Opinion: India Overtook China In Population. Now What?

Surpassing China as the world's most populous country, as indicated in the UNFPA State of World Population report, India's demographic composition, with a staggering 65% working-age population, embodies an unparalleled reservoir of human capital. This dynamic workforce has the potential to propel the nation towards remarkable socio-economic progress and has the ability for transformative global impact. Seizing this demographic dividend is critical for India to elevate its position on the world stage and significantly enrich the knowledge economy.

John Steinbeck's classic novel, "The Pearl," serves as an allegory for India's imperative to capitalize on its demographic advantage. The protagonist, Kino, discovers an extraordinary pearl, yet his inability to harness its value culminates in devastating consequences. Similarly, India must recognize the magnitude of its human resource potential and proactively invest in it to avoid squandering this generational opportunity.

The remarkable benefits of the demographic dividend cannot be overstated, particularly for industrial nations that have successfully navigated the demographic transition. This pivotal shift, characterized by a transition from high fertility and mortality rates to their lower counterparts in urbanized, industrial societies, creates an unparalleled opportunity for substantial economic growth. The first dividend, fuelled by declining fertility rates, generates a temporary surge in the labour force, opening doors for amplified investment in economic development and family well-being. This chain reaction results in accelerated per capita income growth. While the first dividend's duration is finite, spanning approximately five decades, it lays the groundwork for a promising second dividend.

Driven by an ageing workforce accumulating assets for extended retirement, the second dividend sees these assets, whether invested domestically or internationally, contributing to a significant rise in national income. As a result, the first dividend offers a fleeting bonus, while the second morphs into enhanced assets and enduring development. It is crucial to note, however, that these dividends are not guaranteed and hinge on the adoption of effective policies within this golden window of opportunity. In essence, skilfully leveraging the demographic dividend can pave the way for elevated living standards and sustained economic growth, as evidenced in diverse regions between 1970 and 2020.

India has a unique opportunity to capitalize on the first demographic dividend, as around half of the country's population is under the age of 25, and the working-age population is forecast to hit more than 1 billion in the next couple of years. An IMF working paper titled "Demographic Dividend: Evidence from the Indian States" authored by Shekhar Aiyar and Ashoka Mody suggests that demographic dividend could add up to 2 percentage points to per capita GDP growth per annum.

But the question remains, how can India capitalize on its demographic dividend? Experiences from countries such as Singapore, Taiwan, and South Korea demonstrate the potential for leveraging the demographic dividend to achieve remarkable economic growth by implementing forward-thinking policies and programs that empower the youth in education, skill development, and health choices. There are two factors which are impeding India from fully exploiting the demographic dividend.

(1) There is a significant gap between the skills imparted in educational institutions in India and the skills required for jobs. The International Labour Organization (ILO) has projected that India will face a 29 million skill deficit by 2030. India's education system is unable to provide the necessary skills to its growing workforce. Many young people lack the required qualifications and vocational training to find suitable jobs. The Department of School Education and Literacy is executing the Vocationalisation of School Education initiative under 'Samagra Shiksha' to integrate vocational education with general academics in secondary and senior secondary schools. The goal is to enhance students' employability, entrepreneurial skills, work environment exposure, and career awareness. NSQF-compliant vocational courses are offered to classes 9-12 as additional subjects or elective subjects. Various job roles across multiple sectors are included in these modules to cater to students' aptitudes and aspirations. Apart from this, under the Skill India Mission, the Ministry of Skill Development and Entrepreneurship offers skill training through schemes like PMKVY, JSS, NAPS, and CTS via ITIs. These demand-driven initiatives aim to improve youth employability by continuously adding industry-relevant courses. Unfortunately, this is not enough, as not all schools offer this.

Fortunately, the India Skills Report 2023 reveals a rise in employability to 50.3% (from 46.2% last year) with women at 52.8% and men at 47.2%. Additionally, 89% of graduates sought internships, and candidates from Uttar Pradesh, Maharashtra, and Delhi were the most employable. B.Tech, MBA, and B.Com degrees showed the highest employability rates. The report is based on the Wheebox National Employability Test findings, which 3.75 lakh students took.

