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India has the biggest advantage of demographic dividend (proportion of working population out of total population is high), which will be a key driver for future growth. While 15 million youngsters will enter the workforce annually for the next five years, over 75 per cent of them will not be jobs ready.
“By 2022, we will have 100 million people unable to get jobs due to lack of skills. This is enormous number and an area that needs a lot of focus,” said Ajit Isaac, Chairman and Managing Director, Quess Corp Ltd, a Bengaluru-based business service provider.
India has 18 per cent of the world’s population with 520 million workforce. Demographic dividend has historically contributed up to 15 per cent of the overall growth in advanced economies and India is conveniently placed in this, he said in his special address at the startup conference, TiECON Chennai 2018.
Skill development and introduction of GST will accelerate the shift of employment from informal to formal economy across all sectors. There is an opportunity for investment in manufacturing and services sector that can utilise the skilled workforce, he said.
On Ease of Doing Business, Isaac said India jumped up 30 notches into the top 100 rankings on the World Bank’s Ease of Doing Business Index in 2017. High ease of doing business directly correlated with high GDP per capita in the long run.
Tax structure
However, there are still significant areas of changes that India must focus upon. Tax structure is one area that needs enormous amount of change not just in administration but also in rate of tax.
With tax structure in excess of 33 per cent, too much retained capital is going back to paying taxes, which does not fund future growth. The US dropped taxes to 20 per cent, and India needs to come back to nearly 20 per cent from the current 33 per cent.
Poor refund system
There is also poor refund system. If excess tax is paid, it takes a year or two to get it back. For entrepreneurs, tax refund is part of working capital and unless there is access to working capital, one cannot grow. Credit is increasingly becoming difficult in India, and these are things that the Government must focus upon. There is a need to avoid retrospective tax in India, he said.
On digital inclusion, Isaac said currently India has over 450 million Internet users with over 90 per cent population under Aadhaar.
As per studies, there could be 2X rise in Internet population and can lead to around 12 per cent increase in per capita GDP. While Canada’s GDP is $2 trillion, India is just ahead with $2.6 trillion. “We need to increase productivity and ensure that per person contribution to GDP goes up,” he said.
Out of total 520 million workforce, over 80 per cent of (416 million) workforce is in the informal sector and only 100 million in the formal sector. India adds only 10 million every year to the workforce. Nearly 216 milion engaged in agriculture sector are in the informal economy.
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