India risk squandering demographic dividend

The World Bank has cautioned that the South Asia region, including India, is failing to harness its demographic dividend, as job creation lags behind the growth in the working-age population.

• Despite this concern, the World Bank has projected a robust growth rate of 6.0-6.1% for the region in 2024-25, according to its South Asia regional update titled “Jobs for Resilience.”

About Demographic dividend:

• Demographic dividend refers to the growth in an economy that is the result of a change in the age structure of a country’s population.
• This occurs primarily when the share of the working-age population (15 to 64) is larger than the non-working-age population (14 and younger, and 65 and older).
• India’s demographic dividend is the size and age of its workforce, which is expected to peak around 2041 when 59% of the population is between the ages of 20 and 59.
  • It is expected to continue until 2055–56.

India’s scenario:

• The report emphasized that from 2000 to 2023, employment growth in India lagged behind the average growth of the working-age population, resulting in a decline in the employment ratio.
• It noted that India has the region’s second-largest proportion of workers in agriculture, standing at 44%, trailing only Nepal.
• India’s services sector, fueled by a sizable, educated, youthful, and English-speaking workforce, alongside robust digital infrastructure, has propelled the nation to global leadership in computer services, business process outsourcing, and medical services.
  • However, these sectors primarily demand highly skilled workers, limiting opportunities for India’s substantial unskilled labor force.

Issues in harnessing demographic dividends:

Jobless development:

• Since 2000, the employed working-age population share has decreased, particularly in South Asia, where the employment ratio was 59% in 2023, compared to 70% in other emerging market and developing economy regions.
  • This is due to decades-long trends of declining employment ratios and notably low rates of female employment.
• The region could have 16% higher output growth if the share of its working-age population that was employed was on a par with other EMDEs.
• The weak employment trends in the region were mainly concentrated in non-agricultural sectors.
  • This reflects challenges in the institutional and economic climate, which have hindered the growth of businesses.

Lack of skills:

• India may not be able to take advantage of its demographic dividend due to a lack of skills and a low human capital base.

Informal economy

• India’s informal economy accounts for more than 80% of non-agricultural employment.

Recommendations:

• Sustaining growth will necessitate increasing employment ratios, particularly in non-agricultural sectors and among women.
• This can be achieved through measures such as removing obstacles to business growth, enhancing openness to international trade, easing labor market and product market restrictions, investing in human capital, and promoting gender equality.
• Other recommendations included increasing access to finance, easing financial sector regulations and improving education.

Ref:Source