Saturday, 24 October 2015

DEMOGRAPHIC DIVIDEND IN INDIA - CHALLENGES AHEAD

                                                                                                               -Dr. S. Vijay Kumar                                                                                                                                          
                  “Demographic dividend,” a phrase coined by demographer David Bloom. “Demographic dividend, as defined by the United Nations Population Fund (UNPF) means, “the economic growth potential that can result from shifts in a population’s age structure, mainly when the share of the working-age population (15 to 64) is larger than the non-working-age share of the population (14 and younger, and 65 and older).” In other words, it is “a boost in economic productivity that occurs when there are growing numbers of people in the workforce relative to the number of dependents.” UNPF stated that, “A country with both increasing numbers of young people and declining fertility has the potential to reap a demographic dividend. A 2011 International Monetary Fund Working Paper found that substantial portion of the growth experienced by India since the 1980s is attributable to the country’s age structure and changing demographics. The U.S. Census Bureau predicts that India will surpass China as the world’s largest country by 2025, with a large proportion of those in the working age category. Over the next two decades the continuing demographic dividend in India could add about two percentage points per annum to India’s per capita GDP growth. Extreme actions are needed to take care of future basic minimum living standards including food, water and energy. As per Population Reference Bureau India's population in 2050 is projected to be 1.692 billion people.
Mechanisms for Growth in the Demographic Dividend: During the course of the demographic dividend there are four mechanisms through which the benefits are delivered. They are:
1.   The first is the increased labor supply. However, the magnitude of this benefit appears to be dependent on the ability of the economy to absorb and productively employ the extra workers rather than be a pure demographic gift.
2.   The second mechanism is the increase in savings. As the number of dependents decreases individuals can save more. This increase in national savings rates increases the stock of capital in developing countries already facing shortages of capital and leads to higher productivity as the accumulated capital is invested.
3.   The third mechanism is human capital. Decreases in fertility rates result in healthier women and fewer economic pressures at home. This also allows parents to invest more resources per child, leading to better health and educational outcomes.
4.     The fourth mechanism for growth is the increasing domestic demand brought about by the increasing GDP per capita and the decreasing dependency ratio.
            Low fertility initially leads to low youth dependency and a high ratio of working age to total population. However, as the relatively large working age cohort grows older, population aging sets in. There is a strategic urgency to put in place policies which take advantage of the demographic dividend for most countries. This urgency stems from the relatively small window of opportunity countries have to plan for the demographic dividend when many in their population are still young, prior to entering the work forceDuring this short opportunity, countries traditionally try to promote investments which will help these young people be more productive during their working year.  Failure to provide opportunities to the growing young population will result in rising unemployment and an increased risk of social upheaval.
          The urgency to put in place appropriate policies is magnified by the reality that what follows the “demographic dividend” is a time when the dependency ratio begins to increase again. Inevitably the population bubble that made its way through the most productive working years creating the “demographic dividend” grows old and retires. With a disproportionate number of old people relying upon a smaller generation following behind them the “demographic dividend” becomes a liability. With each generation having fewer children population growth slows, stops, or even goes into reverse. This is currently seen most dramatically in Japan with younger generations essentially abandoning many parts of the country. Other regions, notably Europe and North America, will face similar situations in the near future with East Asia to follow after that. China’s current independence ratio of 38 is unprecedentedly low. This represents the number of dependents, children, and people over 65, per 100 working adults. This implies that there are nearly twice as many working age people as the rest of the entire population combined. This historically low dependency ratio has been extremely beneficial for China’s unprecedented period of economic growth. This dramatic shift was brought about largely in part due to China’s one-child policy. As a result, China is currently aging at an unprecedented rate. China will be older than the United States by 2020 and by Europe by 2030. Combined with the sex-selective abortions widely practiced as a result of the one-child policy – China will have 96.5 million men in their 20s in 2025 but only 80.3 million young women – China’s future demography holds many challenges for the Communist Party. But, recently keeping in view of the  demographic future challenges of  their country, China government is quitting one child policy and going to adopt two child policy per family.
Demographic Dividend in India: 

