Demographic advantage, Indian economy’s sweet spot

India's economic growth is drawing attention as it becomes the world's fastest-growing large economy, with a median age of 28 and 63% of the population in the working age group. However, the labour force participation rate is low at 55.2%, indicating that while growth is not "jobless," significant reforms are necessary to harness the demographic dividend effectively.

Economic Reforms and Growth

• Need for Ongoing Reforms: To sustain and accelerate growth, India must continue its reform agenda, focusing on improving productivity and efficiency in markets.
• Sectoral Growth Challenges: The Economic Survey 2023-24 highlights that technological advancements are changing the capital-to-labour ratio, suggesting an imbalance in capital-led growth versus labor utilization. Economists argue that India should leverage its abundant labor force rather than focusing solely on capital-intensive sectors.
• Impact of Labour Laws: The reluctance of Micro, Small and Medium Enterprises (MSMEs) to scale up, alongside large businesses avoiding labour-intensive sectors, stems from compliance burdens of outdated labour laws. The impasse over new labour codes is deterring potential investors and needs resolution, especially in States with established manufacturing ecosystems.

Employment Sectors and Skilling

• Agricultural Workforce Dynamics: With 45% of the workforce in agriculture, contributing only 18% to GDP, there is an urgent need to enhance agricultural productivity and transition workers to other sectors. 19% of the workforce is engaged in fragmented, low-productivity non-agricultural sectors.
• Focus on High-Growth Sectors: Targeting high-growth, labour-intensive sectors such as toys, apparel, tourism, and logistics can address aspirations of the workforce. As skills improve, there is potential for job enhancement and increased wages, helping to uplift the economy.
• Lifelong Skilling Initiatives: Only 4% of the 15-29 age cohort is formally skilled. Effective skilling requires public-private partnerships for curriculum development, recognizing that skill development must be a continuous process to adapt to market needs.

Education, AI, and Future Outlook

• Educational Policy Relevance: The New Education Policy (NEP) 2020 emphasizes foundational and higher-order cognitive skills, but it requires periodic reviews to remain relevant in a rapidly changing world. Continuous adaptation of educational frameworks is essential for preparing a skilled workforce.
• AI and Job Market Dynamics: In the context of artificial intelligence (AI) and machine learning (ML), low-skill, repetitive jobs are at risk, yet human oversight remains vital. India has the second-largest talent pool in AI, but a projected 51% gap between demand and supply needs addressing to capitalize on this opportunity.
• Demographic Dividend Potential: India's young and aspirational population presents a unique challenge that is preferable to an ageing demographic. A holistic approach to skill development and job creation is crucial to harness the demographic dividend and position India as a global economic leader.

Practice Question

Q. “India is in a sweet spot and must employ a holistic approach to create a talent pool so as to harness its demographic dividend for the benefit of the world at large”. Discuss