Demographic advantage, Indian economy’s sweet spot

Gainfully employing a large, young, and aspirational population is not easy but it is a challenge India can take on

Updated - September 18, 2024 02:20 am IST

‘Skilling is an important aspect of making future generations productive members of society’

‘Skilling is an important aspect of making future generations productive members of society’ | Photo Credit: Getty Images/iStockphoto

Much has been written about India’s emergence as an economic giant — it is the world’s fastest growing big economy, and is currently the fifth largest. Demographics is a major factor in propelling this rise given that the median age is around 28 years and 63% of the population is of working age. However, the labour force participation rate stood at 55.2% in 2022, according to a recent report released by the International Labour Organization (ILO), which goes on to state that falling labour intensity is likely due to growth being led by the services sector rather than manufacturing. Therefore, while we are certainly not experiencing “jobless growth”, more steps are needed to harness the demographic dividend.

Continue with the reforms agenda

First and foremost, there is a need to press ahead with the ongoing reforms agenda to maintain, if not accelerate, India’s growth trajectory as that by itself will create opportunities galore. There was a welcome reference to this in Finance Minister Nirmala Sitharaman’s Budget speech to initiate and incentivise improvements in productivity and to facilitate markets and sectors to become more efficient. While there is much that the Centre has done to enhance ease of doing business, much of what needs to be done next, especially in the context of production, concerns the States (which is where the action is now). Hence, both need to walk in lockstep to broaden and deepen reforms.

The Economic Survey for 2023-24 states that technological advancements have led to a declining capital-to-output ratio and an increasing capital-to labour ratio. It was perhaps in this context that Arvind Panagariya, economist and Chairman of the 16th Finance Commission, while speaking at a recent event in the Federation Of Indian Chambers Of Commerce and Industry said capital-led economic growth is not ideal as the country has an abundance of labour.

The reluctance of Micro, Small and Medium Enterprises, the backbone of employment, to grow in size and scale as well as that of large business houses to foray into labour-intensive sectors can be attributed to the compliance burden and costs imposed by outdated labour laws.

The impasse over implementing the new labour codes approved by Parliament is sending a wrong signal to existing and prospective investors alike. It is important that one or two States with an evolved manufacturing ecosystem break the logjam by taking the lead.

The Centre’s efforts to give a boost to the manufacturing sector is generally viewed from the angle that it is untenable for 45% of the workforce to be employed in the agricultural sector which accounts for only 18% of GDP. While taking steps to enhance agricultural productivity, we must not forget those who are engaged in the unorganised and non-agricultural sectors — about 19% of the workforce — which are highly fragmented and suffer from low productivity.

It is important to address their aspirations by focusing on high-growth potential sectors such as toys, apparel, tourism, and logistics which are also labour intensive. Then, as skills get upgraded, there will be an opportunity to move up the value chain and provide even better and higher paying jobs.

Skilling is a continuous process

Skilling is an important aspect of making future generations productive members of society. The Economic Survey highlighted that only 4.4% of the workforce in the age cohort of 15-29 years is formally skilled. This is a huge concern, and the dichotomy of labour surplus and skills shortage must be addressed through meaningful public-private partnerships wherein industry plays an integral role in devising the curriculum and imparting ‘on the job training’. Moreover, skilling is not a one-time intervention but a lifelong process which requires flexibility in institutional mechanisms as well as learning agility.

The emphasis of the New Education Policy (NEP) 2020 on foundational skills as well as higher order cognitive skills and critical thinking is a good step but, in a constantly changing world, the document must be reviewed periodically and updated.

Impact of AI/ML

Finally, in an era of artificial intelligence (AI) and machine learning (ML), repetitive tasks with low skills are most at risk but there will always be a need for human intervention and oversight. While we must not underestimate the impact of AI/ML, neither should it be demonised. The key is to have appropriate regulations govern its use while harnessing what it has to offer. In addition to the opportunities offered by various emerging sectors, AI/ML itself is estimated by Statista to grow by nearly nine times to become a $826.73 billion worldwide market by 2030. Further, according to NASSCOM, India already has the second largest talent pool globally in this field but the current gap between demand and supply is 51% which is projected to widen. Though very niche, it is an opportunity which should not be missed.

Gainfully employing a large, young and aspirational population is not easy but it is a far better challenge to have than dealing with an ageing one with its attendant economic and societal implications. India is in a sweet spot and must employ a holistic approach to create a talent pool so as to harness its demographic dividend for the benefit of the world at large.

Subhrakant Panda is Managing Director, Indian Metals and Ferro Alloys Limited (IMFA)

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