'We Are Frittering Away The Demographic Dividend'

'it's not just youth in India who are left behind because of their inability to find jobs; nearly two-thirds of Indian women of working ages do not participate at all in the paid labour force.'

India is said to be one of the youngest major economies in the world with 40% of the population below the age of 25 and 65% below the age of 35.

India's median age of 28 years is much lower than that of China and US (38-39) and Japan (49).

India is also a country where youth unemployment at 45% is among the highest in the world.

According to the Periodic Labour Force Survey (PLFS) for 2022-2023, India's female labour force participation rate (FLFPR) is only 37% -- only about half as much as in China's.

The fertility rate for India in 2022 was 2.1 births per woman while it is 0.75 in Hong Kong, 0.88 in South Korea and 1.30 in Japan.

But the total fertility rate in India is projected to decline to 1.73 by 2036. It means, very soon India also will have a lot more elderly people.

The question is, is India ready for the demographic change that is going to happen soon?

Dr Anil B Deolalikar, who is the Professor of Economics and Founding Dean Emeritus of the School of Public Policy at the University of California, Riverside, recently published a detailed study on the Demographic changes in India: Implications for policy (external link).

"To actually reap this dividend, a country needs to be able to create high productivity jobs that provide employment to the rapidly growing working-age population. So, unless something changes, and the economic growth becomes much more labour intensive, it is difficult to imagine how we can take advantage of the demographic dividend," Dr Deolalikar tells Rediff.com's Shobha Warrier in the first of a two-part interview:

In your paper, you write that India is on the verge of a major transformation. Are you talking about the demographic change India is witnessing?

Yes, demographic change is the primary focus of my paper.

The fertility rate has come down sharply in the country -- from about 5 children per woman of child-bearing age in 1971 to below 4 by 1991, and further to 2 1/2 by 2011.

Latest data suggest that the country has reached a milestone, with the overall fertility rate reaching just below the replacement level (2.0).

Although only five states still have a fertility rate above the replacement level, and these include the populous states of Bihar and UP.

The below-replacement fertility rate for the country means, although India's total population will continue to grow, it will grow at a slower and slower pace and eventually start declining, probably sometime in the mid or late 2050s.

This is a major demographic transition.

Yes, economic growth has also picked up significantly in the last two, three decades.

Having a young population is described as an advantage for India. At the same time, the youth unemployment rate is a staggering 45%.
If this is the case, how can a growing youth population be an advantage for the country?

This is exactly the point I make in my paper.

The 'demographic dividend' is a situation where the working-age population increases relative to the dependent population of children and the elderly.

It is merely an opportunity for a country's economy to grow rapidly.

To actually reap this dividend, a country needs to be able to create high-productivity jobs that provide employment to the rapidly growing working-age population.

So, unless something changes, and the economic growth becomes much more labour intensive, it is difficult to imagine how we can take advantage of the demographic dividend.

In many ways, we are frittering away the demographic dividend.

Some experts say that India is going to miss the bus as a major chunk of the young population are left behind because of unemployment. Do you feel so?

Absolutely. When a large proportion of the population is jobless, not only the demographic dividend is squandered but you have economic growth that does not benefit a big segment of the population, that is not inclusive.

And, it's not just youth in India who are left behind because of their inability to find jobs; nearly two-thirds of Indian women of working ages do not participate at all in the paid labour force.

India has one of the lowest female labour force participation rates in the world!

When a big section of the potential labour force is not being utilised, it means these people are not participating in the fruits or benefits of economic development.

If India is to become a prosperous and inclusive society in the coming decades, it will need to incorporate its youth and its women much more fully and proactively in its growth and development strategies.

A study by Anmol Somanchi on income inequality in India says that the top 1% owns 40.1% of wealth...

Yes... Since the early 1990s when India launched its economic reforms, the income share of the richest 10% of the population has increased dramatically - from about 35% in 1991 to about 57% most recently.

There has been a huge increase in the concentration of income and wealth.

I think there is a connection between the low employment generation of the Indian economy and the increase in income inequality.

A lot of the growth of the Indian economy is being driven by rising consumer spending, especially among the burgeoning upper-income urban class.

Unfortunately the goods and services typically demanded by this class of consumers are much less labour-intensive than what is consumed by the poor and the lower middle class, such as food products, apparel, footwear, and toys.

