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India's Third Giant Leap

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India's Demographic Disaster
Mon, 16 May Pre-Open

India's large youth population is considered to be an asset. Economists call it a demographic dividend. They believe, as these young people will, over time, move up the income ladder, the Indian economy will remain in a state of high growth for decades to come.

However, we all know that it is not as simple as that. The first step to reap the demographic dividend is to create jobs. That is clearly not happening fast enough. Approximately, thirteen million young people enter the Indian workforce every year. And this is expected to continue till 2030 at least.

Unfortunately, the formal sector does not create enough jobs. This results in most of India's youth taking up low paying service sector jobs in the informal sector. These jobs certainly do not pay well. This in turn results in agitations as we have seen recently across the country.

As per an article in Livemint, the ratio of increase in jobs created to the increase in GDP is very low. In fact, this ratio has consistently decreased from the 1980s! This means that India has achieved high GDP growth because of rising productivity and not because of rising employment.

This state of jobless growth is clearly unsustainable. It is neither an accident nor a coincidence. Rather, we are in this situation because governments over the years have treated the issue of employment lightly. Structural reforms that would have encouraged flexibility in the labour market have remained a pipe dream. But it is not rocket science. Many nations have done it before us. We can do it too.

The government's focus on 'Make in India' is a step in the right direction. However, we have not seen a big pickup in corporate investment yet. Without investments in factories, job creation won't happen. And India's demographic dividend could turn out to be a demographic disaster.

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