  • Census 2011 data shows that India’s working age population (15-64 years) is now 63.4% of the total population, as against just short of 60% in 2001. In 2015, it is 52.45 (per 100populaion 15-64).
  • The numbers also show that the ‘dependency ratio’ - the ratio of children (0-14) and the elderly (65-100) to those in the working age - has shrunk further to 0.55.
  • India’s median age has risen from around 22 years in 2001 to over 24 years in 2011.
  • India is poised to become the world’s youngest country by 2020, with an average age of 29 years, and account for around 28% of the world’s workforce.  
  • In comparison, during the same period, the average age is expected to be 37 years in China and the US and 45 years in Western Europe.
  • The International Labour Organisation (ILO) has predicted that by 2020, India will have 116 million workers in the work-starting age bracket of 20 to 24 years, as compared to China's 94 million. In 20 years the labour force in the industrialized world will decline by 4%, in China by 5%, while in India it will increase by 32%.
  • IMF, in 2011, reported that India's demographic dividend has the potential to add 2 percentage points per annum to India's per capita GDP growth over the next two decades.
Demographic Dividend or Burden?
Economics tells us that capital, land; labour and time have to be leveraged for the creation of surplus and well-being. The relative value and productivity level of each is very different. But when combined, their forces multiply. Over the past few years, we have repeatedly placed excessive faith in India’s demographic dividend. Some even take it too far, and predict how this will lead us to economic superdom. We, thus, are bandying our only card—labour—as our trump card. We are also being told that all our problems will be solved, if we fix the problem of skilling the teeming millions of young people. These precepts need closer examination, lest we are in for a rude shock a couple of decades down the road. Let us first examine the data that is being presented in support of the dividend argument. For the next 35 years, close to 70 percent of India’s population will be between the age of 15 and 59. The corresponding figure for Europe and USA is about 50 percent.

By 2050, India will have 100 crore employable people. This is presented as the dividend against USA’s 27 crore employable people and Europe’s 45 crore. Currently, less than 20 percent of our workforce is formally or non-formally skilled; the rest is unskilled. While a majority of the unskilled population is counted as employed, the reality is more than half of them are falsely counted as employed in agriculture. The past decade saw us create five crore jobs. During this period, the growth in the service sector offset the shrinking jobs in manufacturing and other non-service industries. The best decade for China saw it creating seven crore jobs.

Hence, the moot questions are:
• Is lack of skills hampering job creation, or is inadequate job creation a disincentive for investments in formal skilling?
• What are the prerequisites for creating one crore jobs every year, for the next 30 years?
• Can it be done?

The argument that jobs can be created largely by skilling people, and sufficient capital will flow, is presumptive. Even if capital were to flow, the absorptive capacity within a time frame is challenging. The jobs-to-GDP ratio is about 50 percent for the service sector, and about 70 percent for non-service industries. As such, the service industry is over represented in its share of the GDP, and does not have any more head room to be a bigger GDP contributor. Hence, it has limited scope to contribute a lion’s share to job creation.

Pre-requisites:
For our demographic dividend to indeed become our strength, a minimum of seven pre-requisites are:

1) Large-scale and sustained long-term investment in infrastructure and energy. Infrastructure creation being relatively labour intensive, it will help absorb the capital and labour surplus.

2) Large and sustained capital flows into India or the service industry, creating large capital surplus for deployment into infrastructure, energy and water management.

3) India becoming a global-scale manufacturing hub, earning large and sustained surplus that will aid capital buildup for deployment in manufacturing and infrastructure.

4) Large-scale re-generation of arable land, world-class water harvesting and irrigation, and land and crop productivity to sustain and create jobs in agriculture.

5) Strong logistics and cold chain infrastructure that will eliminate wastage of agricultural produce and develop a global-scale agriculture and food industry.

6) Science- and technology-driven inventions and innovations to reach global markets with pricing   power.

