Dwindling dividend

One of the highlights of Prime Minister Narendra Modi’s Independence Day speech from Red Fort on Monday was the call to embrace Panch Pran, or five resolves, for the next 25 years when India celebrates 100 years of independence. First on the list was the resolution of developed India. “… and now we should not settle for anything less than that,” Mr Modi emphasised. This is a worthy goal and India must aspire to attain higher growth to close the gap with the rich world as quickly as possible. One of the biggest advantages in this context that India has had for some time is its growing workforce. Demographic dividend was expected to be a major driver of growth for the Indian economy. However, things have not fared as expected in recent years. Since the demographic advantage will not last forever, India will need to capitalise on it quickly.

According to the latest projections, India will become the most populous country in the world by next year. Given the demographic composition, its working-age population is expected to increase till 2045 and exceed that of China on the way. However, if the present situation sustains, India will not be able to take full advantage of its workforce to grow rapidly. Current labour market conditions, to be fair, do not reflect a bright picture. According to the data compiled by the World Bank, the employment to population ratio in India is at 43 per cent, compared to the global average of 55 per cent. It appears that part of the working-age population is neither working nor looking for work because it doesn’t expect to find any. This is also reflected in the growing percentage of the working-age population in educational institutions. As Mahesh Vyas of the Centre for Monitoring Indian Economy (CMIE) noted in this newspaper on Tuesday, the share of 15-24-year-olds in the labour force dropped from 17 per cent in 2016-17 to 13 per cent in 2021-22.  And the percentage of the working-age population identifying as students increased from about 15 per cent in 2016-17 to 23 per cent in 2021-22. It can be argued that people are spending more time on educational institutions to acquire skills and this would increase productivity.

However, that doesn’t seem to be happening, either. According to the CMIE, the share of graduates and postgraduates in the workforce came down in recent years. The government data also suggests that finding jobs is more difficult for the younger cohort. Another problem is that of female labour force participation, which is among the lowest in the world and has declined sharply over the past two decades. The prime minister also talked about the contribution of Nari Shakti, or women power, which is encouraging. However, women would be in a position to contribute to the extent desired only if the country is able to create enough opportunities in an enabling environment. Thus, how fast India grows over the next 25 years and beyond will crucially depend on how effectively it uses the labour force. What all needs to be done in this context is fairly well known. India has not been able to create a base for low-skill manufacturing, which could have helped absorb the increasing labour force, partly because of restrictive labour laws and trade barriers. India has also underinvested over the years in human resource development. Correcting these errors would be a good start to Amrit Kaal.