CNBC's Inside India newsletter: The causes and costs of India's brain drain

This report is from this week's CNBC's "Inside India" newsletter which brings you timely, insightful news and market commentary on the emerging powerhouse and the big businesses behind its meteoric rise. Like what you see? You can subscribe here.

The big story

Four years ago, Keshav Raj graduated with a degree in computer science from the prestigious SRM Institute of Science & Technology in Tamil Nadu.

He obtained decent grades and chalked up internships in startups in India and Indonesia to improve his chances of securing a job. Raj's hope was to land a role in the data department of a government office or a multi-national corporation.

"My parents took a [1.9 million Indian rupee] ($22,491) loan for my degree, so I studied hard and interned to find a well-paying job quickly," the 27-year-old, told CNBC's Inside India.

Several entrance tests and interviews later, Raj has yet to secure a well-paying job. Out of desperation, he took on a role as a customer care executive at a global capability center servicing shoppers at Amazon. He now draws 22,000 Indian rupees a month — barely enough for his household expenses and to pay off his student loan.

"My mother is a clinic assistant and father an auto driver. They don't earn much so I need to earn enough to pay the bills. I cannot manage if I continue working in India — competition is stiff and it's hard to get a well-paying job," he said.

Raj is looking for jobs outside India and says he is "willing to go anywhere and do anything."

He is among hundreds of thousands of educated Indians seeking employment outside the South Asian powerhouse, in the hope of higher remuneration, better career progression and superior standards of living.

Data from jobs portal foundit shows a 11.4% increase this year in the number of international job listings made on its platform by consultants and companies seeking talent in India. This was accompanied by a 59.4% jump in the number of applications by Indian users of the platform.

The trend follows, "a cautious hiring approach by Indian companies in key sectors which created a temporary lull in domestic opportunities in the past year," Anurag Sinha, foundit's chief product and technology officer, told CNBC's Inside India.

"This slowdown led to an uptick in applications for overseas jobs, as professionals sought stability and growth in international markets," he said, adding that Canada, Australia and the United Arab Emirates were among the top destinations Indians sought opportunities in.

Aside from a sluggish jobs market, Sinha noted that Indians have been seeking out opportunities with global firms — either through relocation or remotely — for "global exposure, to work with advanced technologies, and access higher earnings potential."

Notably, applications made by candidates in more junior or middle management roles — with zero to 10 years of experience — were higher, likely because those job seekers are younger, more ambitious and are more adaptable to different work environments.

In terms of sector-based movements, Sinha observed that professional roles, particularly those in STEM industries like technology, life sciences and engineering, had higher applicants.

"[Professionals] remain highly sought after globally. Their expertise, adaptability, and cost competitiveness make them valuable assets for employers seeking talent in areas like software development, cloud computing, data science, and medical research," he said.

A perennial problem

India's brain drain is not unique to the country. It is a perennial issue in emerging or developing markets, given their growing class of educated and aspirational millennials.

In India, this phenomenon can be traced to the early 2000s when professionals from the medical and engineering fields sought opportunities, namely in the U.S. That has since changed with "India losing all kinds of labor at every skill level for over a decade," development economist Jayati Ghosh said.

Speaking to CNBC's Inside India, Ghosh — a professor formerly at India's Jawaharlal Nehru University and currently at the University of Massachusetts Amherst — noted "there is definitely a jobs crisis in India."

"We have a young generation who are aspirational and want to live a better life than their parents. They've gone into higher education. Their families have sold land or assets so they could study, and now they can't get jobs."

"India's job crisis has come about because the number of jobs in the country has not risen in tandem with the nation's GDP growth of 5–7% per annum," Ghosh said, adding that the supposed increase in employment per recent data is not from genuine job creation but rather self-employed individuals including those running their own small enterprises or providing unpaid labor in family enterprises.

Her comments come as India's employment-to-population ratio stands at a mere 52.8%, while its labor dependency ratio is 1.52, data from the International Labour Organization (ILO) shows. A labor dependency ratio shows the ratio of dependents compare to total employment.

With just half of its working age population employed, the country has an uphill task of bridging the gap between the opportunities in its labor force and its economic trajectory.

India has the world's largest diaspora, with some 18 million people living outside their nation of birth, according to the UN.

"Many young people, including some of the most skilled, try to leave the country, leaving some important skill gaps despite the huge pool of unemployed people" Ghosh noted.

Notable talent who have left India over the last decades include Alphabet CEO Sundar Pichai, Microsoft CEO Satya Nadella and Chanel's top executive Leena Nair.

The problem behind this, Ghosh says, is multifaceted. A key issue is that employment is not treated as a "main policy goal by the government."

"India's GDP growth is 6.7% — but most of that goes to the top 10% of the population. Government policies are oriented to big corporates owned by the likes of the Adanis, Ambanis and the Tatas, not to medium and small micro enterprises which employ around 85-90% of the population," she said.

The economist also flagged gaps in public employment, with government hospitals, schools and railways "having unfilled vacancies for around 7 million roles." Hiring that many more people would translate into better services, the provision of adequate facilities, better education and health care services, Ghosh said.

