According to the National Policy for Skill Development and Entrepreneurship, more than 54 per cent of India’s population is below 25 years of age and 62 per cent of India’s population is aged between 15 and 59 years. But the demographic advantage might turn into a demographic disaster if the skill sets of both new entrants and the existing workforce do not match industry requirements

Just before the Covid crisis at the end of 2019-20 financial year, India had (according to the data provided by the Centre for Monitoring Indian Economy) around 403.5 million employed people and around 35 million openly unemployed people in the country. To this existing pool, each year India adds roughly 10 million (or 1 crore) new job seekers.

However, over the past year, several millions have lost their jobs. As a result, as of January 2021, India had only about 400 million employed. It underscores the stagnancy in India’s employment levels.

If we look at the Centre for Monitoring Indian Economy (CMIE) data, which is being compiled since 2016, the total number of employed people in India has been steadily coming down. It was 407.3 million in 2016-17 and then fell to 405.9 million in 2017-18, and to 400.9 million at the end of 2018-19.

In other words, even with India’s economy growing, albeit at a decelerating pace, before the Covid crisis, the employment situation was getting worse. That is why the total number of openly unemployed people became 35 million.

The Indian youth has become the first casualty, with the unemployment rate reaching 34 per cent among the 20-24-year-olds in the first quarter of 2019, it was 37.9 per cent among the urban lot, according to the CMIE.

Official sources from the Government of India do not give very different data: According to the last 2018 Periodic Labour Force Survey, the unemployment rate among the urban 15-29-year-olds (a very large bracket) was 23.7 per cent.

Making the Best Use of Demographic dividend

According to the National Policy for Skill Development and Entrepreneurship, more than 54 per cent of India’s population is below 25 years of age and 62 per cent of India’s population is aged between 15 and 59 years.

This demographic dividend is expected to last for the next 25 years. With most of the developed world experiencing an aging population, India has the opportunity to supply skilled labour globally and become the world’s skill capital.

However, the demographic advantage might turn into a demographic disaster if the skill sets of both new entrants and the existing workforce do not match industry requirements. Hence apart from skilling the workforce as per the industry requirements, we need to keep ourselves prepared for the upcoming challenges.

Challenges ahead in coming decade

India’s population is rising and could grow to more than 1.5 billion people by 2030. The working-age population — those over the age of 15 — could increase by 1.3 per cent annually, to 1.2 billion. Based on this demographic surge alone, India would have 60 million more people entering the labour force and seeking employment by 2030.

India saw an annual shift of about 3.7 million jobs out of agriculture between 2012 and 2018. If this pace is sustained, India’s farm employment would decline from 44 per cent of the total in 2018 to about 30 per cent in 2030. This is in line with the proportion of agricultural employment found in other low and middle-income countries like China and Vietnam.

Accommodating a labour force transition of this magnitude, in addition to natural labour force growth, implies that India needs to create at least 90 million non-farm jobs between 2020 and 2030. The country’s current labour force participation rate is just 49 per cent, meaning that only about half

of people of working age engage in paid work.

At the same time India’s female labour force participation was at 21 per cent in 2019, fallen from about 32 per cent in 2005. But it could rebound to 30 per cent by 2030, with 55 million more women potentially entering the labour market. The driving force of this increase could be women in the prime age group of 25 to 54 years. Such an increment would be a legitimate aspiration for India, in line with the level of female employment seen in other low and middle-income South Asian emerging economies such as Bangladesh and Sri Lanka.

Including this potential increase in the proportion of working women, and assuming they all seek non-farm employment, India would need to create 145 million incremental nonfarm jobs by 2030.

The job creation of this magnitude is possible only if India manages to grow at the rate of at least 8.0 to 9.0 per cent annually over the next decade.

Given the sharp economic downturn witnessed during the last one year of Covid pandemic, achieving high growth of this magnitude seems a tall order. Nevertheless, the black swan event like Covid shouldn’t be an excuse to lose the sight of an impending job crisis.

During the year 2,000 to 2019, India’s employment rete grew at 0.8 per cent while its GDP grew at an average rate of 6.9 per cent. An annual economic growth rate of 8-9 per cent is needed for India to generate 60 million net new jobs and 90 million non-farm jobs by 2030. This would be in line with the employment growth achieved by India between 2000 and 2012 — and almost double the 0.8 per cent historical employment growth over the past 20 years.

Two sectors — manufacturing and construction — have the potential to play a significant role in achieving the requisite growth along with more jobs. If we can replicate the high-growth phase, between 2005 and 2012, when the overall economy grew by 8.2 per cent per year, we could see manufacturing contributing more than one-fifth of the incremental GDP that is needed to achieve the growth required, while construction could add as many as one in four of the incremental non-farm jobs.

Achieving this growth potential would mean the share of manufacturing rising from 18 per cent of GDP to 20 per cent over the course of a decade.

For construction, growth would need to rise by 8.5 per cent annually, compared with historical growth rates of 4.4 per cent in fiscal years 2013 to 2019. In addition to this, each State would also need to create enabling conditions to push productivity within its champion sectors.

The Covid-19 pandemic presents us with an opportunity to introduce the next phase of pro-growth reform measures to achieve long- term growth as well as job target.

(The writer is a former IRS officer & author of upcoming book ‘The Current Perspective on INDIAN ECONOMY’)