The rising inequality may be one of several reasons for the economy's 'jobless growth'.

When you have jobless growth, it means that a large segment of the population is not participating in the growth process and doesn't benefit much from this growth.

There is thus a vicious cycle here, with jobless growth increasing income inequality and the rising income inequality in turn resulting in a large section of the population being unable to afford the very consumer goods that are labour-intensive and whose production generates jobs in plenty!

Is the death of the informal sector which is labour intensive also a major reason for unemployment?

The informal sector is really huge in India, far bigger than in other major economies.

It is estimated that nearly 90% of employed workers in the country are in the informal or unorganised sector, which means that their wages are minimal and they have no protections of any sort -- job security, benefits including sick leave, and pension.

Because the economy has simply not generated enough good jobs, workers migrating from the rural areas as well as urban youth entering the labour force have no alternatives but take up informal-sector jobs, such as street vending and waste picking.

Then, the labour laws in India are very antiquated, and that there have been no reforms in labour legislation. India is stuck with the labour laws of the British Raj days.

That's why many companies are reluctant to hire workers in the formal sector.

They prefer to have contract workers as they were not covered by labour laws.

Because the labour laws are very restrictive, it is difficult to even close down a company and lay off all the workers.

As a result of this, there has been a lot of underground employment like the contract workers, informal sector workers, and unorganised sector workers.

These kinds of jobs do not pay well and they don't offer any benefits like insurance, leave etc.

The third reason is, because our educational system is so bad that the young people who are coming into the labour force cannot be employed meaningfully.

The latest data from ASER (Annual Status Education Report 2023) report says that a quarter of the school children between the age group of 15 and 18 cannot read or write.

We are literally producing illiterate young adults. India has done a very poor job in basic education.

So, employees are reluctant to hire these people as they need a lot of training.

Then, unlike many other countries, India has not focussed on vocational education at all.

A recent study by NASSCOM and FICCI said that only about a quarter of engineering graduates and 15% of sciences and humanities graduates were employable.

The inequality in education is so stark that we have institutions like the IITs that produce world class students.

So, lack of employability is a major reason for low employment rates in India.

You said earlier that India's economic growth is driven by a small percentage of people who are rich.
How long can the economy of a country sustain such lop-sided growth?

India's growth in the last 2-3 decades has not been inclusive.

Growth that is lop-sided and that originates in a relatively small sliver of the population is really not sustainable in the long run.

The current sentiment in the affluent countries is definitely anti-globalisation, and India will not have as easy a time as China historically did in exporting its manufacturing goods.

Which means that most of the growth will have to come from broad-based domestic consumption.

Now, to be fair, the increase in income inequality is universal. Many countries, including former Communist countries like China and Russia as well as advanced economies like the US and the UK, have seen income inequality increase sharply over the past few decades.

It is a very potentially explosive situation. Because one thing we know is, when you have a very large proportion of youth population without jobs, it can be very volatile.

Social unrest?

A large population of young people without jobs is a combustible mix.

We saw the political turmoil and social unrest caused by unemployed youth in the Arab Spring in the early 2010s.

In India, as well, we saw what happened in 2022 when over 12 million young people applied for 35,000 clerical jobs with the Indian Railways.

The disillusioned unsuccessful applicants went on a rampage across Bihar and Uttar Pradesh, setting fire to an empty train coach.

I would say that India's problem of youth unemployment is very acute because the absolute numbers of youth who cannot find good jobs looking is staggering -- numbering in the tens and even hundreds of millions.

Another point is, when it was growing very rapidly in the four decades between 1980 and 2020, China was able to provide employment to massive numbers of youth migrating from the villages because of a rapidly expanding labour-intensive, export-oriented manufacturing sector.

But in India, manufacturing as a share of GDP has been stuck around 13-15% for the better part of the last 3-4 decades.

In contrast, the share of manufacturing in GDP in China is nearly twice as large at 28%.

India has a large service sector, but if you exclude informal service jobs, such as street vending, roadside bicycle repair, cooks and waiters in dhabas, the employment potential of the formal service sector is small.

• Part 2 of the Interview: 'There Are Really Two Different Indias'

Feature Presentation: Aslam Hunani/Rediff.com