For Prime Minister Narendra Modi’s government, the much-hyped demographic dividend has turned into a nightmare. The problem was visible even in his first term. But eight quarters of continuous decline in GDP growth since March 2018 followed by a pandemic-induced lockdown that is pushing the economy into recession has brought the extent of the problem to the fore.
Instead of contributing to economic growth, a big chunk of the new entrants to the labour force is adding to our unemployment statistics. With 12 million people being added to the working-age population annually, but not enough job opportunities, it requires quick and effective short-term, medium-term and long-term policy interventions.
While the working-age population in India has been growing since the early 2000s, it is in 2018 that the number of people in the age bracket of 15-65 became larger than the number of people in the dependent age group (below 14 and above 65 years of age). This working-age population that is larger than the dependent age population is expected to remain till 2055.
As several studies have pointed out, a bulge in the working-age population or “demographic dividend” provides a great foundation for a sustained period of high growth. Several Asian nations—Japan, Thailand, South Korea, and more recently China—had taken advantage of the demographic dividend in their countries to grow rapidly for long periods. For India, the demographic dividend is coming at an opportune time when the population in large parts of the world is ageing.
Initially, things seemed to be running according to the script, especially starting in the late 1990s, as several things came together. Economic reforms opened up many sectors, bringing in capital and creating new jobs. Technology advances and globalisation threw up new opportunities like IT services and IT enabled services. A new generation of educated, English-speaking workforce came into the labour market at exactly the right time, creating perfect conditions for a sustained period of high growth from 1999 to 2010, despite the global financial crisis following the collapse of Lehman Brothers in 2008.
In the past decade, domestic policy missteps have seen the Indian economy performing erratically. Yet, there was always the conviction that the demographic dividend would play out despite temporary setbacks. When Prime Minister Modi talked about a $5 trillion economy by 2025, many commentators felt that the target was easily achievable. The new entrants to the workforce would add both production and consumption heft to the economy, boosting GDP growth to at least 8% plus, if not double digits.
The error was in not accounting for the education and quality of the people joining the workforce. All countries that have reaped the demographic dividends had invested heavily in education and skilling in the decades leading up to it. An educated workforce is both more productive and more capable of taking advantage of new opportunities. Education spends and reforms typically show up after a lag of a decade or more as a new generation of better educated and skilled youth join the workforce.
In India, a persistent problem that companies have complained of is the lack of educated and skilled manpower. This is true across industries and sectors. The common issue that crops up is that a large number of engineering, management or just plain graduates are incapable of being hired. While successive governments have paid lip service to the cause of education, the initiatives and the budgets have always been too little and too haphazard. India spends about 3% of its GDP on education—though the target has been 6% for quite some time.
An IMD Business School report showed that India stands at the 62nd spot in terms of public expenditure per student and fares badly in measures of quality of education like student-teacher ratio and others. While on paper, India’s literacy rate has crossed 74%, several studies have shown that over 50% of students lack basic literacy and numeracy skills even after five years in school. The Union government’s focus on higher education instead of basic schooling has also played a role. The other issue is the regulatory system, which is rather lax. This allows a huge number of sub-standard schools, colleges, management and technical institutions to flourish.
If the government wants to reap the benefits of the demographic dividend, it will need to completely refocus its education policies and work closely with states to fix both primary and secondary education (Education is in the concurrent list). In the short term, it needs to open up the education sector to attract global players while revamping the capability and powers of education regulators and boards. In the medium and long run, it needs to increase public expenditure on education on a sustained basis and use technology to impart it more efficiently.
The coronavirus pandemic has given a huge fillip to technology-enabled education. Technology also allows the government to rethink the education system and use its resources more efficiently and standardise learning. There is still time. But unless the right policies are put in place and the right budgets committed to education, India will miss the opportunity presented by a huge young population entering the workforce.
Prosenjit datta
Senior business journalist (prosaicview@gmail.com)