India to Have Demographic dividend or demographic liability


Declining fertility rates have changed the age structure of India's population, resulting in a "bulge" in the working age-group. This "demographic dividend" has improved the dependency ratio leading to the hypothesis that the bulge in working population will lead to an acceleration in growth. However, recent employment figures indicate that the absorption of the Indian youth into the labour force is not as high as one would expect. This is perhaps due to the poor employability of the workforce, which is severely affected by a deficit in educational attainment and health. This needs to be remedied in order to take advantage of the opportunity for growth that the demographic dividend is supposed to give India.
Deep in the middle of Europe's recession, when bailout packages required PIIGS(Portugal, Ireland, Italy, Greece & Spain) countries to unleash severe austerity measures and cull jobs, throngs of qualified graduates in countries like Portugal went back to farming as careers in law, engineering and retail froze out.
This reverse migration of highly skilled lawyers and doctors has showed results. Agriculture jobs have jumped 10.6% in Q2 FY14, the biggest increase out of all sectors of the economy. It has also helped the country's jobless rate fall to 16.4% from 17.7%, according to September 2013 data put out by Bloomberg.   
This 'back-to-the-land' movement might sound idyllic to some, but make no mistake, it is a sign of utter desperation and reduced mobility, of the unrealized prospects of an entire generation of Europeans who have been innocent bystanders to an economic reversal that's rendered them jobless and choiceless.
 Even so, Europe faced this uncertainty on a high base of growth, after half a century of peace, stability and prosperity that helped raise living standards, create relatively robust social systems and reduce poverty. A new report on the employment scenario in India, that points towards a similar drift, should however deeply worry our politicians and policymakers as it illustrates how India's dreams of becoming a middle income industrial economy could be seriously undermined if the jobs challenge isn't addressed.
 CRISIL Research predicts millions of Indian workers will have to be redirected to farms for work as the slowdown compounds India's job creation problem. The report says insufficient employment creation in industry and services sectors will result in more workers becoming locked in "the least productive and low-wage agricultural sector" and estimates that "12 million people will join the agriculture workforce by 2018-19, compared with a decline of 37 million in agriculture employment between 2004-05 and 2011-12. "
 As India grows below potential, those looking for non-farm work will also be left to contend with fewer jobs - employment outside agriculture will increase by only 38 million between 2011-12 and 2018-19 compared with 52 million between 2004-05 and 2011-12. While tottering GDP is partly to blame, India's failure to create labor intensive manufacturing jobs that propelled growth in economies like China and other east Asian countries will cost it heavy in the years ahead.
 Employment in India has been characterized by what's often referred to as the "missing middle" - as jobs are concentrated either in the highly skilled but less labor intensive services sectors like IT and BFSI, or driven by low paying, unskilled construction work where signs of a crisis are visible. The real estate sector which employs a large bulk of construction labor has already reported 18-20% job losses over the last one year. Manufacturing meanwhile added 1-2 million jobs a year since 1970s but has lost 7 million jobs between 2005 and 2010, and services which account for 60% of GDP today are unlikely to employ more than 20-30% of the incoming labor according to an Espirito Santo note availed by the Financial Times.
 For a country where it was trendy to talk about the explosion of its demographic dividend, India could well be staring at a massive demographic liability as 51 million people seek work, with simply not enough jobs to absorb them. A focus on manufacturing, skills development, acceleration of infrastructure creation are some of the solutions to arresting this crisis says CRISIL. But all of these are dependent on a more rigorous policy approach by those in government and consist of tough decisions like undertaking dramatic labor reforms, easing the climate for doing business and quicker decision making. Moreover India could well have missed the real party as CRISIL points out that capacity of worker intensive sectors like manufacturing to absorb labor has diminished substantially due to automation.
Former Prime Minister Dr. Manmohan Singh did openly admit to his government's failure in this area, but stopped short of telling us what his government proposes to do about what will be admittedly one of India's greatest predicaments in the years to come.
 India needs the leadership to address this challenge with single minded dedication.  Sadly, while unsustainable, deceptive accomplishments on rural employment creation through programs like MGNREGA have become hot election selling planks, India's real jobs problem is not even being addressed cursorily.

Sunday, 28th Dec 2014, 08:41:53 PM

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