India’s demographic dividends can only prove beneficial if its strengths are efficiently harnessed and labour reforms are amongst the most fundamental needs facing the economy, a DBS report said today.
India’s demographic dividend is a key strength of the economy. Its population will surpass that of China within a decade and the workforce is likely to grow faster than the overall population, it added.
“This demographic strength could become a burden if not harnessed efficiently,” DBS Bank Economist Radhika Rao said in a research note.
A rising working age population points to higher disposable incomes, positive wealth affects, ready availability of labour (with appropriate skills-training) and eventually an increase in consumer spending.
“Despite these strengths, India has been unable to utilise labour efficiently. Employment growth has barely exceeded GDP growth in recent years, which is unusual for a developing economy,” DBS added.
An increase in the working age population also points to higher savings, which should lift investment and help bring structural improvement to the current account imbalance.
“Labour reforms are amongst the most fundamental needs facing the economy, though it will be difficult to quickly sort out myriad and obsolete laws. A few ‘low-hanging’ reforms have been undertaken, while more significant/important ones await Parliamentary approval,” Rao said.
According to DBS, labour issues need to be addressed on three fronts.
Firstly, faster growth needs to be inclusive and generate sufficient employment. Secondly, the workforce needs to be skilled and finally, the informal sector needs to be covered by employment rules and regulations.