The Indian labour market was characterised by two key shifts in the second quarter of FY26: Rising youth joblessness in urban areas and a flight of labour back to the farm sector at the expense of manufacturing jobs.
According to government data for the July-September 2025 quarter, while the overall unemployment rate marginally declined from 5.4 percent in the April-June quarter to 5.2 percent in the latest quarter, youth unemployment (for those aged 15-29 years) increased from 14.6 percent to 14.8 percent in the same period.
This figure shows a significant stress point: Urban joblessness, as educated youth face difficulty in finding work in cities. The unemployment rate in urban areas rose from 17.9 percent to 18.4 percent between the two quarters, while rural unemployment remained at 13.1 percent.
The trend is highly concentrated at the state level. Nine states accounted for the bulk of the increase in joblessness, with north Indian states showing the most dramatic changes. Uttarakhand saw a massive spike of 14.9 percentage points, while Himachal Pradesh (4.3 points) and Jammu & Kashmir (3.5 points) also registered increases. Even economically significant states like Tamil Nadu (2.1 points) and Uttar Pradesh (2.7 points) reported substantial dip in youth employment, as creating substantial employment for the younger demographic poses a challenge.
Data on employment distribution also highlights a shift away from India’s goal of industrialisation. The share of the workforce employed in agriculture increased from 39.5 percent to 42.4 percent, indicating that a considerable portion of the workforce moved back to the farm sector. Over the same period, the share of employment in the manufacturing and mining sector declined from 26.6 percent to 24.2 percent. The services sector also saw a minor dip, falling from 33.9 percent to 33.5 percent. As non-farm sectors failed to generate sufficient jobs, it has forced the monsoon-driven agricultural sector to absorb workers leaving the secondary and tertiary sectors.
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The decline in manufacturing jobs was particularly severe across several states. For instance, Chhattisgarh reported the largest contraction, seeing a 12.4 percentage point dip in manufacturing jobs and Odisha of 9 points. Other states known for their industrial base also experienced significant declines, including Andhra Pradesh (-7.5 points), and Telangana (-6.9 points). Only four states, Gujarat, Himachal Pradesh, Tamil Nadu and Haryana reported marginal increases in the share of workforce in manufacturing.
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These drops in industrial employment in key states indicate a slowdown in factory activity and, combined with trends of worsening urban youth joblessness and reverse migration to agriculture, present a major headwind for the labour market.
