Introduction
Preparation is an omnipresent part of the human experience. Some prepare for marriage, some for retirement, and some for the farming season. These preparatory rituals often give great results for most of us. But, for millions of young Indians looking to land a sarkari naukri (a government job), “preparation” is often a decade-long cycle of rejection, debt and false hopes. The prospect of a lucrative government job often encourages individuals to divert time away from productive activity towards unproductive preparation for the selection exam. While the effort can be life-changing for some and devastating for others, the economics of this dynamic have profound implications for the broader economy.
The Causes
Averaged across all employees, public employee salaries in India are among the highest in the world. In a survey conducted in thirty-two countries, ‘public-sector pay premiums’ in India are the most elevated.1 In ‘An Uncertain Glory’, 2013, the authors noted that, relative to GDP per capita, public school teachers in India are paid three times more than in China.2 Within the country itself, there exists a huge divide between public and private sector wages. Studies indicate that government schoolteachers earn five to ten times more than private-school teachers.3 This wage disparity transcends just the school system and is prevalent in administrative and engineering jobs as well. Moreover, Article 311 of the Indian Constitution provides safeguards to civil servants by protecting them from arbitrary dismissal, removal, or reduction in rank. Strong employee unions also have a powerful political influence. As a result of these factors, a 2022 survey of grade 10 students in Tamil Nadu found that 88 per cent aspired for government jobs.4 Accordingly, 1.21 crore candidates applied for the Railway NTPC exam in 2025.5 Because of such vast numbers and low success rates, applying for government jobs often feels like playing a lottery.
The private sector has also failed to keep up to the demand for high quality jobs. Job creation is concentrated in low-productivity sectors and overall productivity has failed to keep pace with other developing countries like China and Vietnam.
The manufacturing sector has also failed to keep up to the demand for employment. Despite schemes like PLI (production linked incentives), the GDP share of manufacturing has fallen from 15.4% to 14.3% since the scheme’s introduction. China has a coherence between economic policy, education reform and technology integration. Germany integrates modern vocational training with mainstream education. In India, poor occupational mobility of workers causes this mismatch in existing workers’ skills and market requirements. National Education Policy 2020 and Skill India attempt to bridge the gap but the gap between policy framing and implementation still continues to plague the economy.
Study of a Hiring Freeze in Tamil Nadu
Due to a fiscal crisis, the Tamil Nadu government had a hiring freeze for most civil servant posts from 2001 to 2006. During the period of the freeze, the labour demand changed negligibly, as the civil service posts make up a very small part of total government hiring. Thus, this gave researchers a chance to analyse the shifts in market equilibrium as a result of changes in labour supply. According to a study conducted in 2021, the men who graduated from college during the hiring freeze were 30 per cent more likely to be unemployed in their 20s when compared to labour market trajectories before the hiring freeze began.7 The application rates, on the other hand, skyrocketed to 10-20 times the normal rate. This leads to the conclusion that young graduates spent more time preparing for the exam rather than seeking a job in the private sector. One would assume that more studying led to better human capital. However, the finding suggests that the time spent studying did not generate better labour market outcomes, as the earnings for the most affected cohort remained depressed even after a decade.
Economic Costs
The hiring freeze in Tamil Nadu affected only 0.6 per cent of the most affected cohorts in terms of job losses, but the behaviour responses were much larger, which affected the whole labour market equilibrium. Competitive civil service exams lead to significant social costs as well. Estimates tell us that for every Rs. 1,000 the government spends on salaries, there is an additional Rs.1,500- Rs.1,900 social cost.7 These costs majorly arise not from corruption or poor selection tests but because of candidates spending more time on unproductive exam preparation over productive industry experiences. Additionally, the opportunity costs of exam preparation can be as high as Rs. 33,000 monthly.
While UPSC hiring by the central government is largely clean, recruitment scams have emerged from other parts of the government. Exam leaks have also become a common occurrence throughout the country. This endangers recruitment quality and prolongs the status quo. In a 2017 study, it was also found that Indian college graduates who were more likely to cheat on lab games were more likely to want to enter the government.8 If left untouched, the loss of trust in public services can affect consumer and investor confidence in the country. Systematic instability can be detrimental to growth in the long term.
