Jayan Jose Thomas, PhD, Associate Professor of Economics, Indian Institute of Technology Delhi and Member, Planning Board, State Government of Kerala
A version of this article was originally published in Chinese as ‘印度不确定的人口红利’ [Yindu bu queding de renkou hongli], Diyi Caijing, 10 July 2017. This is part of a series by Indian scholars in China’s top business affairs news portal facilitated by the ICS. The English version follows below the Chinese text.
It is widely believed that India is going to benefit from the so-called ‘demographic dividend.’ Estimates by the World Bank suggest that the population aged 15 to 59 years will increase by more than 200 million in India between 2010 and 2030. During the same period, working-age population is expected to decline in most developed regions of the world, including China. In other words, India could potentially contribute a substantial chunk of the increase in the global labour supply over the coming years.
However, realizing the demographic dividend is not going to be easy for India. To begin with, the country faces severe challenges in the areas of health and education, as highlighted by the Nobel Prize-winning economist Amartya Sen. In 2010, the infant mortality rate in India was 47 per 1,000 live births, whereas in China this rate had been reduced to only 13 per 1,000 live births.
Another important challenge for India’s policymakers is to create jobs for its citizens newly entering the labour market. In fact, the largest additions to the population of the young are going to come from some of the poorest regions of India, mainly the states/provinces in the northern and eastern belt, including Uttar Pradesh and Bihar.
Almost a half of India’s workforce is still engaged in agriculture and allied activities. The shift of the surplus labour force away from agriculture to the non-agricultural sectors – as suggested by the development economist Arthur Lewis in the 1950s – has begun in India only recently. But this also implies that there will now be greater numbers of people in India seeking jobs in industry and services.
Given such challenges, what has been India’s record with respect to creating employment? We have some evidence in this regard from the employment and unemployment surveys conducted by the National Sample Survey Organization and the Census of India. Our estimates show that during the period between 2004-05 and 2011-12, the potential workforce in industry and services in India grew at the rate of 14.7 million a year. At the same time, the actual rate at which employment was created in industry and services in India during the above period was only 6.5 million year – or at less than half of the required rate.
Almost half of all new non-agricultural jobs added in India during the second half of the 2000s was in one sector, construction, which is characterized by relatively low wages and poor working conditions.
Manufacturing – the sector that transformed the labour markets in East Asia and China the most – has a relatively small share in India’s gross domestic product (GDP) and total employment. In 2011-12, the share of manufacturing in GDP was only 15.8 per cent in India while it was 31 per cent in China.
Close to 80 per cent of all manufacturing workers in India (which numbered 61.3 million in 2011-12) are in the unorganized sector – that is, they work in enterprises that employ less than ten workers. On the other hand, the organized sector accounts for less than 20 per cent of all manufacturing workers but close to 70 per cent of the total value added by Indian manufacturing. The organized manufacturing sector in India is dominated by capital- or skill-intensive industries, including automobiles and pharmaceuticals.
It is often argued that India’s labour laws, which regulate employee-employer relationships, have been an important constraint to industrial growth in the country. But this argument has severe limitations. Labour laws apply only to a part of the organized manufacturing sector (only to factories that employ 100 or more workers). Further, in recent years, several Indian states have not been very strict about the implementation of these laws. Additionally, contract workers, who do not come under the purview of these labour laws, account for more than a half of the incremental employment in India’s organized manufacturing from the 2000s onwards.
The most serious problem faced by Indian manufacturing is on account of bottlenecks in infrastructure in the country, including its roads, ports and electricity. The crisis in the infrastructure sector is, in turn, a result of the decline in public investment in India beginning in the 1990s, which was further aggravated by the fall in private corporate investment after 2007-08. Micro and small industries in the country have also been hurt due to inadequate access to bank credit.
Therefore, giving a massive stimulus to investment — including public, domestic private and foreign investment — will be crucial to reviving Indian manufacturing and thus creating decent jobs for millions of poor Indians.
The changing nature of manufacturing, which increasingly uses more automated production techniques, is yet another challenge to countries such as India and China. It needs to be noted that even in China manufacturing accounted for only a 16 per cent share of the total workforce when that sector’s share in GDP was more than 32 percent (in 2005). Contrast this with Japan in 1970 when manufacturing accounted for shares of 36 per cent and 27 per cent respectively in GDP and employment.
Both India and China face a unique challenge in which millions of our young people are trying to leave their villages in search of decent non-agricultural jobs in the cities. The two countries should try to invent new products and manufacturing processes that not only generate more output but also create more jobs. We should tailor our research and innovation systems in a way that suit socially- and environmentally-sustainable ways of production.