New Delhi: The Indian economy needs to grow by 12.2%, on average each year, about twice its current pace, to address underemployment (jobs that do not fully utilise a person's skills), according to Morgan Stanley.

To maintain a stable unemployment rate, India requires an average gross domestic product (GDP) growth of 7.4%, assuming participation rates stay constant, the report said. If participation rate rises to 63%, the growth needed jumps to 9.3%, it added. According to official data, the labour force participation rate was 55% in August.

India's GDP grew by 6.5% in FY25 and hit a five-quarter high of 7.8% in Q1FY26. Over the last decade, the growth has averaged 6.1%.

Youth unemployment remains high in Asia, the report noted, with India at 17.6%, China at 16.5%, and Indonesia at 17.3%. "To address this, policymakers will have to take up reforms to lift investment ratios in India and Indonesia and address labour mismatches in China," the report mentioned.

According to the Periodic Labour Force Survey (PLFS) conducted by the statistics ministry, the youth unemployment rate in India was 14.6% in August. Overall, the rate fell to a four-month low of 5.1%.

Morgan Stanley projects India to grow at an average of 6.5% annually over the coming decade, making it one of the fastest-growing economies globally. However, this would not be enough to generate sufficient jobs, it added.

Over the medium term, the report said, AI could curb job growth, particularly in IT services, a major source of employment, and for domestic services.