The structure of government exams also creates a crisis of low skills and high unemployment among educated youth. The government-run skilling institutes have also failed to keep up with modern skills required by industry. This is evident from the fact that only 43 per cent of the candidates trained under the PMKVY scheme got placed.10 Moreover, one-third of the placed candidates left within one month of placement. As a result, the entrepreneurial spirit of the youth is negatively impacted, since the public sector tends to reward credentials and qualifications over risk-taking and exploration.
Permanent employment as an anathema to efficiency
Permanent tenure, in principle, is designed to prevent political interference in the bureaucracy and provide a stabilising pillar for the massive government machinery , but in today’s rapidly advancing world, it has become a liability. Permanent employment reduces accountability and incentives for upgrading skills. The public often has to pay for employees that have long become obsolete due to advances in technology. A lot of government departments are also often obsolete or overstaffed. At the same time, critical modern services like cyber security go under-staffed. This misallocation of resources reduces productivity for all and diminishes the quality of public services provided. To improve this, accountability and flexibility for all public sector jobs is of paramount importance.
Solutions
For a long time, the Indian government has viewed public sector jobs as a vehicle to provide employment rather than a method to efficiently deliver public services. But to progress as a society and a modern economy, it is essential to reduce the desirability of a government job to market levels to establish efficient use of resources. One possible solution, as suggested by Nobel laureate Abhijith Banerjee, could be to provide 3-5 years of probation work at prevailing market wages to those who clear an eligibility exam. Then, after 3-5 years, only those who meet certain performance benchmarks are promoted to a permanent government job. This eliminates the prospects of labour market distortions caused by exam preparation and also gives candidates exposure to private industry and skills. Candidates are incentivised to constantly improve their skills and keep up with modern technological advances to get ahead. India should work towards a productivity revolution not through slogans or undirected infrastructure spending but instead through comprehensive business reforms, incentivising R&D investment, local innovation adoption, and transforming its manufacturing ecosystem into a globally competitive hub.
Conclusion
The phenomenon of millions of young Indian adults spending years of their energetic lives preparing for government exams is a significant drain on the country’s overall productivity and growth potential. At the same time, the high costs of salaries and benefits of public employees directly contribute to staff shortages and weak state capacity. These effects together have a detrimental impact on both the quality of public services and the supply of labour in private markets. While these are economy-wide, politically charged decisions, they may play a key role in pulling the India story back. But, with a multi-pronged approach and pragmatic policy-making, most difficult tasks can be achieved. For we only have the demographic dividend advantage for only the next 30 years. It’s now or never. India has to get rich before it gets old.
References
1. Finan F, Olken B, Pande R. The Personnel Economics of the State. National Bureau of Economic Research; 2015; http://www.nber.org/papers/w21825.pdf
2. Dreze S. An Uncertain Glory: India and Its Contradictions. Princeton University Press, 2013. JSTOR, Https://Doi.Org/10.2307/j.Ctt32bcbm.; 2013.
3. Kingdon GG. The Private Schooling Phenomenon in India: A Review. Published online 2017. https://docs.iza.org/dp10612.pdf
4. Kunal Mangal. Kunal Mangal. Accessed October 9, 2025. https://kmangal.github.io/tnpsc-research.html
5. Over 1.21 Crore Candidates Applied for Railway NTPC 2025 Exam. May 1, 2025. Accessed October 9, 2025. https://www.adda247.com/exams/railway/over-1-21-crore-candidates-applied-for-railway-ntpc-2025-exam/
6. Johanna Melka. India: Job creation is concentrated in low-productivity sectors, hindering growth. https://economic-research.bnpparibas.com/html/en-US/India-creation-concentrated-productivity-sectors-which-hindering-growth-11/26/2025,53050
7. Mangal K. The long-run costs of highly competitive government job exams. J Dev Econ. 2024; https://kmangal.github.io/files/papers/tn-hiring-freeze.pdf
8. Kunal Mangal. The Indian Labour Market through the Lens of Public Sector Recruitment. Published online April 2023. https://kmangal.github.io/tnpsc-research
9. Hanna, Rema Wang, Shing-Yi. Dishonesty and Selection into Public Service: Evidence from India. Am Econ J Econ Policy. Published online 2017. https://www.aeaweb.org/articles?id=10.1257/pol.20150029
10. Around 43% of youth skilled under government scheme placed. The Times of India. https://timesofindia.indiatimes.com/business/india-business/less-than-15-of-youth-skilled-under-government-scheme-placed/articleshow/123104237.cms. August 5, 2025. Accessed October 8, 2025.
