Labour dividend or deficit?

Between 2001 and 2026, India's population is projected to increase by 371 million. About 83% of this increase will be in the 15-59 age group. In the next 15 years, as a vast population enters the working age group, it is expected that they would be setting up their own households and consumption units. Vast opportunities can then arise, boosting various types of productive and investment activities. A relatively young population also implies declining dependency ratios and higher savings rate. Together, it can have a positive correlation on per capita GDP growth as witnessed in countries like Japan (1950s) and China (1980s). This is referred to as India's demographic dividend.

To reap the benefits out of this, India first needs to create the additional employment opportunities. And not just quantity, but the quality of jobs are also equally important. If the jobs created fail to ensure better wages, the majority of the population will not move out of poverty and growth will not become inclusive. For this, we rapidly need to improve the skill-sets and education base of our labour force.

                So, let us look at how India is poised vis-à-vis all these. The first upfront question is, are we creating enough jobs? The answer is no. The 1990s witnessed a complete stagnation in formal employment opportunities. Most of the jobs created were in the unorganised sector and not clearly visible. In the next decade, the scenario was only marginally better. With India's workforce growing annually at around 2.4%, the requirement is far greater — 12-13 million new jobs every year just to keep unemployment frozen where it is.

Moreover, employment elasticity in India is very low, at around 0.15, according to the Planning Commission. This means that every 1% growth in GDP results in only 0.15% growth in jobs. So, even if we grow at 10% in the next 15 years, we would still be creating at least 100 million less jobs than the addition to the workforce by 2026. Next is the quality of jobs created. In India, the quality of majority of the jobs created is extremely poor. This is borne out from the fact that roughly 92% of the workforce is employed in the unorganised sector.

Source: The Economic Times