Demographic dividend or damp squib?

The global economy is passing through a demographic crisis, with its growing ageing population. India, has an obvious advantage here, and could provide the world with skills and manpower.

India has the world’s youngest workforce with a median age way below that of China and the OECD countries. The rest of the world, especially western countries, are ageing rapidly because of low fertility rates and increased longevity. Consequently, according to the Union government , the global economy is expected to witness a skilled manpower shortage of around 56 million by 2020. Thus, the ‘demographic dividend’ in India needs to be exploited to meet the skilled manpower requirements in India and abroad. 

The demographic dividend not only implies increased labour supply but also a challenge in finding capacity in the economy to absorb and productively employ extra workers. To make a larger number of people employable would necessitate large investment in human capital. Investment in educational and vocational training needs to be strengthened if India has to successfully reap the benefits of the demographic dividend.

In 2011-12, according to the Centre, in nearly 18 per cent of households in rural and 6 per cent in urban areas, there was not a single member in the age-group 15 years and above who could read and write a simple message with understanding. Similarly, the recent report by the National Sample Survey Organisation states that during the survey period of July 2011 to June 2012, nearly 25 per cent of males and 29 per cent of females in the age range 5 to 29 years did not consider education necessary to eke out a living.

Again, nearly 25 per cent males in the rural areas and 33 per cent in urban areas reported that they did not attend educational institutions because they needed to work to supplement the household income. In the case of nearly 30 per cent females, the reason was that they had to attend to domestic chores.

In the case of vocational training, the situation is worse. Amongst persons aged 15 to 59 years, only 2.2 per cent reported to have had formal vocational training; 8.6 per cent received non-formal vocational training. As expected, the situation in rural areas was worse than that in the urban areas. Amongst rural males, the most significant share of vocational training was driving and motor mechanic work while for females, it was textiles-related work.

The demographic dividend is expected to result in nearly 20 million people joining the workforce annually in the next 10 years. With the rising level of income, the expectations of people, especially the young, are also rising. The next generation of farmers want to be part of the growth India story and therefore out of the agriculture sector. To absorb such a large labour force, it is necessary to plan for appropriate vocations and employment opportunities. Narendra Modi recently observed that India will now need large number of ITIs, and a new ministry of skill development and entrepreneurship would coordinate the skill development needs of the country. The Pradhan Mantri Kaushal Vikas Yojana has been announced to encourage skill development for youth by providing monetary rewards. While all these efforts are encouraging, the fact remains that skill development strategy has yet not been successfully implemented.

India’s workforce of nearly 484 million in 2012 could increase to 850 million by 2025, accounting for nearly one-quarter of the global workforce. MSMEs, with their flexibility and low cost, easily adapt to new technology and can help in strengthening the manufacturing sector. In fact, MSMEs have the potential to absorb the increasing labour force while helping to realise the potential of the Make in India strategy. The need is to explore new areas for MSMEs.

The writer is the RBI chair professor of economics, IIM-B

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