Table of Contents
THE CONTEXT: India’s rise as the world’s fastest-growing major economy is largely attributed to its demographic advantage. However, challenges in labour force participation and job creation necessitate strategic reforms to fully harness the country’s demographic dividend.
THE ISSUES:
- Low Labour Force Participation Rate: Despite a young median age of around 28 years and 63% of the population being of working age, India’s labour force participation rate was only 55.2% in 2022. This low participation is partly due to economic growth led by the services sector rather than manufacturing, resulting in decreased labour intensity.
- Need for Continued Economic Reforms: India must press ahead with ongoing economic reforms to sustain or accelerate growth and create abundant employment opportunities. The Economic Survey for 2023-24 states that technological advancements have led to a declining capital-to-output ratio and an increasing capital-to-labour ratio. The chairman of the 16th Finance Commission noted that capital-led economic growth is not ideal for a country abundant in labor.
- Outdated Labour Laws Hindering Growth: The compliance burdens and costs imposed by outdated labour laws discourage Micro, Small, and Medium Enterprises (MSMEs) from scaling up and deter large businesses from investing in labour-intensive sectors. The delay in implementing new labour codes approved by Parliament sends negative signals to current and potential investors.
- Imbalance Between Workforce and GDP Contribution: A significant portion of the workforce (45%) is employed in agriculture, contributing only 18% to GDP. Workers need to transition from low-productivity agricultural jobs to higher-productivity roles in manufacturing and other sectors. About 19% of the workforce is engaged in the unorganized and non-agricultural sectors, which are highly fragmented and suffer from low productivity.
- Significant Skills Gap: Only 4.4% of the workforce aged 15-29 is formally skilled, leading to a paradox of labour surplus but skill shortage. This creates a dichotomy of labour surplus and skills shortage, which is a huge concern. Skilling is not a one-time intervention but a lifelong process, requiring flexibility in institutional mechanisms and learning agility.
- Impact of Artificial Intelligence and Machine Learning: In the era of AI and ML, repetitive tasks requiring low skills are most at risk. Statista estimates that the AI/ML market will grow nearly nine times to become a $826.73 billion worldwide market by 2030. There is a current gap between demand and supply of 51%, which is projected to widen, presenting an opportunity that should not be missed.
THE WAY FORWARD:
- Promote Labour-Intensive Sectors: Revitalize the manufacturing sector, which aims to increase its GDP contribution to 25% by 2025. Invest in infrastructure to support industries, thereby creating jobs. The National Infrastructure Pipeline plans to invest INR 111 lakh crore over five years. Tailor programs to local industries to make rural youth employable.
- Accelerate Structural Reforms: Implement the Goods and Services Tax (GST) more effectively to reduce compliance burdens. Encourage states to reform through incentives. The NITI Aayog’s “India Innovation Index” promotes innovation at the state level. States like Maharashtra and Gujarat have implemented successful single-window clearance systems. Leverage technology to streamline government services and reduce corruption.
- Implement New Labour Codes: Enforce the four new labour codes that consolidate 29 laws, simplifying compliance. The Economic Survey 2019-20 states that simplifying labour laws can significantly boost job creation. States like Rajasthan and Madhya Pradesh have reformed labour laws to attract investment. Provide additional central funding to states that implement the new codes promptly.
- Reforms in the rural ecosystem: Adopt modern farming techniques and high-yield varieties. Implement the e-NAM (National Agriculture Market) to improve price realization. Encourage food processing units in rural areas. Develop industrial clusters under the Cluster Development Programme. Train rural workers to transition into manufacturing and services. Implement schemes like Pradhan Mantri Awas Yojana to support migrant workers.
- Sector-Specific Incentives: Implement the Production Linked Incentive (PLI) scheme in Apparel and Textiles to boost domestic manufacturing. Enhance tourist destinations’ road, rail, and air connectivity to boost tourism infrastructure. Implement policies to reduce logistics costs from 13% of GDP to 8%. Use technologies like blockchain for supply chain efficiency.
- Enhance Vocational Training: Encourage online learning platforms for continuous Upskilling. Provide tax benefits for individuals undertaking skill development courses. Involve the industry in curriculum design and training delivery. Scale up the Skill India mission to train over 400 million people by 2025.
- Invest in AI/ML Education: Introduce AI/ML courses in schools and universities. China’s AI Plan aims to be a world leader by 2030, and it is investing heavily in education. Develop regulations to address privacy and ethical concerns. Provide grants and tax incentives for AI/ML startups. Establish centers of excellence in collaboration with industry and academia.
- Integrated Policy Framework: Ensure coordination among education, labour, and industry ministries. Develop policies like the National Education Policy (NEP) 2020, which focuses on future skills. Implement Ayushman Bharat for universal health coverage. Strengthen schemes like the Employees’ Provident Fund. Simplify processes and provide funding support under the Startup India Initiative. Offer training on business management and innovation in skill development for entrepreneurs.
THE CONCLUSION:
India’s youthful population presents a unique opportunity for economic growth and global influence. By implementing comprehensive reforms, focusing on skill development, and adapting to technological advancements, India can effectively leverage its demographic advantage for widespread prosperity.
UPSC PAST YEAR QUESTIONS:
Q.1 Account for the failure of the manufacturing sector to achieve the goal of labor-intensive exports rather than capital-intensive exports. Suggest measures for more labour-intensive rather than capital-intensive exports. 2017
Q.2 Comment on the challenges for inclusive growth, including careless and useless manpower in the Indian context. Suggest measures to be taken to face these challenges. 2016
Q.3 The nature of economic growth in India is described as jobless growth. Do you agree with this view? Give arguments in favor of your answer. 2015
MAINS PRACTICE QUESTION:
Q.1 “India’s demographic dividend presents both opportunities and challenges for economic growth.” Critically examine the steps needed to harness this potential, focusing on labor force participation, skills development, and adapting to technological changes.
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