Unlocking the power of India’s demographic dividend

Unlocking the power of India’s demographic dividend

By Rajnish Gupta

India has surpassed China to become the world’s most populous country, according to the latest UN data. Debates around population growth and economic development have been a recurring topic among economists since the 19th century. Thomas Malthus held the view that a growing population would hurt living standards in the long run. This was on account of the assumption that limited availability of resources would not cater to the needs of the increasing population, ultimately resulting in war and starvation. Fortunately, this didn’t happen. The basic flaw in Malthusian proposition is the impact of human ingenuity and innovations resulting in technological advancements and productivity improvement over time. His notion of the population was influential until the 1970s, when developing countries viewed population growth as a major hurdle in their economic development. Some countries also took measures to arrest population growth.

However, the benefits of the population dividend will not automatically translate to economic growth. The economic benefits primarily stem from the belief that, during the period of youth bulge, the share of young population in the workforce outstrips the dependent population, resulting in an increase in productive capacity, domestic demand and consumption. India underperforms other Asian countries in terms of both private and public spending on nutrition, health and education for its children and adolescents (any numbers). Investments in human capital should ideally be made in tandem with physical capital expenditures. However, investments in the social sector for capacity building alone would not work unless also supported by economic policies that foster growth and entrepreneurship.

According to the India skill report 2023, only 50% of the youth is employable, although the figures are increasing compared to previous years, this is still not enough to achieve the aspirational dreams of the country. Policy makers recognize the importance of improving the quality of manpower quality and have taken measures such as Skill India and rolled out the new education policy. However, this is a continuous process.

One area that needs attention is the loss of learning on account of the recent pandemic. The recent Annual Status of Education Report (ASER) survey confirms the depth of learning losses that occurred due to school closures during the pandemic. The arithmetic and literary ability of the children has declined in comparison to the pre pandemic years. According to the report, the percentage of Class 3 students in both government and private schools who could read text given to second graders fell from 27.3% in 2018 to 20.5% in 2022, the lowest level since 2012 when it was at 21.5%. Additionally, the proportion of third graders who could solve a math question given to second graders dropped to 25.9% from 28.2%, the lowest since 2016 when it was 25.4%. The loss in learning could have a negative impact on future productivity, potential earnings, and their weaker foundation in the disciplines. This requires attention and government could consider policy measures to bridge the learning losses through remedial classes or other support systems for the students. Tamil Nadu govt has recognized the importance of such a program and has launched ‘Illam Thedi Kalvi’- scheme introduced to fill the learning gaps- is a replicable model for other states. Similarly, vocational education is just as important as academic education in creating employment opportunities for the large number of the Indian youth. Quality Vocational Education provided by skilled trainers has the potential to generate a young and efficient workforce and provide an opportunity to generate self-employment for people residing below the poverty line, differently abled people, and women.

The private sector will play a critical role in improving the employment situation in India. It can promote skill development and training by supporting vocational training centers, technical and industrial institutes, and internship programs. This will create job opportunities for the young and make available a trained workforce for enhanced economic opportunities. Furthermore, the private sector can collaborate with the government to offer internships, apprenticeships, and other skill development initiatives.

Despite the growth of opportunities in the private sector over the years, the demand for government jobs has only increased. If the government is able to provide sufficient social security net to the employees in the private sector and provides a conducive environment for investments and job creation, a greater number of youths can enter the labour force. India’s population dividend is an opportunity that can be leveraged to drive economic growth. To take advantage of this opportunity, measures need to be taken to equip the workforce with the skills needed to meet the demands of the global economy, provide access to quality education and healthcare, and provide a social security net. This will help India to become a global leader in talent and to realize its full economic potential.

(Rajnish Gupta, Executive Director – Tax & Regulatory Services, EY India. Alan Seemon, tax professional with EY has also contributed to the article. Views expressed are author’s own.)