Context

India is increasingly recognized as an economic powerhouse, being the fastest-growing major economy and currently the fifth largest globally. Demographics play a crucial role, with a median age of around 28 and 63% of the population in the working age group. However, the labor force participation rate was only 55.2% in 2022, as noted by the International Labour Organization (ILO), which attributes this decline to growth driven by the services sector rather than manufacturing.

Overview

• India is currently experiencing a demographic dividend, a phase of economic growth when the working-age population surpasses the non-working-age population. This dividend is expected to continue until 2055.
• India boasts a large and youthful population, with a median age of 29.5 years. This is younger than the median ages found in other major countries, including the US, Canada, China, and those in Europe.
• From 2020 to 2050, India is projected to increase its working-age population by 183 million people.

Continue with reforms agenda

• To maintain, if not accelerate:  India’s growth trajectory, it is essential to continue the ongoing reforms agenda, as this will create numerous opportunities. Finance Minister Nirmala Sitharaman's Budget speech highlighted the need to enhance productivity and improve market efficiency. While the Centre has made strides in improving the ease of doing business, much of the necessary work, especially regarding production, falls to the States, which are now pivotal in this process. Both levels of government must collaborate to expand and deepen reforms.
• The Economic Survey for 2023-24: notes that technological advancements have led to a decreasing capital-to-output ratio and an increasing capital-to-labor ratio.
  • Economist Arvind Panagariya emphasized that capital-led growth is not ideal for a country rich in labor.
  • The reluctance of Micro, Small, and Medium Enterprises (MSMEs), which are vital for employment, to scale up, along with large firms hesitating to enter labor-intensive sectors, is largely due to the burdens and costs imposed by outdated labor laws.
  • The delay in implementing the new labor codes approved by Parliament sends a negative signal to current and potential investors. It's crucial for a few States with developed manufacturing ecosystems to take the lead in breaking this stalemate.
• The Centre's push to boost the manufacturing sector: stems from the untenable situation where 45% of the workforce is in agriculture, contributing only 18% of GDP.
  • While improving agricultural productivity is important, we must also consider the nearly 19% of the workforce engaged in fragmented and low-productivity unorganized and non-agricultural sectors. Addressing their aspirations by focusing on high-growth, labor-intensive sectors such as toys, apparel, tourism, and logistics is vital. As skills improve, this will create opportunities to move up the value chain and offer better-paying jobs.

Skilling a continuous process

• Skilling is crucial for preparing future generations: to be productive members of society.
  • The Economic Survey reveals that only 4.4% of the workforce aged 15-29 is formally skilled, highlighting a significant concern regarding the gap between labor surplus and skill shortages.
  • This issue must be tackled through effective public-private partnerships, where industry plays a key role in developing curricula and providing on-the-job training. Furthermore, skilling should be viewed as a lifelong process, necessitating flexible institutional mechanisms and a focus on learning agility.
• The New Education Policy (NEP) 2020 : emphasizes foundational skills along with higher-order cognitive skills and critical thinking, which is a positive development. However, given the rapid pace of change in the world, the policy should be periodically reviewed and updated to remain relevant.

Impact of AI/ML

• In the age of artificial intelligence (AI) and machine learning (ML), low-skill, repetitive tasks are at the greatest risk, yet human intervention and oversight will always be necessary.
• While we should recognize the significant impact of AI/ML, it should not be vilified. The focus should be on implementing appropriate regulations to govern its use while leveraging its potential.
• Statista estimates that AI/ML could grow nearly ninefold, reaching a global market size of $826.73 billion by 2030. Additionally, NASSCOM reports that India has the second-largest talent pool in this field, though a 51% gap between demand and supply is anticipated to widen. This niche opportunity should not be overlooked.
• Employing a large, young, and aspirational population to presents challenges, but it is a more favorable scenario than managing an aging population with its economic and societal burdens. India is well-positioned and must adopt a holistic approach to cultivate a skilled workforce, thereby harnessing its demographic dividend for the benefit of the global community.

Conclusion

India stands at a critical juncture, leveraging its demographic dividend to drive economic growth. To fully realize this potential, ongoing reforms, enhanced skilling initiatives, and effective public-private partnerships are essential. While the rise of AI and ML presents both challenges and opportunities, strategic regulations can help maximize benefits. By focusing on labor-intensive sectors and continuously upgrading skills, India can transform its youthful workforce into a powerful engine of sustainable growth, benefiting not just the nation but the global economy as well.

Source: The Hindu