7) Long periods of relative internal and external peace, so that we do not waste the already scarce resources of capital and time.
Chance of gaining Demographic dividend comes in decades and last longer but the intensity of its impact depends on many things:
(i) Economic policy: Is it suitable enough to grab the demographic dividend.
(ii) Labor policy
(iii) Human Resource development policy
(iv) Public health policy etc.
India has a chance to grab the demographic dividend and become number one country because of its huge young working age population as compared to other top economies in the world.
But the question is would India be able to get the benefit of it?
Obstacles:
(i) Poor education facilities in Government collage
(ii) Poor health facilities
(iii) High level of corruption in almost every department
(iv) Crony Capitalism where government works for few people.
(v) Government not acting to nurture entrepreneurship qualities in the young working group, its only working for Crony Capitalists.
(v) Corrupt politics
Until and unless, these problems are solved at the earliest, it’s impossible for India to gain Demographic Dividend despite a huge opportunity is ready to give it a chance.
Concerns for India:
Demographic Dividend is a limited time window, in which all the appropriate policy framework has to put in, to be able to utilize the window. These policy frameworks related to job creation, education and health standards, skill development, quality of jobs, social security. The urgency to put in place appropriate policies is magnified by the reality that what follows the “demographic dividend” is a time when the dependency ratio begins to increase again. With a disproportionate number of old people relying upon a smaller generation following behind them the “demographic dividend” becomes a liability. This is currently seen most dramatically in Japan and other regions, notably Europe.
Job Creation:
  • India needs to create 1 million jobs every month to be able to provide employment for the population entering working age group and for those moving out of agriculture.
  • Further, the job creation has to be specific to the needs to Indian population. As young people and agriculturalists enter the workforce, they would need low and medium skilled jobs. India’s relatively undeveloped manufacturing sector has to create the jobs for this group.
  • The employment intensity in service sector is anyways less as compared to manufacturing sector. The manufacturing sector has to thus be the driver of job creation.
Quality of Jobs:
  • About 92% of India's are informal workers. Informal employment is insecure, poorly paid and has no social security. There's also a difference between wages of regular workers and informal or contract workers.
Education:
  • India's literacy rate, according to Census 2011, is around 74 per cent; the level is well below the world average literacy rate of 84%. Further, the 2011 census indicated a 2001–2011 decadal literacy growth of 9.2%, which is slower than the growth seen during the previous decade. There is a wide gender disparity in the literacy rate in India: effective literacy rates (age 7 and above) in 2011 were 82.14% for men and 65.46% for women.
  • There are huge concerns with respect to quality of primary education in schools. Annual Status of Education Report (ASER) 2014 finds that in III Standard, only a fourth of all children can read a Std II text fluently; 25.3% of Std III children could do a two digit subtraction.
  • The situation in higher education is even more problematic for India's participation in the global knowledge economy. Firstly, the gross enrolments rate is below 20%.
  • The overall quality of the higher education system is well below global standards. High-tech employers complain that a large majority of engineering and other graduates are unemployable. The large high-tech firms — such as IBM, Infosys and Wipro — have set up their own in-house academies to prepare employees for productive work.
  • The quality of vocational training is weak too. In last decade, the number of private ITIs increased from 2,000 to about 10,000 in 2013, but there are concerns about the quality of its trainees.
Further, Only 16 per cent of Indian firms carry out any in-firm training themselves, as against 80 per cent of Chinese firms. Most of the 16 per cent are large firms; most of firms are micro, small and medium size and do little training that is informal or no training.
Human Development:
  • India ranks 135 on the global Human Development Index rankings. The ranking is based on a collective index of life expectancy, education and income standards of population. India ranks lowest among the BRICS countries and even lower than few of its neighbors like Sri Lanka.
Social Development:
  • Dramatic social changes occur during the phase of demographic dividend, such as increasing divorce rates, postponement of marriage, and single-person households.

Challenges ahead for India to derive benefits from demographic dividend:

1. Ushering Investments by framing proper policies:
The World Bank’s India Development Update of October 2013 says that though the recent depression in the global economy has hampered India’s macroeconomic environment, the country's growth is still set high. India has to develop further reforms to counterfeit the economic depression through strengthening financial sector, narrowing the infrastructure gap, and reducing fiscal deficit. The country’s present disorder–high inflation, current account deficit, fiscal deficit have to be paid attention for sustained inclusive growth. To take advantage of the global market policies for exports have to be formulated to have a lasting effect as the currencies of many other emerging economies are weakening against the dollar.

