One policy response to this apparent mismatch was a rush to vocational education, with Indian policy makers and some education entrepreneurs deciding that the need for skilled tradesmen are far greater than graduates. But this is also grounded on a similar misreading of the labour market: The Western style tradesmen training pays off when the market for trades has been professionalised and regulated, and India is a long way off from doing this. What resulted is a supply-side grandstanding where Ministers rattled out big numbers, but the training organisations produced even more people who can't find a job befitting their skills and training.
India's education problems, therefore, may be emanating from using inappropriate Western models and mindsets in the context of a very different economy. It seems that Indian economy is producing a number of sub-graduate level jobs, which requires high level of literacy and numeracy, and presentational skills, but not the advanced level of analysis and critical capabilities that a graduate may be expected to possess. The MBAs in India usually get into these jobs, because they can't find any other: But this also creates a power disincentive for future applicants, as the pay-off from advanced degrees become obscured.
I would argue that the solution may lie in understanding India's position in globalisation value chain and coming up with an education structure appropriate for the same, rather than trying to copy inappropriate Western models of education. This may indeed require a broadbased reform of degrees and awards, the levels of institutions and may even extend to professionalisation of certain trades. This model, if it has to produce an appropriate labour force, has to enable the local colleges, and aim at creating a flexible system of education with incentives for progression and lifelong education. India is currently embarking on deep globalisation with an education system based on planned economy principles; it is time to relook at the assumptions and redesign the system all over again.