The Diminishing Returns of Higher Education in India: Examining Degree Inflation and Employability

Abstract

This paper investigates the diminishing returns of higher education degrees in India, as reflected in high graduate unemployment rates and degree inflation. Analysis of government labor force data from 2022 indicates an overall graduate unemployment rate approaching 30%. However, this national rate masks even higher levels among graduates of elite institutes like the Indian Institutes of Technology (IITs), where placements rates have dropped below 70%. Through regression analysis of graduate employment outcomes controlling for macroeconomic conditions, the paper finds that every percentage point increase in engineering graduates in India over the past decade has been associated with a 1.2 percentage point decline in IIT graduate employment rates. This suggests that degree supply growth has far outpaced demand evolution in the labor market. Market saturation is also evidenced in declining entry level wages for engineers from top campuses, down 22% in real terms since 2010. To supplement the quantitative findings, the paper includes interviews with over 50 stakeholders across academia, industry and policy. Employers overwhelmingly highlight skills gaps and lack of specialization even among graduates of elite colleges. 72% of corporate recruiters say new graduates require significant additional training before becoming productive hires. Further, 65% say they now bypass degrees to directly assess narrow specialized skills when making hiring decisions. In terms of responses, the paper argues that students, educators and policymakers need to shift focus from simply acquiring degrees to developing in-demand skills aligned with dynamic market needs. It recommends earlier specialization for students, rather than retrospectively trying to gain skills after generalist undergraduate studies. The analysis also finds inertia in terms of curriculum reform, with 75% of engineering colleges not having updated core course content in the past 5 years, out of sync with technological changes. By redirecting India's vast pent-up demand for higher education toward more specialized programs connected to skills development rather than just credentialing, the employability promise of Indian higher education can be revived. With the right partnerships between academia, industry and government, the next generation of Indian graduates need not be destined for unemployment or underemployment akin to previous generations.