CENTRE for POLICY ANALYSIS

CENTRE for POLICY ANALYSIS

“Social progress can be measured by the social position of the female sex” - Karl Marx

Indian Politics And Policy


More People: More Power- Can India Encash Her Demographic Dividend?


"Economist have long known that people are an important part of the wealth of nations" 
                                                                                                                              T.W Schultz


Introduction

Burgeoning population is always projected as foremost problem in Third world countries. When India's population crossed the billions, touching 1.34 billion, giving her the tag of second populous country and its continuously expanding nature, showing its inclination towards surpassing China by 2025, to be the most populous country in the world, most of them had a pessimistic view about it. Malthusian theory of population was always a Damocles sword that was over the developing countries. But soon economists realised the importance of the human capital in the economic growth of the nation. The advantage brought by the demographic transition was called by different vocabularies - demographic dividend, demographic gift, window of opportunity, youth bulge, etc. so what does demographic dividend mean?

Demographic dividend, as defined by the United Nations Population Fund (UNFPA), is "a boost in economic productivity that occurs when there are growing numbers of people in the workforce relative to the number of dependents.". A country with both increasing numbers of young people and declining fertility has the potential to reap a demographic dividend.  

Demographic dividend of India

Since 1951, India has witnessed a sharp demographic transition reflected in the major vital statistics. The crude death rate in India has come down from 22.8 in 1951 to 7 in 2011, while infant mortality rate has come down from 148 to 44. The decline in crude birth rates was, however, slower from 41.7 in 1951 to 21.6 in 2011. Thus, against a 70 per cent decline in death rate, the decline in the birth rate was only about 50 per cent, resulting in the acceleration of the population growth rate during the period 1951 - 1981. But, since 1981, population growth rate has declined from over 2 per cent per annum to 1.64 per cent per annum. The fertility rate has also witnessed a sharp downward trend. 

The population of the working age group (15-59) jumped by 6.6 percentage points over the same period. The dependency ratio has sharply declined over the period from 0.9 in 1961 and 1971 to 0.66 in 2011. Earlier, one worker supported nearly one dependent, but now one worker is required to support only 0.66 dependent. According to the projections of the National Commission on Population (2006), the proportion of the population in the working age group 15-59 years is expected to rise further to 64.3 per cent in 2026, further reducing the dependency ratio to 0.55. This is occurring at a time when advanced economies like Japan, and Western European countries are facing a huge decline in its working age population, which constitute the main labour force.

According to UN estimates, India will add 300 million people in the working age group (15-64 years) between 2010 and 2040, while the working-age population of China will shrink by 45 million. According to Bloom, Canning and Rosenberg (2010), if India adopts policies that allow the working-age population to be productively employed, India may receive a demographic dividend of roughly 1 percentage point growth in GDP per capita, compounded year by year. According to Aiyar and Mody (2011), 40- 50% of the growth in per capita income in India since 1970's can be attributed to the ongoing demographic dividend. 

A large population in the working age group do not assure a demographic dividend rather it is the number of workers in that age group which will reduce the dependency rate and contribute towards national output. So, this window of opportunity cannot be taken as granted.  It is in the hand of policy makers to decide whether to harness it or not. If it is not tapped, then this same demographic dividend can turn out to be a demographic disaster.

Whether India can tap this dividend?

In this resource scarce world, where countries are fighting with each other to get hold of resources, most of them are neglecting a very important resource, which indeed have the potential to transform the entire economy i.e., human resource. Instead of looking it from the perspective of a burden, we should see the window of opportunity that it has opened to us. 

Education Status

India has 73% literacy level, as per the 2011 census. But does this rate really demonstrate the true picture is still a question.  The present education system in India can be equated to an industry facing diseconomies of scale due to both internal and external factors. Internal diseconomies are caused by poor quality of infrastructure, teachers, bad policies, lack of efficient management, etc and external diseconomies are caused by lack in demand for the students churned out of this education system due to the lack of quality. In November 2016, a report by the Federation of Indian Chambers of Commerce and Industry (FICCI) on higher education stated that almost 93% of MBA and 80% of the engineering graduates are not employable. According to the India Skills Report 2016, only 37 per cent of the Employability Skill Test takers (below 30 years) were found employable. These facts really corroborate the current scenario.  The minimum necessity for India's demographic dividend to be ready for future jobs and employment, is basic education i.e. the ability to read, write and do basic maths. As the Economic Survey of 2017-2018 points out: "On math and reading... roughly 40-50 percent of children in rural India in grades 3 to 8 cannot meet the fairly basic learning standard. Discouragingly, this poverty count score rises over time, substantially in the case of math. " 

Except for some premier institutions like IITs, NITs, IIS etc, most of our educational institutions have failed some way or the other in producing well educated future generation. This was due to the failure of government to control the mushrooming of private institutions where quality was compromised. But it doesn't mean that we don't have well educated youth at all, but it is hardly a few. The saddest thing is the 'brain drain' happening in the country.  Though it compensates to the loss of skilled labour through the increase in remittances, the country will fail to encash its demographic dividend and the growth unleashed by it. This is what has happened in the case of Mexico. Though Mexico (Sedano 2008) experienced a huge demographic dividend, it could not harness it as there were lack of employment opportunities, which resulted in large migration of the labour force to US.

