India, in the recent past, is increasingly being regarded as the next potential economic super giant after China. One of the prime reasons behind such optimism is its ballooning young population. Such hope stems from an expectation that as more population of India enters the working age, more could it reap the economic benefits, something which we technically call as “Demographic dividend” in economic parlance. India’s demography cruised into this zone in 2018 when its working-age population had outnumbered its dependent population for the first-time in the post-independence. As a result, this is widely touted as a window of opportunity for Indian economic aspirations. This optimism has its genesis in the success stories of Japan, China, South Korea, etc., during the second half of the 20th century, wherein their demographic dividend helped these countries to metamorphose into elephantine economies. Ireland is another compelling example, which has cashed in on its demographic dividend and earned the title “Celtic Tiger”. These stories naturally rake a curiosity to know what actually is demographic dividend. So, let’s dwell deeper into it.
Understanding Demographic Dividend
Before defining the demographic dividend, let’s take a short detour to understand the way population growth was historically looked at. During the 18th and 19th centuries, the growing population was regarded as the nemesis of economic progression. The 18th century’s infamous Malthusian theory propounded that population and economic growth be a zero-sum game and that increased population always results in poverty. However, after the dust of World War II settled down, several countries like Japan, China, etc., have debunked the age-old myths and proved to the world that with proper planning demographic shifts could be curated into demographic dividends.
The demographic dividend refers to the growth in an economy that resulted from a change in the age structure of a country’s population. The shift in age pattern is usually brought in by the fall in both fertility and mortality rates. The cumulative effect of low birth rate in tandem with low death rate ensures that the population within the age bracket of 15-64 years outnumber the dependent population. With fewer people to be taken care of and more people participating in the labour force, there will be more hands to work, rechannelling of funds from welfare to development, and increased investment in an economy that pays rich dividends. Now, let us dive into India’s sojourn in this window of opportunity.
With the increasing all-round development that India has witnessed post the LPG reforms, there has been a steady decline in fertility rate and mortality rate, which presently stand at 2.0 (NFHS-2021) and 7.3/1000 (2020), respectively. Consequently, India’s working-age population outnumbered its dependent population for the first time in the year 2018.
This spike in the working-age population is expected to last till 2055, i.e., 37 years beginning from 2018. The median age in India would be 28 years by 2022-23, compared to 37 in China and 45 in western Europe. This relatively long window of opportunity is expected to accrue the following dividends to India;
- Increased labour supply.
- Increased savings. As the percentage of the dependent population declines, individuals could save more. This increases the national savings, which could be channelised into investments.
- Decline in fertility rate results in healthier women and fewer work pressures at home. This would free a lot of women from domestic bondage and lands them in workforce.
- Decline in the number of off-springs allows parents to invest more resources per child, improving their educational and health prospects.
- Rise in domestic demand availed by the increasing GDP per capita.
- According to the survey conducted by the prince trust and HSBC, the younger the population, the more climate-conscious they are, as its survey reports that 85% of Indian youth are interested in green jobs.
Due to the above prospects, the Centre for Economic and Business Research (CEBR) reckons that, despite the pandemic drag, India is well poised to grow into the world’s third-largest economy by 2030.
The stumbling blocks: What’s crippling our demography?
The Demographic dividend isn’t a readymade gift-wrapped boon to the nation. In order for it to fructify, there are many factors that need to be made to fall in line, which we couldn’t do so far. A few of those are as follows.
Poor Human Capital
Human capital, as defined by the Organisation for Economic Co-operation and Development (OECD), can be broadly defined as the “stock of knowledge, skills and other personal characteristics embodied in people that helps them to be productive.” It encapsulates a person’s knowledge, skills, health, education, etc. However, India’s fares are abysmally low in every parameter, as was reflected in its ranking in the world’s human capital index-2020 (116th position).
- Education – A sheer quantity of working-age persons wouldn’t propel the economies. If that were the case, European economies wouldn’t have grown disproportionate to the size of their population. It is the quality of the workforce, which, unfortunately, India lacks, that determines its economic utility. According to the United Nations children’s fund report of 2019, the rot creeps in the early years of schooling in India. It says that a concoction of poor-quality teachers, obsolete curricula, poor infrastructure, and a time-consuming certification process has left the Indian education system stagnating. The ASER report, 2018, by the NGO Pratham, observes that 56% of Indian class-8 students can’t do basic maths.
- Health – As the saying goes, “Poor countries tend to be unhealthy, and unhealthy countries tend to be poor” across the course of history, improvements in income have followed improvements in health. A healthy individual constitutes a strong & effective workforce with high marginal productivity. However, Indian health parameters are marred by a legion of woes like high infant and maternal mortality, malnutrition, the rampage of infectious diseases, shortage of medical workers, and severely inadequate health infrastructure as exposed by the covid pandemic.
