A surging population that has the potential to make India an economic superpower is now becoming a cause of concern, especially after phased high economic growth achieved very little on employment front. Even most of the jobs available are not quality ones and are only subsistence level jobs
Gone are the days when Malthusian theory used to dominate discussion on population growth and its negative impact. The pessimism prorated by Malthus has hardly any buyers now. Demographic dividend is the new buzzword. It is believed that increasing population can be capitalised for growth. There are dual benefits of increasing population, one that it provides human resource for production process and two, the same resource is also the consumer, which creates effective demand that in turn, acts as a determinant of consumption and growth. India is one of the few countries in the world where increasing population and its potential to generate demographic dividend are being debated all across.
So what is so great about demographics in India that creates the potential for capitalising on this aspect? Here are some interesting aspects. In India, a third of the population is under 15, more than half under 24; every third person in an Indian city today is between 15 and 32; the median age in India is 27. By 2020, India is set to become the world’s youngest country with 64% of its population in the working age group. India and its growing economy an unprecedented edge that economists believe could add a significant 2% to the GDP growth rate. Based on the experience of relatively advanced economies, it is generally accepted that demographic dividend can contribute to significantly higher economic growth rates provided opportunities matching with the requirements of the economy and aspirations of new entrants in the labour force are generated. Good enough data to show that in terms of growth potential, this population provides an opportunity for growth in the country.
But the same population, which has the potential to generate demographic dividend, can also become disaster if not utilized properly. Unfortunately, this is the fear that has started dominating discussion in India recently. India seems to be at a crossroad, where demographic dividend has the potential to become demographic disaster. A surging population which has the potential to make India into an economic superpower is now becoming a cause of concern, especially after phased high economic growth has achieved very little on employment front. Why is it that the threat of demographic disaster has started looming large over India economy? There are a couple of factors which are responsible for this. Let us have a look at them.
The first and the most worrying factor for the economy has been the fall in employment elasticity of growth. This is a critical factor in identifying how many jobs are getting created with each percentage increase in the growth in the Indian economy. Unfortunately, the development of this front is extremely worrying. Employment elasticity of growth has been falling sharply in India. While it was 0.44 in the period 1999-2000 to 2004-05, it went down to 0.01 in the period 2004-05 to 2009-10. This means that we are experiencing an almost job less growth in the country. Additional employment generation is not happening at the desired pace. Employment growth was just 0.5% per annum from 2004-05 to 2011-12, the period that saw the highest growth of GDP by 8.5% per annum. Lack of employment opportunity is a big bottleneck for gaining benefits from changing demographics in the country. The power of youth needs to be used properly for productive purpose. If youth in the country do not get employment opportunity, they continue to remain consumers.
Another cause of worry is the nature of employment opportunity available in the country. Majority of the people in the country remain self-employed and the second highest contribution in employment comes in form of causal workers.
Basically quality of employment generation is not very good. Another interesting finding is form of employability of the people joining the rank of employable resources. Majority of Indian youth are not employable because of the quality of education imparted in schools and colleges. With more people joining the “Q” of educated resource in the years to come, this is going to be a big issue for the country.
The third Annual Employment-Unemployment Survey 2012-13 conducted by Labour Bureau, Ministry of Labour and Employment in 2013 brings some startling facts about the unemployment scenario among educated persons in India which are as follows:
Every 1 person out of 3 persons who is holding a degree in graduation and above, is found to be unemployed based on the survey results under the usual principal status approach for the age group 15-29 years.
In rural areas the unemployment rate among graduates and above for the age group 15-29 years is estimated to be 36.6% whereas in urban areas the same is 26.5%.
Surprisingly the unemployment rate among the persons who can't read and write any language or are considered as 'not literate' as per the survey is lowest with 3.7% for the age group 15-29 years at All India level.
The current trend of unemployment among educated persons is indeed a cause of concern and raises a serious question mark on the benefits of demographic dividend. In many cases, the employment provided by the state is just subsistence level employment, which is meant to ensure that a person remains out of clutches of poverty or leads a sub-standard life. For educated people such kind of employment opportunity will not suffice.
While there are challenges on human resource front, there are also issues at economy level. We are an economy where agriculture contributes marginally to the gross domestic product (GDP) but employs more than 50% of human resource. Manufacturing has failed to take off broadly in the country, which has huge potential of employment generation. We need to increase the share of manufacturing in GDP. It's currently 16% — compared to South East Asian countries like China, Korea and Indonesia, where the share is 40%-50% of GDP. In our case, we are importers of manufactured goods and within country production is limited. The service sector contributes significantly to the economy but has limited employment potential. The service sector provides only 26% employment but contributes 58% of GDP.
Looking at these aspects there is a danger of demographic dividend getting converted into disaster. The population in the country continues to surge and work force is increasing but employment opportunity is not increasing proportionately. Most of the jobs are not quality jobs and only subsistence level jobs.
So what needs to be done? The answer is very difficult to provide. However, three-pronged approach needs to be adopted. One we should change the education system to ensure that it gets helps in creating skills which add to the employment potential. There is a need to promote manufacturing at a large scale and also identify areas which have high employment generation potential. Promoting MSME sector to generate meaningful employment will be a great idea. There is a need to promote manufacturing to harness low cost benefit in the areas, which India has natural advantage. If IT can generate substantial employment, so can manufacturing. Manufacturing can be the real contributor in employment growth in the years to come.
Last but not the least, we need to formulate policy in order to move away from our approach of subsistence level employment. Also the informal sector which generates significant level employment needs to have policy benefits which will provide critical supports which are available to the workers in the organised sector such as health care and bare minimum social security.
(Vivek Sharma has worked for 17 years in the stock market, debt market and banking. He is a post graduate in Economics and MBA in Finance. He writes on personal finance and economics and is invited as an expert on personal finance shows.)