Why This ?

In today’s hustle economy, balancing India’s demographic dividend with the rise of automation is becoming super critical. The big question for aspirants? How can India make the most of its youth boom while AI takes over jobs? We’ve broken down 4 key challenges you need to know to ace the specific challenges associated with this. Plus, we’ve dug into how skilling plays a huge role in turning these challenges into opportunities, helping you handle any curveballs UPSC throws at you!

GS 1
Indian Society: Population and Social Empowerment
Note4Students: Analyze the demographic dividend and the challenges of an aging population. Explore the role of skilling in promoting social empowerment.

Microthemes: Population and associated issues

GS 2
Governance, Polity, Social Justice: Government Policies and Development
Note4Students: Gain insights into labor reforms, skilling initiatives, and public-private partnerships for economic growth.

Microthemes: Human Resources

GS 3
Economic Development, Technology, Environment: Growth, Employment, and Automation
Note4Students: Assess challenges in labor-intensive sectors and the impact of AI on jobs. Examine fiscal roles in skilling programs and budgeting.

Microthemes: Innovative Technologies

GS 4

Ethics, Integrity & Aptitude: Economic Growth and Corporate Responsibility

Note4Students: Reflect on the ethical implications of automation and the corporate responsibility in reskilling efforts for equitable labor opportunities.

Microthemes: Applied Ethics

What is the demographic dividend?

The UNFPA defines the demographic dividend as the potential for economic growth that occurs when a larger portion of the population is of working age (15 to 64), compared to the younger (under 15) and older (65 and above) population who are not working.

Challenges in Leveraging India’s Demographic Sweet Spot

India is on the brink of harnessing its demographic dividend, yet several challenges hinder its ability to fully capitalize on this potential. Below are key factors that create obstacles in the current service-led growth model and employment landscape:

CHALLENGE 1 : SYSTEMIC CHALLENGES

 1. Inefficient Capital and Labour Ratios

The Economic Survey 2023-24 highlighted 2 key issues: a declining capital-to-output ratio and an increasing capital-to-labour ratio. This imbalance signals inefficiencies in how capital is allocated and utilized, which undermines the potential for sustained economic growth.

2. Misalignment of Labour Abundance

Arvind Panagariya, Chairman of the 16th Finance Commission, noted that India’s surplus labour is not being effectively leveraged. The reliance on capital-led economic growth is ill-suited for a nation with abundant labour resources, indicating a need for a shift in growth strategies.

3. Challenges for MSMEs

Micro, Small, and Medium Enterprises (MSMEs) face significant hurdles due to outdated labour laws and excessive compliance burdens. These barriers discourage MSMEs from scaling, stifling their growth potential and the overall contribution to the economy.

4. Delayed Labour Code Implementation

Despite Parliament approving new labour codes, their delayed implementation sends negative signals to investors. This uncertainty complicates the growth landscape and impedes progress in creating a more conducive environment for investment.

CHALLENGE 2 : Employment in Labour-Intensive Sectors

To effectively utilize its demographic dividend, India must also address employment challenges in labour-intensive sectors:

1. Low Contribution of Agriculture

With 45% of the workforce engaged in agriculture, which contributes only 18% to GDP, there is a pressing need to diversify employment opportunities and boost manufacturing to enhance economic stability.

2. Focus on the Unorganised Sector

The unorganised and non-agricultural sectors employ 19% of the workforce but require focused attention to improve job quality and stability. Addressing these areas is vital for sustainable economic growth.

3. Unlocking High-Growth Sectors

Sectors like toys, apparel, tourism, and logistics present significant opportunities for labour-intensive employment. By prioritizing these industries, India can enhance job availability and stimulate economic activity.

4. Need for Enhanced Skilling

To support workers in transitioning to better-paying jobs, it is crucial to upgrade skills in these sectors. Skilling initiatives can enable workers to move up the value chain, fostering economic stability.

CHALLENGE 3 : The Importance of Skilling

Skilling is pivotal for enhancing workforce productivity and ensuring India maximizes its demographic dividend:

1. Low Formal Skill Levels

Currently, only 4.4% of the workforce aged 15-29 is formally skilled, underscoring the urgent need for targeted training initiatives to boost productivity.

2. Role of Public-Private Partnerships

Public-private partnerships are essential for developing relevant curricula and providing on-the-job training that aligns with industry needs. Collaboration can help bridge the skills gap in the workforce.

3. Lifelong Learning Approach

Skilling should be a lifelong endeavor, with flexible learning systems that allow workers to adapt to changing job requirements, rather than a one-time intervention.

4. New Education Policy (NEP) 2020

While the NEP 2020 emphasizes foundational and cognitive skills, it must be regularly reviewed to remain relevant in a fast-evolving job market.

CHALLENGE 4 : Impact of AI and Machine Learning

Finally, the emergence of AI and machine learning presents both challenges and opportunities for the Indian workforce:

1. Job Threats and Opportunities

AI and ML pose risks to low-skill, repetitive jobs but also create demand for skilled workers who can manage and utilize these technologies effectively. Addressing this shift is crucial for workforce adaptation.

2. Need for a Regulatory Framework

Establishing an appropriate regulatory framework for AI and ML is essential to ensure economic growth while protecting worker interests and promoting innovation.

3. Market Growth Potential

The AI/ML market is projected to grow nearly nine times by 2030, reaching $826.73 billion globally. This growth offers new employment avenues and innovation opportunities that India must capitalize on.

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.

Skilling in the Age of Automation

In 2019, the Organisation for Economic Co-operation and Development (OECD) predicted that automation could eliminate 14% of jobs globally and transform 32% within 15-20 years, impacting over a billion people. This underscores the urgent need for reskilling in the age of automation.

Challenges	Way Forward
Changing Skill Demands: Automation and AI are handling both manual and complex tasks. Skills now have an average half-life of less than 5 years, and as low as 2.5 years in tech fields.	Continuous learning and reskilling must be prioritized. Governments and organizations should promote lifelong learning.
Job Displacement: Many workers will see their jobs transformed by AI, potentially shifting them into new roles.	Comprehensive reskilling programs are needed to help workers transition into new roles or industries.
Upskilling Investment: Companies are investing up to 1.5% of their budgets in upskilling, but millions will need full reskilling, according to OECD.	Large-scale reskilling programs are required to prepare workers for entirely new roles.
Limited Impact of Current Efforts: Reskilling programs are often small-scale and not enough to address widespread automation impacts.	Companies must expand and collaborate on reskilling, with support from governments and educational institutions.
New Approaches in Reskilling: Companies are rethinking when, why, and how to reskill to adapt to AI and automation.	Adopt flexible, innovative reskilling strategies like real-time assessments and adaptive learning programs.

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