Two IPOs are shining a light on India’s anxious youth

The stock-market debut of two startups has put the spotlight on India’s biggest economic challenge: creating enough jobs for the world’s largest cohort of youth.

Urban Co. gave investors the best post-listing pop of any major company that has gone public in India this year; shares in the home-services marketplace rose 62 per cent on its opening day last month. Next up is the much-awaited initial public offering of Physicswallah Ltd., a large edutech firm.

From the capital market’s standpoint, the two startups are a testament to rapid digitization. The kind of rent-a-service that Urban offers cleaning and pest control, handyman support, appliance repair, and beauty and grooming isn’t new. Without a smartphone app, however, it would have been impossible to connect individual contractors scattered across a vast geography with affluent households. Urban, which assesses its near-term opportunity at $21 billion across 200 cities, has barely scratched the surface. That’s what excites investors. 

Ditto for Physicswallah, or PW. For a talented tutor, it was never difficult to fill a classroom in a city like Kota, a test-prep hub in northwestern state of Rajasthan where 16- and 17-year-old high schoolers camp out for a year or two, cramming for engineering and medical school entrance exams. The genius of PW founder Alakh Pandey lay in getting nearly 100 million of these aspirants to subscribe to his YouTube channels. 

However, the success of PW and Urban is not just about digitization; it’s also about dreams and despair. 

The handyman who’s signed up as a contractor on an app would prefer a factory job. Digital aggregators provide accident and life insurance, but a full suite of social-security benefits, including statutory contributions to retirement funds, is a bridge too far. “Our business would be adversely affected if service professionals were classified as employees, workmen or quasi-employees,” Urban said in its IPO prospectus.

That won’t happen. As a nod to gig workers’ welfare, some sort of a fee on platforms would be the likely limit to government legislation. After all, even the politicians know they can’t provide factory jobs to their voters. At 13 per cent, the share of manufacturing in gross domestic product last year was the lowest since at least 1960, according to the World Bank. And that was before Trump’s imposition of a prohibitive 50 per cent tariff on Indian exports, a tax that would disproportionately affect labor-intensive industries like textiles, home furnishings, and gems and jewelry. 

A white-collar career is the ticket out of this rut. Or at least that’s the dream for the 13 million to 15 million youth hoping to get into the 23 Indian Institutes of Technology that accept fewer than 18,000 students  a year. That’s one of PW’s core markets. But even for these aspirants, some of whom prep for as many as four years, fierce competition is no longer the only source of anxiety. Trump’s immigration policies, especially his attack on the H-1B work visa, are getting in the way of income security of Indian families, supported by their children’s tech jobs in the US.

At the same time, breakthroughs in artificial intelligence are upending the domestic outsourcing industry that employs nearly 6 million. Amid speculation of mass layoffs at Mumbai-based Tata Consultancy Services Ltd., the software-export behemoth has clarified that only 2 per cent of its workforce, or about 12,000 code-writers and support staff, may be affected. The 30,000 dismissals figure floating on social media is “incorrect and misleading,” it says.

Multinationals are the one bright spot in this gloomy landscape. They’re still adding lucrative positions in the most-populous nation, and giving their researchers and engineers cutting-edge AI tools to make them more productive. But with US lawmakers considering a 25 per cent tax on American companies for payments made to foreign workers for services consumed in the US, even the so-called global capability centers may face a squeeze.  

The challenge is grave. One in five additions to the working-age population worldwide over the next decade will take place in India, according to Morgan Stanley. At the current labor-force participation rate of 60 per cent, the number of jobseekers would go up by 1.3 per cent each year, while the current GDP growth of around 6.5 per cent can only absorb a 1per cent increase. Then there is the underemployment that ballooned when tens of millions of migrant workers went back to their villages during the Covid-19 pandemic. Only an extraordinary pace of 12 per cent-plus GDP expansion would clear the backlog over 10 years, says Chetan Ahya, the bank’s Asia economist. And that’s assuming a modest increase in the participation rate to 63 per cent.

Were more discouraged workers, particularly women, to return to the labor market, the required growth rate would be 14 per cent. Even half of that may not be sustainable without US technology, capital, and markets. China has a lot of industrial machinery, raw materials, and consumer goods to sell to India, but very little to buy from it. For the sake of its youth, New Delhi must put its derailed relationship with Washington back on track.

Physicswallah and Urban Co. are joined at the hip via the labor market. The former’s success in placing teenagers on the first rung of high-growth careers will create demand for the latter’s services. But without America’s active encouragement of India’s economic rise, repairmen and house painters won’t transition to factory jobs. Nor, for that matter, would a sufficient number of budding software engineers be able to realize their dream of upper-middle-class life at home or in the US.