October 7, 2026, (Inside AI) — India's flagship vocational training system is failing to prepare workers for an economy increasingly shaped by artificial intelligence, automation, and green technology, according to a new report from NITI Aayog, the government's premier policy think tank. The report, titled 'Reimagining Skilling for Viksit Bharat@2047', reveals that only 8.25% of Indian graduates work in roles aligned with their qualifications, exposing a structural disconnect between education and employment that threatens the country's demographic dividend.
The findings arrive at a critical moment. India has the world's largest youth population, with roughly 65% of its citizens under 35. Yet close to 65% of people aged 15 to 59 have received no formal training of any kind. The report maps approximately 60 crore citizens across five segments: schooling, tertiary education, formal and informal work, youth not in education, employment or training (NEET), and women.
Despite more than 7.67 crore people undergoing skill-based training since 2014-15, and a Union Budget allocation of Rs 34,000 crore for skilling in 2025-26, outcomes remain uneven. The report attributes this to weak links between education, skills, and actual employment.
Industrial Training Institutes Face An Existential Reckoning
The Industrial Training Institutes (ITIs), established in 1950 under the Craftsmen Training Scheme, form the backbone of India's vocational education. Their numbers have grown from 9,776 in 2014 to 13,888 in 2026. But this expansion has not translated into better employment outcomes. As of 2022, only 0.09% of all ITI students were placed, according to a separate NITI Aayog report from 2023.
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The trade mix remains heavily concentrated in manufacturing and technical occupations. The electrician trade is offered by almost all ITIs, followed by fitter. Yet around 65% of electrician seats and nearly 72% of fitter seats remain unoccupied. In 2021, more than 50% of seats in Andhra Pradesh and 58% in Assam stayed vacant, while only 47% of seats were occupied in Delhi.
Economist Amit Basole notes that in India, the definition of skill is entangled with notions of dignified work. Jobs requiring mental skills are often considered more prestigious than those prioritising manual skills. Caste hierarchies have influenced the allocation and social valuation of occupations. And certain skill-based institutions are considered more prestigious than others, reflected in the distinctions between IITs and ITIs.
Basole cautions against interpreting the presence of OBC, SC, and ST students in ITIs as a sign of inclusivity. Students from marginalised backgrounds face barriers in accessing educational opportunities and are more likely to drop out after Class 10 and 12. While relatively better-off students pursue degree programmes, caste representation in ITIs is more likely a fallback option rather than an aspirational choice.
The gendered nature of trades offered by ITIs and a distinct gendered pattern in the type of trades men and women apply for constitute other factors behind vacant seats. A shortage of instructors at ITIs is yet another constraint.
Can India Close Its 29 Million Skilled Worker Gap?
A 2022 study by the National Skill Development Corporation (NSDC) estimated a deficit of 29 million between the demand and supply of skilled workers, particularly in IT, BFSI, healthcare, semiconductor manufacturing, and green jobs. This gap has been attributed to the failure of the country's education sector as well as the performance of the numerous ITIs.
Data from Employment and Unemployment Surveys of the National Sample Survey Office (NSSO) and the Periodic Labour Force Survey (PLFS) show some progress. Formal training increased from 1.6% in 2011-12 to 4.1% in 2023-24. Non-formal hereditary training rose from 1.8% to 11.6%. Non-formal self-learning also increased from 1.8% to 11.6%, and non-formal on-the-job training grew from 1.7% to 9.3%. But these gains remain insufficient against the scale of the challenge.
Close to only 8% of Indian firms provide on-the-job training, according to the NITI Aayog report. The cost of providing such training is often higher, and firms prefer to hire already-trained individuals. This makes the role of skill institutions critical.
The report proposes incorporating vocational education and employability skills from schools to universities, with a stronger focus on applied, industry-aligned specialisations. It calls for greater use of apprenticeships and work-integrated degree and diploma programmes. It also recommends focusing on sectors expected to generate demand, including green industries and electric vehicles, while providing reskilling for workers in declining occupations.
Students from Class 9 onwards could choose Kaushal Tracks for specialised vocational training based on local and national job demand, the report suggests. Universities would offer courses in high-growth areas and help workers reskill for changing job markets.
The policy shift echoes human capital investment theory. Economist Gary Becker argued that earnings increase with age at a decreasing rate, and this increase is positively associated with the level of skills. Unemployment rates, in turn, are negatively associated with skill level. Theodore Schultz argued that investment in education and training of young people yields returns over a longer period.
India's skilling journey has seen numerous schemes, including the Pradhan Mantri Kaushal Vikas Yojana, Deen Dayal Upadhyay Grameen Kaushalya Yojana, and the National Apprenticeship Promotion Scheme. The National Skills Policy was introduced in 2009, followed by the National Skill Development Mission in 2015, which targeted training 400 million individuals by the end of 2022. Despite this, India spends only around 3% of its educational budget on vocational education.
Studies reveal that ITIs located near industrial belts are more likely to create employment. Trade mix and curricula need to evolve in keeping with changing requirements of relevant industries and service-sector jobs, as well as emerging areas like AI and green skills. The gendered nature of ITIs requires structural change. Greater spending on both general and vocational education is essential.
There has also been a rapid decline in the duration of skill development courses. Some training programmes last as short as 10 days, and these have not resulted in acquiring gainful skills. International experiences can provide useful insights. Germany introduces an early vocational education model at the upper secondary level.
As India races to position itself as an AI and technology hub, the gap between its workforce's skills and industry demands poses a fundamental challenge. The NITI Aayog report makes clear that without urgent reform, the country's demographic dividend could become a demographic liability.
