Business & Strategy

Demographic Dividend or Burden?

The disproportionate focus on skilling as the solution to job creation and poverty alleviation takes the argument away from the more important and urgent prerequisites for job creation

K. Ramkumar
Updated: Feb 25, 2013 04:19:36 PM UTC

K Ramkumar, Executive Director and Head of Operations & Human Resources at ICICI Bank, loves examining the other side of the traditionally accepted views. He examines everything that comes in his way. That has helped him to broaden his perspectives, something that he would have otherwise never done. Even while reading, he debates with the author by writing on the margins. Ram, as he’s popularly known to his colleagues and friends, believes that there is nothing more joyous than having an open debate with an equally passionate and experimental individual. The outcome is not important. What matters is a counter point - the other perspective to every viewpoint. A science graduate and a post graduate in Personnel management and Industrial relations, Ram is an ardent sports fan. He prefers to be in the game as it keeps him engaged with others. He also enjoys making short documentary films.

Economics tells us that capital, land, labour and time have to be leveraged for the creation of surplus and well-being. The relative value and productivity level of each is very different. But when combined, their forces multiply.

Over the past few years, we have repeatedly placed excessive faith in India’s demographic dividend. Some even take it too far, and predict how this will lead us to economic superdom. We, thus, are bandying our only card—labour—as our trump card. We are also being told that all our problems will be solved, if we fix the problem of skilling the teeming millions of young people. These precepts need closer examination, lest we are in for a rude shock a couple of decades down the road.

Let us first examine the data that is being presented in support of the dividend argument. For the next 35 years, close to 70 percent of India’s population will be between the age of 15 and 59. The corresponding figure for Europe and USA is about 50 percent.

By 2050, India will have 100 crore employable people. This is presented as the dividend against USA’s 27 crore employable people and Europe’s 45 crore.

Currently, less than 20 percent of our workforce is formally or non-formally skilled; the rest is unskilled. While a majority of the unskilled population is counted as employed, the reality is more than half of them are falsely counted as employed in agriculture. The past decade saw us create five crore jobs. During this period, the growth in the service sector offset the shrinking jobs in manufacturing and other non-service industries. The best decade for China saw it creating seven crore jobs.

Hence, the moot questions are: • Is lack of skills hampering job creation, or is inadequate job creation a disincentive for investments in formal skilling?
What are the prerequisites for creating one crore jobs every year, for the next 30 years?
• Can it be done?

The argument that jobs can be created largely by skilling people, and sufficient capital will flow, is presumptive. Even if capital were to flow, the absorptive capacity within a time frame is challenging. The jobs-to-GDP ratio is about 50 percent for the service sector, and about 70 percent for non-service industries. As such, the service industry is over represented in its share of the GDP, and does not have any more head room to be a bigger GDP contributor. Hence, it has limited scope to contribute a lion’s share to job creation.

For our demographic dividend to indeed become our strength, a minimum of seven enablers are a pre-condition:
1) Large-scale and sustained long-term investment in infrastructure and energy. Infrastructure creation being relatively labour intensive, it will help absorb the capital and labour surplus.
2) Large and sustained capital flows into India or the service industry, creating large capital surplus for deployment into infrastructure, energy and water management.
3) India becoming a global-scale manufacturing hub, earning large and sustained surplus that will aid capital buildup for deployment in manufacturing and infrastructure.
4) Large-scale re-generation of arable land, world-class water harvesting and irrigation, and land and crop productivity to sustain and create jobs in agriculture.
5) Strong logistics and cold chain infrastructure that will eliminate wastage of agricultural produce and develop a global-scale agriculture and food industry.
6) Science- and technology-driven inventions and innovations to reach global markets with pricing power.
7) Long periods of relative internal and external peace, so that we do not waste the already scarce resources of capital and time.

The disproportionate focus on skilling as the solution to job creation and poverty alleviation is dis-ingenious. It takes the argument away from the more important and urgent prerequisites for job creation. It is a populist position. The pressing and urgent issue is to not let capital remain idle and labour non-deployed as we inordinately postpone resolution of land and mineral disputes. If this is a pause button that has been pressed briefly to negotiate compelling social imperatives, it is understandable. No country, including the USA, has been able to embark upon sustained growth without resolving the robber barons challenge. Good governance aids resolving conflict between social equity and economic development. Capital, land and labour come together to create value when this happens.

The presumption that skilling will create jobs is like putting the cart before the horse. The idea will not take off because enrolment for skilling will not happen without a line of sight for jobs. World-wide, non-formal skilling has always preceded formal skilling. Non-formal skilling initiates growth in an industry; formal skilling follows to create productivity.

The development of rail road, aerospace, health care, telecom and infrastructure industries, globally, was initiated with non-formal skilled labour. The industrial revolution and the IT revolution was birthed by gifted inventors, invested into by enterprising capitalists and set into motion by hordes of non-formal labour. It is always a decade into the growth of an industry that formal labour skilling infrastructure develops. Another example of this is the development of the Indian IT industry. Some certainty and scale is required for any entrepreneur to invest in establishing a formal skilling setup.

A warped understanding of economics, and history of economic development, will make us choose the wrong priorities. As such, over-specification of knowledge and skills is fast making our economy prematurely unviable. As with capital, if labour is over-specified and over-priced in the take-off stage of any economy, it will hard land very quickly, like Japan and the tiger economies.

Labour, like capital and land, will be a dead weight when not leveraged and deployed. If we want 50 years of sustained growth, then we should get our priorities correct. In the absence of 50 years of sustained growth, regardless of whether we skill our people or not, our demographic dividend will turn into a burden. For a country with one-sixth the global population and a fraction of the global land mass and energy reserves, it could be our worst nightmare.

P.S The background work for this blog done by my colleagues Srirang, Sunil Prabune, Abhijit Bhattacharya, Nidhi Kajharia, Amit Vatsa and Sohadeep Singh. They helped me with the data and also to think through this blog. Thanks guys

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