Demographic advantage, Indian economy’s sweet spot

CategoryPolity

Last Updated19/09/2024

India’s rise as a global economic force is largely driven by its demographic advantage. With a median age of 28 and 63% of the population in the working-age group, India stands to benefit immensely from this youthful workforce.
However, the labour force participation rate of 55.2% in 2022, as per the International Labour Organization (ILO), highlights a significant challenge—despite growth, especially in the services sector, there is an imbalance in job creation.
To fully harness this demographic dividend, a strategic shift is necessary.

To sustain and accelerate growth, the government must continue its reforms agenda, as alluded to by Finance Minister Nirmala Sitharaman in her recent Budget speech. This agenda includes enhancing productivity, improving market efficiency, and making it easier to do business across sectors.
While the Centre has implemented several measures, further reforms are needed at the State level, especially in the manufacturing sector. State-Centre coordination will be crucial in broadening reforms and deepening their impact.

India's growth trajectory has increasingly relied on capital-led economic growth, which is less conducive to labour absorption, as noted by economists like Arvind Panagariya.
The reluctance of Micro, Small, and Medium Enterprises (MSMEs) to scale up and the large business houses' hesitation to invest in labour-intensive sectors are partly due to the compliance burdens imposed by outdated labour laws.
Implementing the new labour codes, passed by Parliament but stalled in execution, is essential for boosting investor confidence and creating a more conducive environment for employment generation.

Currently, 45% of the workforce is employed in agriculture, which contributes just 18% to GDP. Diversifying employment into high-growth potential sectors such as toys, apparel, tourism, and logistics could provide much-needed jobs while aligning with India’s strengths in labour-intensive industries.
Increasing agricultural productivity and upgrading skills in non-agricultural sectors can help transition workers into higher-value, better-paying jobs.

Skilling remains a pressing concern. The Economic Survey for 2023-24 revealed that only 4.4% of the workforce in the 15-29 age group is formally skilled. Bridging the gap between labour surplus and skills shortage requires innovative public-private partnerships, where industries play a central role in both curriculum development and hands-on training.
Further, skilling must be seen as a lifelong process, necessitating institutional flexibility to adapt to the fast-changing demands of the economy.
The New Education Policy (NEP) 2020 lays an essential foundation by emphasizing both foundational skills and critical thinking. However, in a rapidly evolving world, it is crucial that the NEP is reviewed and updated regularly to stay relevant.

The rise of artificial intelligence (AI) and machine learning (ML) is reshaping the future of work. While low-skill, repetitive tasks are at the highest risk of being automated, human oversight will remain indispensable.
Rather than fearing AI/ML, appropriate regulations should be put in place to maximize its benefits. With India already boasting the second-largest AI talent pool globally, there is a significant opportunity to capitalize on this rapidly growing sector.
However, the 51% gap between demand and supply of AI talent, as reported by NASSCOM, signals the urgent need for more focused skill in this niche yet highly promising domain.

India’s demographic dividend presents both a challenge and an opportunity. The country's youthful population, if gainfully employed and skilled, can fuel economic growth for decades.
However, without focused reforms, skilling initiatives, and technological integration, this potential may remain underutilized. As India stands at the crossroads of global economic leadership, it must adopt a holistic approach that prepares its workforce to meet the demands of the future while ensuring equitable growth.
By doing so, India can harness its demographic dividend to the benefit of its economy and the world at large.