India boasts a demographic dividend, with a working-age population (15–64 years) of around 67 per cent, which can propel economic growth. This momentous opportunity, however, necessitates optimising the potential of the available labour force by ensuring a reduction in unemployment and underemployment and building human capital.
The macroeconomic growth models explain long-term sustainable progress as a function of labour force growth and technology built over time with human capital.
India faces no dearth in population and therefore labour force, but it lacks education, which is necessary to develop individuals’ productivity and foster technological advancements. Besides, the economy languishes with high unemployment, which fails to realise the so-called “demographic dividend”.
The India Employment Report 2024 shows the Labour Force Participation Rate (LFPR) at 52 per cent, compared to 76 per cent in China. This indicates that nearly half of the possible dividend is forfended.
To further add to the woes, the female LFPR stands at 37 per cent in India, compared to an average of 70 per cent in China. This places India as the 13th lowest female LFPR. The report also highlights that India’s youth grapples with soaring unemployment rates. Shockingly, they account for 83 per cent of the unemployed workforce. Even more disappointing is the share of youngsters with higher education in the total unemployed, which has almost doubled from 35.2 per cent in 2000 to 65 per cent in 2022.
This brings to the surface the grave reality that a large portion of the potential labour force capable of contributing to growth is dissipated.
More particularly, India adds 3 million graduates annually, but 33 per cent of them are unemployed or underemployed (CMIE, 2024). There exists a wide gap between industry requirements and the education system.
Only 15 per cent of our workforce has formal vocational training, compared to 70 per cent in South Korea (UNESCO). However, the Government’s initiatives like Pradhan Mantri Kaushal Vikas Yojana, National Apprenticeship Promotion Scheme, and Skill India Digital Hub are trying to bridge this divide. The Economic Survey 2023–24 notes that the Indian economy needs to generate an average of nearly 78.5 lakh jobs annually until 2030, in the non-farm sector, to cater to the rising workforce. This is further distressed as around 90 per cent of the workforce is engaged in informal work, facing irregular work and income, absence of social security benefits, and substandard working conditions.
The manufacturing sector, which has huge untapped potential to absorb unskilled and semi-skilled labour that moves away from agriculture, contributes only 14 per cent to the GDP in India as compared to 27 per cent in China.
While the agrarian sector employs 43 per cent of the workforce, it contributes only 16 per cent to GDP. India’s economic growth has been primarily driven by the services sector, which lacks employment absorption because of skill intensity.
Additionally, the advent of artificial intelligence is undeniably a threat to the already dismal employment situation, further aggravating the population-to-opportunities mismatch. There is an ardent need to prioritise labour-intensive manufacturing to engage unskilled labour, along with concentrated efforts to support MSMEs.
Moreover, the transforming nature of employment, such as the gig workforce, is expected to form 6.7 per cent of the non-agricultural workforce or 4.1 per cent of the total livelihood in India by 2029–30; the labour policy must ensure a robust minimum level of employment quality.
Most importantly, for India to harness its demographic dividend and not make it a missed opportunity, investment in skilled education is needed to nurture a workforce equipped with employable skills.
India’s demographic dividend offers immense potential, but without addressing unemployment, skill gaps, and informal employment, it risks becoming a lost opportunity.
(The writer is Assistant Professor, Department of Economics, SGGSCC, University of Delhi. Views are personal)
