Demographic dividend or disaster?

Nov 26 2013, 13:04 IST
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SummaryWhile the economic balance is slowly tilting in favour of emerging market economies, demographic changes in the next two decades

While the economic balance is slowly tilting in favour of emerging market economies, demographic changes in the next two decades are likely to improve the prospects of countries such as India, China and Brazil. Analysis of a raft of data releases on population, labour force and GDP fortifies the view that a relatively young India has a fair chance of not just growing its GDP faster than others but also helping bridge the labour shortage in other nations.

Demography

By 2030, India will be the most populous country with 1.46 billion people surpassing China's projected population of 1.39 billion. More important, the median age of an Indian will be 32 years in 2030, much younger than US with a median age of 39 years, UK (42), Japan (52), and even China (43) and Brazil (35). This means India will have the largest youth workforce in two decades. This demographic advantage can help propel India's GDP growth by a CAGR of 6.7%, faster than China's projected growth of 6.6%, as per projections made by global think-tanks including Ernst & Young and IHS. While much of the young workforce would be absorbed in the fast-growing services sector whose share in GDP is expected to rise from 57% in FY10 to 68% by FY30, India will still be left with 47 million surplus labour who can migrate to other labour-deficit countries such as US, UK and Japan.

There is a caveat here. Unless India scales up its higher education system, helps youths attain requisite skills and makes them employable, the demographic dividend may well turn disastrous. While an army of skilled young workforce can contribute an extra 2% to the GDP, industry experst warn that India is set to face a challenging time up ahead—while on one hand the reason is lesser number of jobs in new and emerging sectors, on the other hand there is a lack of suitable education and skill enhancement for the ones who are ready for employment. Of the 15 million graduates who join the queue of job seekers every year in India, only 3% undergo vocational training. Industry data shows the percentage of employable graduates were only 25% for IT, 30% for BPO, 45% for manufacturing and healthcare and 50% for banking and insurance. The gravity of the problem was best summarised by Prime Minister Manmohan Singh when he told heads

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