Skilled labour force is a necessary for tapping the demographic gift. Skilled labour force can be ensured only in a country with a well-established system of both vocational and general education.  Vocational education was started in India with the establishment of large number of Industrial Training Institutes(ITIs). But the lack of quality of the youth trained out of these institutes and lack of coordination between employers and these institutes, have crippled this initiative. Unlike China, in India students could opt for vocational course only after completing their 10th standard and this minimum requirement excluded most informal workers from obtaining vocational skills from it is.  Government through its various measures, like Skill Loan Scheme, modification to Apprenticeship Act, Skill India, SWAYAM- a web portal for Open Online Courses, National Skill Fund, Deen Dayal Upadhyaya Grameen Kaushal Yojana (DDUKY), is trying to generate skilled work force, but the ultimate yardstick with which the success will be evaluated is the level of employment they generate. According to experts, only 10 percent of the Indian workforce is trained; compared to the average of 60 to 70 percent in developed countries.  The major factor that stymie the countries growth is not the lack of efficient policy, but it is the lack of proper policy implementation. Only if government resolve it, India could achieve her target of skilled Youth population.

When compared to China or other Western countries the share of government expenditure on education as a proportion of GDP has got reduced to 2.7 in 2017-18 from 3.2 in 2011-12. When government has lot of resources to spend on recapitalisation of public sector banks, defence, etc, why only the education sector is marginalised? This sheer negligence is the cause for huge number of drop outs from school. Years after the passing of Right to Education Act (2009), the student -teacher ratio (30:1) is maintained only in 45.3% of schools i.e., there are still schools with only 'one teacher.'  The norm of compulsory promotion of students, till the age of 14, is a blot in the education system.  Until and unless the snags in the grassroot level is resolved, the goal of the skilled India will not be even in the offing.    

Employment Trends

 Kiran Karnik, the former Nasscom President has defined the paradox of the Indian labour market nicely: "While some young men, on the brink of starvation, desperately look for work, employers elsewhere look with similar desperation - for appropriate people to fill tens of thousands of vacancies." Baldly saying, it depicts the labour market failure which is mainly due to the skill gap, poaching, labour immobility and inequality, which will result in unemployment or underemployment in the labour market. 

Generation of skilled youth population alone cannot tap the demographic gift, but it with the commensurate generation of jobs that it is possible. But in India the path from academic education to the job attainment is broken as there is lack of coordination between education sector and the employment providers. Only when there is coordination, the youth can be trained for jobs in sectors where demand for labour force is more. According to the Employment and Unemployment Survey (EUS) 2016, 58 per cent of graduates and 62 per cent of post-graduates w ere underemployed. According to the latest Employment and Unemployment Survey, India needs to create 10-12 million new jobs every year to satisfy the needs of its young working age population and as per this survey, job growth between 2012 and early 2016 was a measly 5 million. 

Unlike other developing countries, the growth in Indian economy has shown a transition from primary to tertiary sector, bypassing the secondary sector.  According to economists, such growth pattern has resulted in neglect of the other two sectors and caused unemployment. As per Arthur Lewis model of development, developing countries could fuel growth by transferring labour from agriculture to industry. Just like that India can transfer excess labour from agriculture to manufacturing and service sector. China is one country that has exemplified this by building a massive labour force, which has made it the manufacturing hub of the world. 

Health status

Just like education, health status of the population is especially an important determinant of demographic dividend. The healthier a person is, the more productively and efficiently he can work. World Health Statistics Report 2018 published by the WHO pegs India's per capita health expenditure per year at a meagre $63.This is among the lowest for developing countries with China posting a per capita spending of $426, Thailand $217, Malaysia $386, Philippines $127, Sri Lanka $118 and Indonesia $112.    India has a child malnutrition rate that is twice that of sub-Saharan Africa -  at 47 % of children aged under three. The World Bank recently estimated that the physical toll of malnutrition alone costs the Indian economy 2-3 per cent of GDP per annum. Though the new Health Policy 2017 raises few hopes as the government has promised to raise the government health expenditure from 1.15% to 2.5% of GDP by 2025, everyone is little bit sceptical about it as it was just the restatement of the Health Policy 2002. If health sector is continued to be neglected, then productivity of the labour force will be highly affected even though they are given proper training and education, as they both are like two sides of same coin- demographic dividend. 

Saving trends 

As per the Modigliani's Life Cycle Hypothesis, Human beings save most during the working years of their lives and in their childhood and old age, they clearly consume more than they earn. Hence, a decline in the nation's dependency ratio is usually associated with a rise in the average savings rate.

