| PYQ Relevance: [2022] Economic growth in the recent past has been led by an increase in labour productivity.” Explain this statement. Suggest the growth pattern that will lead to the creation of more jobs without compromising labour productivity. [2014] While we flaunt India’s demographic dividend, we ignore the dropping rates of employability.” What are we missing while doing so? Where will the jobs that India desperately needs come from? Explain. Prelims: [2013] Economic growth in country X will necessarily have to occur if: (a) there is technical progress in the world economy (b) there is population growth in X (c) there is capital formation in X (d) the volume of trade grows in the world economy |
Mentor’s Comment: India has become a global economic powerhouse, now ranking as the fifth-largest economy and holding the title of the fastest-growing major economy. A significant factor in this growth is its demographic advantage, with a median age of 28 and 63% of the population being of working age. However, the labour force participation rate in 2022 stood at 55.2%, according to the International Labour Organization (ILO). The report also notes that much of this growth is led by the services sector, which is less labour-intensive, underscoring the importance of fully leveraging the demographic dividend.
_
Let’s learn!
Why in the News?
India is not fully capitalizing on its demographic dividend, former RBI governor Raghuram Rajan stated on April 16, highlighting the need to prioritize the development of human capital and the improvement of skill sets.
Factors behind Service-pushed Growth
- Capital and Labour Ratios: The Economic Survey 2023-24 highlighted a declining capital-to-output ratio and an increasing capital-to-labour ratio.
- Labour Abundance: Arvind Panagariya, Chairman of the 16th Finance Commission, noted that capital-led economic growth is not ideal for India, which has an abundance of labour.
- MSMEs and Labour Laws: Micro, Small, and Medium Enterprises (MSMEs) are hesitant to scale up due to outdated labour laws and compliance burdens.
- Labour Codes: The impasse over new labour codes, approved by Parliament but yet to be implemented, sends a negative signal to investors.
Employment in Labour-Intensive Sectors
- Agriculture Employment: 45% of the workforce is employed in agriculture, which contributes only 18% of GDP, making it essential to boost manufacturing.
- Unorganised Sector: The unorganised and non-agricultural sectors employ 19% of the workforce and need focused attention.
- High-Growth Sectors: High-growth sectors such as toys, apparel, tourism, and logistics can provide labour-intensive employment opportunities.
- Skilling for Growth: Upgrading skills in these sectors will help workers move up the value chain and access better-paying jobs.
The Importance of Skilling
- Workforce Productivity: Skilling is vital for making the workforce productive, with only 4.4% of the workforce aged 15-29 being formally skilled, according to the Economic Survey.
- Public-Private Partnerships: Public-private partnerships are crucial for creating a relevant curriculum and offering on-the-job training.
- Lifelong Learning: Skilling should be a lifelong process with flexible learning systems, not just a one-time intervention.
- New Education Policy (NEP) 2020: The NEP 2020 focuses on foundational and cognitive skills but needs regular review to stay updated.
Impact of AI and Machine Learning
- Job Threats and Opportunities: AI and machine learning (ML) pose a threat to low-skill, repetitive jobs but will still require human oversight.
- Regulatory Framework: Creating appropriate regulations to govern AI/ML while leveraging its potential is key.
- Market Growth: The AI/ML market is expected to grow nearly nine times by 2030, reaching $826.73 billion globally.
- Talent Pool: India has the second-largest talent pool in AI/ML, but with a current demand-supply gap of 51%, it presents a significant opportunity for growth.
Way Forward
- Sustaining Growth: Reforms are essential to sustain India’s growth trajectory and create new opportunities.
- Policy Focus: Finance Minister Nirmala Sitharaman emphasized the need for improving productivity and making markets more efficient in her 2023 Budget speech.
- State-Level Reforms: While the central government has improved the ease of doing business, state-level reforms are crucial as states are where most economic activities occur.
- Collaboration: Both the Centre and States must collaborate to broaden and deepen reforms for sustained economic growth.
Conclusion:
India’s large, young, and aspirational population presents a unique opportunity. Managing this demographic advantage is more favorable than dealing with the challenges of an aging population.