- Poor skills – According to the Human Development Report, 2020, only 21.2% of the Indian workforce is skilled, and this underscores the rot that’s plaguing the Indian skill sector. Not coincidentally, all the developed economies have more than 90% skilled workforce. A large chunk of college pass-outs in India is deemed unemployable. Our academic infrastructure pays no heed to training beyond textbooks, resulting in a wide gulf between Industry demands and the available skill set of the workforce.
Indian society traditionally has been mired in socio-cultural inhibitions that spill over to economic sphere as well.
- Caste Intricacies – Caste finds its way into every wake of Indian’slives, i.e., economic life, academics, the labour market, and into old age. Social mobility is a prerequisite for economic development. But the exploitation, prejudice, and discrimination that are associated with the hierarchical caste system have historically stifled the socio-economic mobility among the lower castes and continue to do so, albeit on a much lesser scale. This would prevent a large chunk of individuals belonging to lower castes from entering the skilled workforce.
- Gender Discrimination – Gender disparity has been another barrier for quite some age. Both in rural and urban India, societal norms and safety concerns have hindered women’s access to educational and professional life. And those who manage to enter the workforce are often a victim of biases during recruitment, pay scale, and sexual harassment. Before the pandemic, while India’s unemployment was 7%, it was 18% for women. Pandemic has hit the women’s workforce disproportionately, and it has never recovered since then.
- Societal Stigmas – Indian society has never valued manual labour. It looks down on the individuals involved in hard manual labour. This discourages a lot of individuals from taking up such jobs resulting in the stripping of the workforce. In addition, some other societal biases, like aversion towards taking risks, entrepreneurship and some jobs, etc., weigh down our labour force.
Lack of adequate jobs
With unemployment hitting a 45 year high even before the onset of the pandemic, India is generating too fewer jobs to accommodate its ever-widening working-age population. The private sector isn’t interested in absorbing much of the labour due to a plethora of reasons like increased automation, labour law nuances, increasing labour costs, etc. While job creation plateaued, the public sector did little to fill the void. The recent unfortunate incident of agitated Indian youth setting a railway coach ablaze in Uttar Pradesh as a mark of protest against unemployment underscores the job crisis, particularly among educated youth. The sheer scale of the crisis had attracted the World economic forum’s notice which had remarked on the crisis “widespread youth disillusionment,” cautioning of a possible threat to India’s economic ascendancy.
Domination of Informal sector
The pace at which poverty is diminishing is not proportionate to the growth in national GDP. This discrepancy could safely be attributed to the fact that most of the workforce in India has been kept away from the fruits of national growth by virtue of their exclusion from the organized sector. Altogether, the informal sector in India accounts for 91% of the Indian workforce, according to International Labour Organization (ILO) (2018). International monetary fund in 2020 has observed that “the high prevalence of informal labour, especially in emerging economies, is increasingly regarded as a roadblock to sustainable development. Firms in the informal sector do not contribute to the tax revenue and tend to remain small and ridden with low productivity and constrained access to finance. Consequently, economic growth in countries with huge informal sectors doesn’t make much headway. Informal workers are more likely to be poor than their counterparts in the formal sector, as they are devoid of formal contracts and social protection.”
Over Congestion of Primary Sector
Basically, being an agrarian economy, most of India’s workforce is engaged in agriculture, i.e., 50%. However, agriculture contributes below 15% (2020) to the GDP, implying that this sector has severely been over-congested. Evidently, the marginal productivity of Indian farmers and farm labourers is abysmally low compared to the rest of the developed and developing nations. So, a large chunk of the Indian workforce is being wasted in an inefficient sector without contributing much to the economy.
Inadequate Investment Rate
Household savings have traditionally been a major source of investment in India. Economic contraction, demonetization, lopsided implementation of GST, Lockdown, and job losses that followed have cumulatively hit the household incomes and, thereby, savings. This also reduces demand in the market, which ultimately discourages fresh investment. As a result, investments have been at an all-time low, and without fresh investments pouring in, the economy simply stagnates.
Need of the Hour
As we have just discussed, India needs to work upon a multitude of inherent flaws to ensure that our demographic dividend doesn’t end up as a demographic liability. A few of those are;
Enriching the human capital
Only a well-educated, well-nourished, and skilled population can constitute a futuristic workforce that can propel the fourth industrial revolution. The ongoing pandemic, on the flip side, has taught us a priceless lesson that a developing country like ours cannot entirely rely upon the private sector for education and health. So public investments need to pour in. Education should become universal in the true sense, for which public schools and colleges should be revamped on a war footing. The quality of teachers and training infrastructure should be paid enough heed. India should reach its decades-old (Since the National education policy 1968) aim of expending at least 6% of GDP on education, which at present stand at 3.1% (Economic survey 2020).
