The Hindu Business Line : India must leverage the `demographic dividend'

The demographic dividend can either be a fortuitous economic opportunity or a missed chance, depending on how the Government deploys the huge emerging workforce into productive streams of economic activity, says C. J. PUNNATHARA

The major transition happening in India's population profile is expected to yield significant `demographic dividends' over the coming four decades. This could prove to be a litmus test for the country, facing an array of economic challenges. The demographic dividend can either be taken advantage of as a fortuitous economic opportunity or be a lost chance, depending on how the Government deploys the huge emerging workforce into productive streams of economic activity.

By 2010, India's total fertility rate, which is the average number of children a woman produces in her lifetime, is likely to be 2.1. This number is crucial as it indicates the fertility replacement level, which is expected to temper. While the population growth curve is expected to flatten, the proportion of the population in the 15-64 working-age group will increase steadily for another 35 years, until 2045. India's working-age population could rival that of China's in that year.

Population trend

The country's population is estimated to have grown from 1029 million in 2001 to 1112 million in 2006, of which 62.9 per cent is in the working-age group. By 2026, the population is expected to increase to 1400 million and the share of the working group to 68.4 per cent. That would mean a working group population of close to one billion in 2026. Generating sufficient number of jobs to offer gainful employment to this huge working-age population is going to be a formidable task.

The only way the Government can ensure productive employment to this huge workforce is by sustaining the current tempo of economic growth, at 9 per cent or more.

Surge in unemployed

However, despite the best efforts of the Government and the sustained high growth of the economy, there has been an inexorable surge in the number of unemployed in recent years. This is mainly because of demographic transition — the so-called demographic dividend that is bringing in greater numbers into the job market, outstripping the employment that the Government and the inherent growth tempo that the economy can generate.

The country was able to generate net additional employment of 5.47 million during 1993-94 and 1999-2000. The accretion to the employed ranks went up sharply to 9.58 million during 1999-2000 and 2004-05. However, the ranks of the unemployed continued to surge, as the labour force growth rate accelerated from 2.48 per cent to 2.54 per cent during the same period. In short, the Government's efforts and a booming economy have not been able to fully absorb the rapidly growing workforce. And this gap can widen in the years to come.

Sluggish agriculture

The growth in employment opportunities would have been substantially higher had it not been for the sluggish agriculture. Though agriculture continues to be the largest employment provider in the country, its contribution has been falling consistently in recent years. The share of agriculture in total employment generation has fallen from 61 per cent in 1993-94 to 58 per cent in 1999-2000 and further to 54 per cent in 2004-05. While the role of agriculture as a major employment generator has waned, the Government's role as a major employment facilitator has also been blunted. And these two negatives could become increasingly more pervasive.

Reversing earlier growth trends, employment opportunities have been falling in public sector undertakings. Public sector jobs, which grew by 1.53 per cent in 1983-94, recorded a negative 0.80 per cent growth between 1994 and 2004. The primary reason being the government-initiated right-sizing of public sector units. Meanwhile, employment opportunities in the private sector continued to grow from 0.44 per cent to 0.61 per cent. But the growth in private sector jobs could not compensate for the drop in the public sector employment levels; job opportunities in the organised sector have turned negative. These are some of the formidable challenges that the Government faces in converting the demographic dividend into a major economic opportunity.

Given the enormity of the task, the `demographic dividend' can also prove to be a major economic liability. While the demographic transition brings in huge numbers into an uncertain job market, it will also infuse significant numbers into the `old and unproductive age bracket.' It is the productivity of those in the working-age group that will have to feed, sustain, cloth and provide the incremental healthcare requirements of this aging population — the geriatric generation. Even if the greying population has saved substantial sums for the twilight years, only the productivity of the new generation of workers will enable the former to cash-in on its savings.

Cuts both ways

Employment can very often be a double-edged sword. As economic growth accelerates it creates more and more job opportunities, and as these new jobs raise the productivity, the economy throttles up to an even faster pace of growth. A deceleration in job creation or economic growth could have catastrophic results. And India is entering a crucial phase of this economic growth cycle. The job market has to keep growing not only to sustain the pace of economic growth but also to spin-off incremental job opportunities for future generations. And this grim scenario is unfolding before a Government that is finding it increasingly difficult to create fresh jobs.

But to a considerable degree the economy can take care of itself and sustain the growth momentum and create new jobs on its own. The Government need be only a facilitator for creating the new generation of healthy and educated manpower. This is a far more formidable task in Rural India than in the urban areas. IT and BPO companies have already begun stretching out from B class to C class cities in pursuit of cheaper land, infrastructure and employment costs. And the heightened demand for educated and technically qualified hands has already begun to sap the job markets; shortages of qualified personnel are just beginning to be felt. Similar traits are becoming increasingly evident in several other knowledge-based industries.

Social sector, rural focus

While the job market has come under increasing pressure from a squeeze in agricultural and public sector undertakings, a lateral demand for educated and technically qualified personnel has begun to manifest. To meet this new challenge on the job front, the Government will have to increasingly divert its focus to the social sectors and Rural India.

While it may not be the business of the Government to be in business, it will have to mandatorily assume a more proactive and participatory role in providing better educational and public health facilities to nurture the job-seekers of tomorrow. Greater investment into rural roads, schools, colleges and public healthcare would also create more direct employment. While it could provide an army of educated and qualified personnel to meet the demands of a surging economy, it would also ensure greater equity in investments and generate better returns to Rural India. This alone can turn the `demographic dividend' into an unmatched opportunity — fuelling the great Indian dream of the 21st century. It is a daunting challenge but the rewards could be gratifying.