India’s Demographic Dividend & Employment Challenges

Syllabus: GS3/ Economy

In Context

• With 63% of its population in the working-age group and a median age of 28 years, India has a unique opportunity to harness its demographic dividend. However, realizing this potential requires overcoming significant employment challenges.

Key Analysis

Economic Dimension: 

• India is the world’s fastest-growing large economy and the fifth-largest economy globally. The nation’s demographic dividend presents an opportunity for sustained growth.
• At 55.2% in 2022 (ILO report), the LFPR is lower than desired. Economic growth has been driven by the services sector, which typically creates fewer jobs than manufacturing, resulting in a decline in labour intensity.

Challenges:

• Although India isn’t experiencing jobless growth, the service-led growth pattern is insufficient to absorb the growing labor force.
• 45% of the workforce remains in agriculture, which only contributes 18% to GDP. This indicates low productivity and underemployment in agriculture.
• Around 19% of the workforce is employed in unorganized, non-agricultural sectors with low productivity.

Social Dimension (Labour Market)

• Sectors like toys, apparel, tourism, and logistics are labor-intensive and hold potential for job creation, but they remain underdeveloped.
• Only 4.4% of the workforce (15-29 years old) is formally skilled, indicating a vast skill deficit. This hinders employability and economic productivity.

Challenges:

• The informal economy employs a large share of the workforce but suffers from low productivity, lack of social security, and poor working conditions.
• The backbone of employment, Micro, Small, and Medium Enterprises (MSMEs), are reluctant to scale up due to compliance burdens from outdated labor laws.

Technological Dimension

• The AI/ML revolution poses a risk to repetitive, low-skill jobs, but also creates opportunities for high-skill jobs in emerging tech sectors.
• Despite India having the second-largest talent pool in AI globally, the current gap between demand and supply is 51% (NASSCOM).

Challenges:

• Low-skill jobs are increasingly under threat due to automation, especially in sectors like manufacturing and services.
• There is a need for large-scale upskilling to prepare the workforce for a tech-driven economy.

Policy and Governance Dimension

• The impasse over the implementation of new labor codes is creating uncertainty, especially in labor-intensive sectors. Reform in labor laws is essential to ease compliance for MSMEs and attract investment.
• India’s economic growth has been capital-intensive, while labor-intensive growth is more suitable for its demographic profile.

Challenges:

• Much of the reform agenda, particularly in manufacturing and labor markets, requires action from state governments. Coordination between the Centre and States is crucial.
• The Centre’s influence in investments crowds out states, leading to inefficiencies in resource allocation.

Government Initiatives

• Make in India: Aims to promote manufacturing in India, creating jobs in labor-intensive sectors.
• Skill India Mission: Focuses on upskilling the workforce to meet industry requirements, with a focus on youth and marginalized communities.
• Production Linked Incentive (PLI) Scheme: Provides incentives to companies in manufacturing sectors to boost production and job creation.
• PM Gati Shakti: Aims at integrated infrastructure development by coordinating between Ministries and States, enhancing logistics and connectivity.
• National Apprenticeship Promotion Scheme (NAPS): Encourages skill development through apprenticeship training programs with industry participation.
• Startup India: Supports entrepreneurs and MSMEs in creating new jobs, with a focus on innovation and technological development.
• Atmanirbhar Bharat Abhiyan: A comprehensive economic package focusing on self-reliance, including measures to support MSMEs and create employment.

Way Ahead

• Accelerating Reforms at State Level: States should lead the way in implementing labor codes to ease the regulatory burden on businesses and create an investor-friendly environment.
  • Encouraging states with strong manufacturing ecosystems to drive labor-intensive industries will help absorb excess labor from agriculture.
• Addressing the Skill Gap: Skilling must be seen as a lifelong process. Public-Private Partnerships (PPPs) must be scaled up to integrate industry-relevant skills into formal education and vocational training.
  • As AI/ML and automation expand, upskilling workers for high-skill tech roles is essential. Collaboration with tech companies will be crucial to build the required talent pool.
• Boosting MSMEs: Streamlining compliance processes and providing incentives for MSMEs to grow and scale will lead to more job creation.
  • Expanding access to affordable credit for MSMEs will help them invest in capacity expansion and improve productivity.
• Leveraging AI/ML: While AI/ML will create new jobs, India must ensure appropriate regulations are in place to govern their use. AI/ML education should be integrated into the national curriculum and skill development programs.
• Promoting Labour-Intensive Sectors: Sectoral Focus: Special focus should be placed on high-growth potential sectors like toys, apparel, tourism, and logistics to create jobs and absorb unskilled labor.
• Value Chain Upgradation: Gradually, sectors should move up the value chain, creating opportunities for higher-paying, skill-based jobs as the workforce matures.
• Fostering Centre-State Cooperation: Collaborative Planning: The Centre and States must work in tandem on infrastructure projects like PM Gati Shakti, ensuring that state governments have the flexibility to design and implement region-specific solutions.
  • Strengthening fiscal decentralization and empowering state governments to take ownership of job creation efforts will yield better results.