Similarly, the public health sector should be revamped by strengthening root level Sub-centres, PHCs, CHCs, filling up lakhs of vacancies, bettering the doctor-population ratio, ramping up immunization programs, capping up the prices of essential medical services and pharma products, etc. Keeping a tab on our epidemiological transition, India should start focussing on non-communicable diseases as well, as WEF cautions India of a potential loss of 4.3 trillion between 2012-2030 due to non-communicable diseases.
Coming to the Skill sector, Government needs to tie up with the industry and set the skilling curriculum as per the latest industry’s demands. There should be synergy between the Ministry of Skill and the Ministry of Employment to enable skilled candidates to acquire relevant jobs in a fixed time span through employment avenues and job fairs.
Innovation is the primary requisite for any country to sustain growth for longer spells. Innovation enhances productivity. In order to embark on innovation, it is incumbent upon us to start focusing on research and development. India’s current R&D budget of 0.65% of its GDP, in comparison with China’s 3% and Israel’s 4.5%, is one of the lowest in the world. Budgetary allocations, tie-up with foreign research institutions, better implementation of the IPR regime, inculcating the spirit of inquiry and innovations right from schooling are the need of the hour in this regard.
Bringing gender parity in workforce
It isn’t an overstatement when the IMF chief Christine Lagarde opined that Raising women’s participation in India’s labour force to the same level as men can boost our GDP by 27 percent. At present, women’s contribution to the national GDP is a mere 18%, one of the world’s lowest, with women constituting only 25% of India’s labour force. Measure like rising over regressive cultural norms, creating equal work opportunities, ensuring physical safety, strict enforcement of gender laws, and providing legal and political representation would go a long way in bringing gender parity in the workforce.
Formalising the economy
The informal sector that harbours much of India’s workforce should be transitioned into a formal sector for the sake of both the workforce and the nation’s economy. Mere registration in official records (e-SHRAM portal) and increasing digitization of economic transactions wouldn’t suffice. It is important to define the formal/informal sector by the policymakers and then simply the labour laws followed by a strict implementation that ensures minimum wages and various kinds of security. The transformation of the informal sector to the formal sector takes time. Meanwhile, the government should extend all the benefits to the informal workforce vis-à-vis the formal sector workforce.
Decongesting agricultural sector
One striking feature across East Asian nations’ growth stories in the latter half of the 20th century is their structural transition from low productivity informal, traditional sector to a modern organised sector. It’s high time India should drastically cut down the agrarian workforce from the present 50% to significantly lower levels and accommodate them in agrarian-based MSME and industries like food processing, Dairy industry, etc.
Other measures like breaking socio-cultural barriers, inculcating investment culture among the public, reducing socio-economic inequalities, making growth more inclusive, and welfare activities towards the marginalized and the oppressed would go a long way in helping India grab the opportunity. Also, it is pertinent that India should be aware of the fact that once India exits this 37-year demographic window, India’s elderly population would start swelling in numbers and is expected to reach 20% of the population by 2050(United Nations report). So, India should make requisite provisions to be ready to deal with the not so desirable shift in demography once the honeymoon period of the demographic dividend relapses.
Not all is gloomy yet. We are still pretty young into this window. The Indian government had already embarked on many initiatives to overcome the shortfalls. Initiatives like Samagra Sikshya Abhiyan, new education policy, Ayushman Bharat, Skill India mission, Start-up initiative, make in India, bettering Ease of doing business, Integrated Child Development Services (ICDS), Atmanirbhar Bharat, incentivising job creation, drafting new labour codes, initiatives to de-congest agriculture like RURBAN mission, SAMPADA scheme, PDS system, NFSA, etc. It’s not that our economic prospects are doomed. We have made significant progress in a host of socio-economic parameters, thanks largely to its LPG reforms. However, the progression hasn’t been parallel to the global examples to be in a position to harness the absolute rewards of its transition in the demographic pattern.
In 2017, Lant Pritchett and other researchers at the Harvard Kennedy School surveyed the state capability of 102 countries between 1996 to 2012. They found that the state capability of India had not only digressed over the survey period but also has been stuck in a “capability trap” where they know the destination and the path needed to be taken but clearly lack the ability to implement the strategy to be on the path. So, with fruit hanging low for us, Indian policymakers should break out of this capability trap to grab the scores of advantages that the demographic dividend brings along. So, the time is ticking for us to tailor a conducive environment for the demographic dividend to bloom. As the old adage goes, “Things won’t work unless we work on them” Indian government, along with the industry and all the stakeholders, should overcome the bottlenecks before our short window of economic opportunity fades away. India, just cannot afford to miss this train.
- Can India’s Demographic Dividend Turn Into Liability? Read Here | Mint (livemint.com)
- India’s women are the secret to a potential economic boom | World Economic Forum (weforum.org)
- Once touted as the next big growth story after China, India has failed to utilise its young people (scroll.in)
- View: India and the elusive demographic dividend – The Economic Times (indiatimes.com)