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India Structural Challenge

 

India’s Structural Challenge

Essentially, the biggest challenge facing India is its inability to create a sustainable 21st century economy for its expanding workforce. India's demographics favour workforce growth until the 2040s but the country is struggling to make optimal use of this demographic dividend. The penalties could eventually become severe.

Exhibit 6-10: Rising youth population in India

Population of Persons Ages 15 to 34.png

Source: OECD statistics database

The population of Indians ages 15 to 34 increased from 365 million in 2000 to 443 million in 2014. Current predictions suggest a steady increase in the youth population to 472 million by 2030.

However, there are significant challenges related to these seemingly favourable demographics. First, India is struggling to create jobs for a rapidly increasing working-age population. Second, where jobs are being created, the majority are not suitable for the economy of the future that India is trying to develop.

Exhibit 6-11: Long run youth employment problems

Employment to Population Ratio.png

Source: Third Annual Employment-Unemployment Survey 2012-13 conducted by Ministry of Labour and Employment, Using Usual Principal Status (UPS) approach

Employment to Population ratio is the proportion of an age group that is employed. For example, 25.5 percent of young people ages 15 to 24 were employed in 2012-2013.

Why it matters:

It points to the economy„s long-term ability to create jobs for a growing population

Exhibit 6-12: Economy not ready to reap benefits of demographic advantage

Activity Distribution of Employed Young Adults India.png

Source: Third Annual Employment-Unemployment Survey 2012-13 conducted by Ministry of Labour and Employment, Using Usual Principal Status (UPS) approach

Exhibit 6-13: India not ready to reap advantages of demographic dividend

Employment Status by Educational Attainment. Indiapng

Source: Third Annual Employment-Unemployment Survey 2012-13 conducted by Ministry of Labour and Employment, Using Usual Principal Status (UPS) approach

There are some challenges related to India?s seemingly favourable demographics. First, the unemployment rate increases at higher levels of educational attainment. One person out of three with at least a degree is unemployed.

Second, and more importantly, India?s young people will need to develop the right skills for the modern job market. Too many are either self-employed or in casual employment. A labour force unprepared for better machinery and technology will not be of much help to the economy.

Exhibit 6-14: India’s overall labour market not structured for sustainable rapid economic growth

Employment Population for India Working Age.png

Source: National Sample Survey Office

Note: Figures for all the years are based on usual status approach and include principal status and subsidiary status workers of all ages.

Frankly, it almost requires miraculous effort for India to transform its vast workforce into a workforce ready for the challenges and needs of the 21st century. Moreover, the unusually high absence of working women in urban areas is clear evidence of a broken economic system - not competitive for a country with more than a billion people.

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