India should further strengthen its Technical and Vocational Education & Training (TVET) programs. Finland's TVET program is known for its high-quality education, strong connection with industry needs, and emphasis on practical skills. One of the critical aspects of the Finnish TVET system that India can learn from is its strong collaboration between educational institutions, the private sector, and the government. This cooperation ensures that the curriculum and training programs are tailored to meet the current and future needs of the labour market, thereby enhancing the employability of graduates. India can benefit from adopting a similar approach, encouraging stronger ties between educational institutions and industry players to develop curricula that are aligned with market demands and technological advancements.

Another crucial lesson India can learn from Finland's TVET program is the focus on lifelong learning and continuous skill development. In Finland, vocational education is not limited to initial training but extends to further skill development throughout an individual's career. This approach helps the Finnish workforce stay competitive and adapt to the rapidly changing demands of the global economy. India can adopt this concept by promoting a culture of continuous learning and upskilling among its workforce, supported by government policies and incentives. This would not only help to bridge the skill-employability gap, butt also enable India's workforce to remain agile and prepared for the ever-evolving job market.

(2) Informal nature of the economy: A large proportion of India's economy is informal, which can hinder the full realization of the demographic dividend. This is because informal employment often lacks social security, job security, and opportunities for skill development. According to the ILO, 85% of the non-agricultural workforce in India is informal. As the fastest-growing major economy today, India still grapples with the lingering impact of policy-driven workforce informality, rooted in the first four decades post-independence. Slow growth from 1950 to 1980, a heavy industry focus, and product reservations for small firms fuelled the proliferation of unregistered businesses where workers faced subpar wages and conditions. Restrictive labour laws, applicable only to registered firms, exacerbated the issue. Inadequate state investment in education left workers with limited skills, confining them to the informal economy. India must now forge a path to overcome this informality legacy. Once the four labour codes are notified, the manufacturing units that operate in the informal space would find it easier to navigate their way to formal settings. This would be beneficial not only for the informal sector, but also for the workers employed by these manufacturing units.

(3) Neglected Past of Health and Early Childhood Education Investments: Previously, India did not prioritize early child health and education, but now, a transformation is taking place. An expanding body of research highlights that experiences in early life significantly impact adult health, cognitive abilities, and professional accomplishments across both developed and developing nations. It has been demonstrated that children who enjoy good health from conception to age five ultimately become healthier adults. Furthermore, they achieve higher levels of education, earn more income, and contribute substantially to the economy. India's focus on early child health and education was limited in the past, but a paradigm shift is now underway. The troika of the Ministry of Health & Family Welfare, the Ministry of Education, and the Ministry of Women and Child Development are entrusted with this responsibility. The government's prioritization of children's health through targeted interventions like POSHAN Abhiyaan and Mission Poshan 2.0 demonstrates a commitment to addressing malnutrition and fostering wellness in children, adolescents, and mothers. These comprehensive initiatives, which emphasize maternal nutrition, infant and young child feeding norms, and treatment of acute malnutrition, harness the power of technology, traditional knowledge, and community involvement to achieve a lasting impact. With millions benefiting from these programs, the government is taking critical steps to create a healthier, more resilient future for the nation.

India stands at the cusp of a unique opportunity to harness its demographic dividend, reminiscent of Kino's pearl in Steinbeck's classic novel. To seize this potential, India must invest in its human capital, bridging the gap between skills imparted by educational institutions and the skills needed for the job market, adopting more effective vocational training programs, and transitioning to a formal economy.

Bibek Debroy is the Chairman, Economic Advisory Council to the Prime Minister (EAC-PM) & Aditya Sinha is Additional Private Secretary (Policy & Research), EAC-PM.

Disclaimer: These are the personal opinions of the author.