"At the same time, you're creating more jobs, and that creates a multiplier effect with higher demand. This eventually generates employment and will be a bubbling up of growth, not just a trickle down," she added.

A term from the last century

As throngs of Indians seek employment abroad, the Indian government is now adopting, what External Affairs Minister Subrahmanyam Jaishankar calls, a "contemporary way" of looking at movement and mobility.

"Drawing a line — this is inside, and that is outside, and when people go outside we lose something; I think we need to get over it," he said at a lecture series at the Institute of South Asian Studies of the National University of Singapore earlier this year.

This shift in perspective has translated to "brain drain," being considered as a "term from the last century," Sunaina Kumar, a senior fellow at think tank the Observer Research Foundation (ORF), told CNBC's Inside India. The movement is now considered a reflection of how "integrated and interconnected the global workforce is," she said.

Other merits from the global dispersion of the Indian workforce include the economic gains from an increase in remittances, Kumar added. Data from the World Bank forecasts remittances to India to rise marginally from $123 billion last year to $124 billion this year and $129 billion in 2025, on the back of stronger labor markets in the U.S. and Europe.

The future of India's workforce

Whether the emigration of Indians will boost or weigh down the country's economy is a longstanding argument. But what is imperative for the South Asian nation is to ensure its people are well-equipped to take on and advance in jobs, whether locally and abroad, while meeting their social and economic needs.

On a policy level, ORF's Kumar suggested that India offer upskilling initiatives for fresh graduates and those already in the workforce to ensure that they remain relevant to constantly evolving business needs and consumer demands.

Beyond this, she suggests that the government invest in urban planning and building better infrastructure to make cities more livable and more attractive for the population to settle down in.

"Indian cities are extremely challenging to live in. The living standards of an Indian city, whether it is environmental degradation, poor infrastructure, the pollution or traffic jams — is always weighing on people. So until we address this, some of our best will leave to seek a better life outside," Kumar added.

Meanwhile, foundit's Sinha believes organizations have a part to play as well. To rival international firms, he suggested they create a compelling value proposition, such as providing candidates with clear career pathways and opportunities for leadership development in the long term.

These improvements address deep systemic issues in India and will take time to execute. If managed and executed well, they can create a better and more competitive workforce — one that can offer opportunities for the likes of Raj.

Need to know

The Adani Group's troubles are growing. Fitch Ratings has put several of the group's bonds under its negative ratings watchlist, which means the bonds could be downgraded. Deals and investments linked to the Adani Group, such as an airport agreement in Kenya, have either been scrapped or suspended. "The U.S. indictment is likely to constrain the group's access to new financing in the near term," Leonard Law, a senior credit analyst at Lucro Analytics, told CNBC. The group denies all wrongdoings.

CCI rejects a request by Apple to suspend an antitrust investigation. India's antitrust regulator (The Competition Commission of India) had concluded that the Cupertino-based company exploits its dominance over the market for app stores, compelling app developers to adhere to detrimental conditions. Apple requested pausing the investigation because the company alleges that the main complainant had not complied with the CCI's order to destroy past investigation reports.

Reddit is looking to grow its market in India. Just half of Reddit's users are based internationally, lower than the 80% to 90% of other U.S. platforms. India, with its large English-speaking internet population, is "growing really rapidly" and "a big opportunity" for the company, said Jen Wong, chief operating officer of Reddit. The platform wants to move into the local advertising space, such as an Indian brand advertising to Indian users.

What happened in the markets?

The slide in India's stock markets looks set to come to an end this week. The Nifty 50 index is up 2.26% over the last five sessions, bringing this year's total returns to just over 10%. The index has fallen by 8.6% since its all-time high earlier this year.

The benchmark 10-year Indian government bond yield is relatively flat at 6.805% over the past week, despite ticking up to 6.863% last Friday.

On CNBC TV this week, Fook Hien Yap, senior investment strategist at Standard Chartered Bank, acknowledges that countries around the world will be facing tariffs as a result of U.S. President-elect Donald Trump's planned tariff policies. However, he thinks India will be a "relative beneficiary" and will not face the brunt of those policies.

With India's economic growth projected to come in at 6% to 7% and earnings growth in the mid-teens, "there's no reason not to stay invested" in the country's market, said Gokul Laroia, CEO of Asia and co-head of global equities for Morgan Stanley. Moreover, the alleged charges against the Adani Group are likely to be "idiosyncratic" and "not something you can extrapolate to the rest of the market," added Laroia.

What's happening next week?

Several IPOs open for subscription next week, including financial firm Nisus Finance Services and Suraksha Diagnostic. We also get a GDP print on Friday.

Nov. 29: India Q3 GDP, euro zone CPI, U.S. financial markets close early after Thanksgiving

Dec. 2: U.S. ISM Manufacturing PMI, China Caixin Manufacturing PMI

Dec. 4: India HSBC Composite PMI final for November, OECD Economic Outlook