2. Poverty Reduction and formation of pro-poor policies:

The poverty rate has been reduced to 22% and India 137 million people have moved out of poverty between 2005 and 2012. Interestingly, a much larger fraction of the decline in poverty is in low-income states, and the poorest 40% are enjoying the benefits of growth. The economic reforms of 1990 have helped GDP growth averaging around 7 percent during 1993/94–2011/12. This has helped halve the poverty headcount rate from 45.3 percent to 21.9 percent. The growth accelerated to 8½ percent during 2004/05–2009/10 after growing at an average rate of 6¼ percent during 1993/94–2003/04.This rapid economic growth has helped in the reduction in poverty. Poverty declined by 1.5 percentage points per year in 2004/05–2009/10 which is double the rate of the preceding decade. However, considerable efforts are yet to be done. To achieve this, considerable efforts are needed on the part of the government to formulate and implement growth strategies. The strategies should identically cover:

·        Managing the income generated through natural resources
·        Export strategy for agricultural products so that the farmers could earn
·        Providing a strong base to sub-regional assimilation to avail economies of scale8.

3. Providing IT platform:

Since the 1990s, the information technology industry has boomed in India. However, the other side of the coin is that still these new, technologically advanced sectors form only a tiny island in the ocean in terms of employment. The National Association of Software and Services Companies (Nasscom) has published a study saying that only 25% of information technology (IT) graduates are employable. This was taken seriously from the All-India Council for Technical Education (AICTE), the government’s accreditation agency. As per AICTE, every year, one million engineers and diploma holders are added to the workforce and if Nasscom report is true, that shows that there is a skill gap. According the report, titled as per the “The National Employability Report, Engineering Graduates, Annual Report-2012”, India produces more than 500,000 engineers annually, but only 2.68% meet the skill requirements of the IT products sector. The report estimated that nearly 92% of engineering graduates in India lack computer programming and algorithms skills and around 56% lack soft skills and cognitive skills. The challenge for the policymakers is to bridge the gap between education and skill deployment.

4. Employment generation:

Almost half of the Indian population work in agriculture and which is substantially the biggest informal sector in India. Women are deployed as domestic workers. Even educated women in urban areas have difficulties getting employed in the organised sector. The number of ‘missing women’ in the Indian economy -- women who withdraw from labour force and attend only to household work – was a staggering 162 million in 2004-05. India’s challenge is to build a strong manufacturing sector which generates massive employment. We have to direct our focus on research and development. Though unemployment rate in India decreased to 5.20 percent in 2012 from 6.30 percent in 2011, but still efforts need to be done to increase employment, outside agriculture, especially in the organised and service sector.

5. Generation of Vocational training programmes:

Even though having a huge workforce, India is suffering the crucial shortage of skilled manpower. As per industry analysis, nearly 75 to 80 million jobs will be created in India over the next five years. It is estimated that almost 75 to 90% of all additional employment will require some vocational training. There is a huge demand-supply skill gap in India. About 90% of the jobs in India require skill training, thus there is an underlying requirement of vocational training. It is estimated that only 5% of the youth in India are vocationally trained. At present, institutions that are imparting skill development in the country is 3.1 million per annum against country's target of skilling 500 million people by 2022. A large number of Vocational Training Institutes have outdated syllabus which do not coincide with the current market conditions. To build inclusive India, it is very essential for us to strengthen our work force with capabilities that are essential for them to be market savvy. Sectors have to be identified and holistic training need to be provided to our young force.

6. Integration between Government, Academia and Industry:

There is a lack of integration between the government, academia and industry in India. The curriculum in the education institutes is being taught in the same manner as it was taught decades ago though the methods of business have changed drastically. The strategy of three Es — education, employability and employment have to be taken care off. India's literacy rate is still 74.04%. The largest part of India's schools is of poor quality. Teachers are not skilled enough. There are problems on the quantitative side too. Dropout rates are 40% at the elementary level. Proper enforcement of Right of Children to Free and Compulsory Education Act, 2009 has to be done.

