India’s economic growth shaped by its demographics

Source: The post India’s economic growth shaped by its demographics has been created, based on the article “Demographic advantage, Indian economy’s sweet spot” published in “The Hindu” on 18th September is 2024

UPSC Syllabus Topic: GS Paper3- Economy-growth, development, and employment

Context: The article discusses India’s economic growth and demographic advantages, emphasizing the need for ongoing reforms, skill development, and labor-intensive sector focus. It highlights the importance of addressing labor laws, boosting manufacturing, and managing AI’s impact on employment.

For detailed information on India’s Demographic Dividend read this article here

How is India’s economic growth shaped by its demographics?

1. India’s economic growth is driven by its young population, with a median age of 28 years and 63% in the working-age group.
2. Growth is led by the services sector rather than manufacturing, reducing labor intensity.
3. Only 4.4% of young workers are formally skilled, highlighting a significant skills gap.

What are the Challenges with Labour and Employment?

1. Low Labour Force Participation Rate: In 2022, the participation rate was only 55.2%, according to the International Labour Organization (ILO).
2. Capital-Intensive Growth: Technological advancements have led to a higher capital-to-labour ratio. Economist Arvind Panagariya noted that capital-led growth isn’t ideal for India, given its abundance of labor.
3. Hesitancy in Labor-Intensive Sectors: Micro, Small, and Medium Enterprises (MSMEs) and large businesses avoid labor-intensive sectors due to the high compliance burden imposed by outdated labor laws.
4. Delay in Implementing Labour Codes: The new labor codes approved by Parliament have not been implemented, creating uncertainty for investors.
5. Agriculture Employment Imbalance: 45% of the workforce is in agriculture, contributing only 18% to GDP, while other sectors like tourism and logistics remain underutilized for job creation.

What is the Impact of AI and Machine Learning?

1. AI and Machine Learning (ML) are transforming industries, especially by replacing repetitive, low-skill tasks.
2. The global AI market is projected to grow nearly nine times, reaching $826.73 billion by 2030, according to Statista.
3. India has the second largest AI talent pool in the world.
4. However, there is a 51% gap between AI demand and supply, which is expected to widen, as per NASSCOM.
5. While AI/ML pose risks to certain jobs, they also offer opportunities. The key is creating appropriate regulations and training to harness AI effectively.

What Should be Done?

1. Continue advancing reforms to sustain and accelerate growth, with a focus on improving productivity and market efficiency.
2. Promote labor-intensive sectors like toys, apparel, tourism, and logistics, aligning with labor-led growth to capitalize on India’s abundant workforce and create more job opportunities.
3. Shift reform implementation efforts to the state level, where further progress in production can be made through better coordination between the Centre and States.
4. Strengthen public-private partnerships to close the skills gap, ensuring industry-led training and promoting lifelong skilling as a flexible process.
5. Adopt a holistic strategy encompassing reforms, continuous skilling, and sector development to fully harness India’s demographic dividend for long-term global competitiveness.

Question for practice:

Examine how India’s demographic advantage influences its economic growth and what challenges need to be addressed to fully harness this potential.