cannot redesign programmes overnight, and students cannot acquire entirely new competencies instantly.

As a result, many graduates are entering a labour market that demands skills different from those they were trained for.

Is employability more important than just job creation?

Rajan Wadhera: There is certainly a growing concern about employability, particularly among engineering graduates. The problem is often a mismatch between what is taught and what the industry requires. Students may graduate with strong academic credentials but have limited exposure to laboratories, manufacturing environments, teamwork and real-world problem-solving. When they enter the industry, employers frequently find that they need substantial additional training in order to contribute effectively. Companies run their own training programmes to bridge this gap. This was far less common a few decades ago.

Has manufacturing failed to create enough opportunities?

Rajan Wadhera: Manufacturing still has considerable potential, but it too is undergoing profound change. People often focus on the impact of AI on software jobs, but manufacturing is also being transformed by automation, robotics, and Industry 4.0 systems. Historically, a large number of engineers were employed in supervisory and operational roles on factory floors. Today, many of those functions are automated. Digital manufacturing systems require fewer people to oversee production processes. As a result, the number of engineering jobs generated by manufacturing is not increasing at the pace many people expected. Even as factories expand output, they often require fewer workers and supervisors than before.

Does that mean the future is one of permanent jobless growth?

Rajan Wadhera: I would not go that far. India’s push towards self-reliance in sectors such as defence, aerospace and advanced manufacturing is creating new opportunities. There is increasing emphasis on domestic design and product development, and that is encouraging. The challenge is that automation and digitalisation are reducing labour requirements even as industries grow. Therefore, employment growth may not automatically match economic growth. This makes it even more important for educational institutions and industry to work together. Curricula needs to be aligned much more closely with industry requirements.

Has India focused too much on manufacturing and too little on innovation?

O.R.S. Rao: Over many years, India became increasingly proficient at manufacturing products designed elsewhere; manufacturing alone does not create enough opportunities for highly trained engineers. The real value lies in research, development and design. Countries that control intellectual property and technology create far more opportunities for engineers than countries that simply manufacture products. Recent global developments have reinforced this lesson. Increasing restrictions on access to critical technologies such as semiconductors and strategic components have shown that excessive dependence on external technologies carries risks. India therefore needs to invest much more aggressively in indigenous research, innovation and product development.

Has India made progress in indigenous design capabilities?

Rajan Wadhera: It would be incorrect to say that India remains only a manufacturing base. Over the last decade, companies such as Mahindra and Tata Motors have developed significant design and engineering capabilities. Indian engineers today are designing vehicles, platforms, transmissions and other complex systems that would previously have been developed elsewhere. The issue is not whether these capabilities exist. The issue is scale. The number of high-quality engineering graduates being produced is larger than the number of advanced R&D and design roles currently available.

What role should entrepreneurship play?

O.R.S. Rao: Neither government nor industry can create enough jobs for every graduate. We need more graduates to become creators of enterprises rather than only seekers of employment. One major challenge is access to risk capital. Traditional lenders prefer established businesses and proven revenue streams. Innovation, however, requires investors willing to support ideas at an early stage. India’s startup ecosystem has made significant progress, but much more needs to be done to support deep-technology ventures.

What should India focus on in the AI era?

O.R.S. Rao: India should focus not only on infrastructure but also on products. There is a significant need for sovereign AI as nations with those systems seek to restrict access. Product companies create intellectual property, innovation and high-value employment. The goal should be to develop products not only for India but for global markets. We should identify strategic areas where India can become a global leader. UPI’s success demonstrates that India is capable of building world-class digital platforms.

What needs to change in higher education?

O.R.S. Rao: Industry-academia collaboration must become much deeper. Universities cannot design relevant programmes without industry participation, and industry cannot expect job-ready graduates without contributing to curriculum, internships and skill development.

Looking ahead, what are the priorities?

O.R.S. Rao: Three priorities stand out. First, India must significantly increase investment in research and development. Second, industry and academia must work together much more closely. Third, we need a stronger entrepreneurship ecosystem that encourages innovation and supports risk-taking.

Rajan Wadhera: I would add that India must continue building indigenous capabilities in design, engineering and advanced manufacturing. The opportunities are real, particularly in sectors such as defence and aerospace. The challenge is ensuring that education, industry and policy move in the same direction.

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