India's savings rate as a percentage of GDP has been rising since 2003. But as per the Economic Survey 2017-18, India is experiencing a drastic decline in both saving and investment, which is mainly attributed to the fall in household domestic savings.  As Keynes said, all savings are not automatically invested, as people have three kinds of motive- transaction, precautionary and speculative. Thus, government should see to that more savings are not directed towards speculative and precautionary purposes. If savings are not generated or properly invested, there will be no physical capital formulation, which is essential for growth. Though the government tried to financially include all the population through its Jan Dhan Yojana Scheme, it remained a great success only in paper as out of the 7.5 crores account opened, 5.48 crore accounts have still zero balance.  This points out that financial inclusion does not fully ensure mobilisation of savings. Therefore, Government should take necessary steps to mobilise savings before the demographic dividend is fully exhausted. 



Female labour force participation

One of the distinct effect of demographic transition is the increase in female labour force participation.  Economic growth is associated with rising female education levels and falling fertility, both of which have been shown to be associated with higher female labour force participation rates in other countries (Presser and Sen 2000; Mason 1995). 

Education in India appears to be associated with lower rather than higher work participation ratio (Das and Desai 2003).  Traditional family structure and orthodox mentality of some men are still pulling back women from work.Service sector oriented growth  in  India with neglect to agriculture sector and Wage differentials between male and female workers are  other reasons (Desai, 2010).   As per this year's data, the employability in female candidates (39.95%)looks higher than the male candidates (36.01). The numbers have shown improvement from last year, but it clearly shows that focused efforts are needed to improve employability in female candidates. 

India is lagging behind China in female labour force participation. The National Rural Employment Guarantee Act, by equalising men's and women's wages is providing a useful service but it cannot overcome broader labour market discrimination, particularly for educated women. This suggests that the much-trumpeted demographic dividend is likely to be far smaller than anticipated unless significant strides are made to increase women's labour force participation through an increase in employment opportunities and reduction in labour market disadvantages.

Conclusion

Planning Commission in its 12th plan discussions stated that demographic dividend indicates that India with its youngest workforce with median age less than that of China and OECD countries, can generate a competent global workforce to meet the skilled labour shortage of about 56 million by 2020.  Given the right kind of policy environment, demographic dividend can help to produce sustained period of economic growth as witnessed by several East Asian Economies in later half of 20th century. The key policy areas to be stressed includes public health, family planning, education and economic policies that promote labour market flexibility. If unaddressed, the increasing youth bulge and unemployment will result in a dangerous combination. As Ken Robinson quotes "Human resources are like natural resources; they're often buried deep. You must go looking for them, they're not just lying around on the surface. You have to create the circumstances where they show themselves." So, it is in the hand of the policy makers to decide whether to continue burying it or to dig it out to make them shining blocks for building up the economy. 

References


Aiyar, S., & Mody, A. (2011). The demographic dividend: Evidence from the Indian states.     IMF Working Paper No.11/28. Washington: International Monetary Fund. 11/28. Washington: International Monetary Fund.

Basu, Alaka Malwade. "Demographic Dividend Revisited: The Mismatch between Age and Economic Activity-Based Dependency Ratios." Economic and Political Weekly 46.39 (2011): 53-58. .

Bloom, D. E., Canning, D., & Rosenberg, L. (2010). Demographic change and economic growth in South Asia. Working Paper No. 67. Boston: Harvard School of Public Health Harvard University.Working Paper No. 67. Boston: Harvard School of Public Health, Harvard University.

CRISIL (2010). Skilling India: The billion people challenge. Mumbai: CRISIL, Centre for Economic Research

Das, Maitreyi Bordia and Sonalde Desai (2003): "Why Are Educated Women Less Likely to be Employed in India? Testing Competing Hypotheses", Social Protection Discussion Paper Series No 0313 (Washington DC: World Bank).

Desai, Sonalde. "The Other Half of Demographic Dividend." Economic and Political Weekly 45.40 (2010): 12-14. .

Government of India (2017). "Economic Survey 2016-17.

Government of India (2018) "Economic Survey 2017-18. 

Wheebox - Measuring World's Talent (2016)"India Skill Report 2016"

Lutz. "Population Policy Rationale for the Twenty-First Century." Population and Development Review 2014: 527-544.

Ministry of Statistics and Programming (2017)."The Youth in India 2017"

Sedano, Fernando. "Economic Implications of Mexico's Sudden Demographic Transition: The Next 20 Years Offers Particulr Risk and Opportunities." Business Economics 43.3 (2008): 40-54. .

Singh, Ajith KUMAR. "India's Demographic Dividend: A Sceptical Look." Indian Journal of Human Development 10.1 (2016): 10-26. 

Sodhi, J.S. "A Study of Skill Gaps in the Informal Sector." Indian Journal of Industrial Relation 49.3 (2014): 456-470. 

  //economictimes.indiatimes.com/articleshow/59273223.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst 

https://www.financialexpress.com/budget/budget-2017-how-india-can-reap-demographic-dividend-via-education/528321/ 

https://www.financialexpress.com/jobs/unleashing-indias-demographic-dividend/63086/ http://www.forbesindia.com/article/forbes-india-ceo-dialogues/indias-youth-demographic-dividend-or-disaster/41595/1