7. Flexibility in labour Market labour and Product Market in India:

In India, there is a tightly-regulated labour and product markets which has given rise to a large informal sector. Although significant progress has been made in liberalizing product markets in India, still in comparison with other countries, our product and labour markets are tightly regulated. As a result, product market competition remains low. The Organization for Economic Cooperation and Development’s (OECD) product market regulation index (2008) suggests that in comparison with other OECD countries, India’s product markets are less competitive. Due to multiplicity of labour laws, labour market rigidities remain high. Although the Industrial Disputes Act (IDA) of 1947 is the basis for industrial labour regulations in India, a relaxation of labour market regulations in the will foster higher employment. More firms can enter the organised sector due to increased output and profitability, increasing competition and lowering the prices of formal goods. This will help in increasing the competitiveness of the economy leading to an increase in exports. A relaxation in product market regulations will accelerate investment and increase in output. All these reforms will stimulate GDP and will be helpful in long run.

8. Providing Health Care for children and women:

The biggest of all challenges for the policymakers is to keep its more than 1.2 billion population fit and educated. As per World bank estimates, India ranks highest in malnutrition among children Underweight children are highest in India1. The health care facilities are not properly implemented. Though we have various health care plans in India but still they are not properly implemented. Proper strategies for healthcare are a must of our policymakers in order to not to turn demographic transition into a demographic catastrophe.

9. Providing Rural Prosperity in Agriculture:

India is suffering from the dilemma of low crop productivity, high cost of food, low purchasing power, lack of markets, low water productivity, unutilized rain-fed and wastelands. India needs development on these forefronts for attaining its demographic dividend in real sense. Need to build proper strategy on agro-industrial linkages, increasing the crop productivity ,increased access to agro industries, providing agricultural credit, having access to advance technology, developing the wastelands, development of bio-mass power and bio fuels. By the improvement in agriculture and agro industries, the government can create bountiful opportunities for both the development of the country and sustained generation of employment

10. Prioritizing equitable and pro-poor policies:

Steadfast, well-organized infrastructure is critical to economic and social development for promotion of pro-poor growth. Progressive and technologically advanced management of infrastructure investment, increasing the role of infrastructure in the routines of poor people, development of public private participation model in the rural areas and promoting sector investment, development of cross-sector integration are some of the areas where the government needs to look into so that the poor strata of our society are included in the economic development leading ultimately the achievement of demographic dividend.

11. Promotion of good governance:

In India, There is a huge difference between the rich and the poor and between the urban areas and rural areas. Also the disparity exists in the use of scarce natural resources between the corporate and the communities. However, India has recognized these issues and has placed the concept of good governance in the 11th Five Year plan. But, at the same time, proper implementation of strategies is required. The successful implementation of good governance nurtures a “development dividend”. Administrative changes and decentralization, transparency in each department, anticorruption strategies, strategic assistance with multilateral organizations and the EU are some of the matters in which the government has to look deliberately to achieve demographic dividend

12. Rule of Law:

Rule of Law is connected with poverty reduction, development of human capital, in rendering gender equality, decentralization and economic development is the key element for good governance and peace building. In India, we find that the justice demanding takes a long governmental procedure. Moreover, fairness in application is not essential. People are denied of security. Law and order, fairness in effective application should be on the top priority list of Indian government. Peace in the state and the country develop confidence in the citizens. Effective, timely and impartiality in the justice adds to their confidence. Decisive, strategic and holistic rule of law will help in te development of demographic governance.
CONCLUSION:
A sizeable part of India’s growth velocity since the 1980s can be attributed to demographic change. Looking ahead, the continuing demographic transition will yield a growth dividend of about 2 percent per annum over the next two decades. There is a little empirical evidence between demographic variables and various measures of social, economic development. However, keeping the above factors in mind, in order to reap the benefits of demographic dividend, the policymakers along with the private participation have to move on the path of sustained socio economic development.


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