Macroeconomics

Losing one half of India's demographic dividend

  • Blog Post Date 21 April, 2014
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Jayan Jose Thomas

Indian Institute of Technology, New Delhi

jayanjthomas@gmail.com

The working-age population in India is set to increase by more than 200 million over the next two decades. This column contends that India may fail to reap the benefits of this demographic dividend because of the extremely low rates of female participation in the workforce. There is a need for growth in job opportunities in high productivity sectors such as industry and services, particularly for women.



The predictions on how population size affects economic growth have taken some curious twists over the past few decades. A large population was considered to be a curse, especially for poor developing countries. The ‘population bomb’ poses a severe strain on the limited resources of these countries, argued a 1968 bestseller1. On the contrary, in recent times, economic prospects are considered to be the brightest for countries possessing the so-called demographic dividend - that is, for countries with relatively high proportions of their population falling within the working-age years.

Beginning in the mid-1970s, China succeeded in dramatically reducing its fertility rates, thanks mainly to its one-child policy, which resulted in a sharp rise in the proportion of its working-age population. China’s economy has boomed during the decades that followed, with a rapidly growing manufacturing sector absorbing the new entrants to its workforce.

Commentators say that it is now India’s turn to reap the demographic dividend. Estimates by the World Bank show that the population aged 15 to 59 years is set to increase massively in India by more than 200 million over the next two decades (to reach 972 million by 2030). On the other hand, during the same period, working-age population is expected to decline in most developed regions of the world and even in China. In other words, India will be contributing a substantial chunk of the increase in the global labour supply over the coming years.

Low rates of female workforce participation

Nevertheless, India might fail to reap the benefits. This is mainly on account of the extremely low rates of female participation in the country’s economy. The proportion of females (aged 15 years and above) who are in the labour force in 2012 was only 29% in India, compared to 64% in China.

There are, of course, a number of social and economic factors that tend to reduce female labour participation in India. These often include discouragement from husbands and in-laws, and also discrimination at the workplace. But at least as important is the discouragement arising from the sheer absence of suitable employment opportunities.

Labour market changes

Although the Indian economy witnessed considerable expansion of incomes since the mid-2000s, its record on employment generation has been far less impressive. Evidence on this comes from the Employment and Unemployment surveys conducted by the National Sample Survey Organization (NSSO)2.

The NSSO surveys show that persons engaged in agriculture and allied activities in India declined to 224 million in 2011-12, from 258 million in 2004-05, although they still comprised nearly a half of India’s total workforce (numbering 472.5 million). There are many reasons for this decline. On one hand, agriculture is becoming non-remunerative in many regions of the country, as shown by the studies conducted by the Foundation for Agrarian Studies3.

On the other hand, there is now evidence on how growing numbers of India’s youth are leaving farm work and joining schools or colleges (more on this later). Almost 80% of those who left agricultural work after 2004-05 were females. A majority of them had been engaged in agriculture as a last resort, to help their households escape impoverishment. But a modest revival in agricultural growth and a pronounced expansion of employment through the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) and other public works from the middle of the 2000s considerably reduced the need for such distress-induced employment.

The NSSO survey data point to a remarkable growth in the population of students in India since the 2000s. This growth has been marked in rural areas, among females, and among persons belonging to poorer households. Particularly noteworthy has been the growth in the population of students who are aged 15 years and above, indicating some improvement in the enrolment for higher education in the country. It needs to be noted that more than half of India’s rural females aged 15 to 19 years were attending educational institutions in 2011-12.

With more workers leaving agriculture, there is greater demand for new employment opportunities in industry and services. Students do not form part of the labour force. But a growth in their numbers now suggests a rising supply of educated persons seeking high value-adding jobs in the future.

Given such a context, the growth of employment in India between 2004-05 and 2011-12 was far from sufficient. The increment to non-agricultural employment in the country during this period was 48 million. As much as half of this incremental employment (24 million) occurred in just one sector, construction, which is in general characterised by poor wages and work conditions. On the other hand, manufacturing, which has absorbed vast numbers of the labour force in East Asia and China, generated only 5.1 million jobs in India during the seven years following 2004-05.

Of particular concern has been the distribution of this employment growth. The majority of new jobs in the high-productivity sectors went to men in urban areas. For instance, despite having a share of only 16% in India’s total population, urban men held 77% of all jobs in the country in computer and related activities (in 2011-12). At the same time, low productivity jobs in construction provided 70% of the incremental employment for rural males during the 2004-12 period.

Females discouraged due to low labour demand

Women workers accounted for only 18% of the net increase in non-agricultural employment in India during 2004-12. The share of women in the incremental employment generated in high-productivity sectors such as finance, business services, and computer and related activities was particularly low (for example, women received only 18% of the incremental employment in computer and related activities during this period).

Between 2004-05 and 2011-12, the population of urban females aged 15 to 59 years increased by 26 million in India. Out of this, an increase of 6 million was that of urban females who were enrolled as students. The remaining 20 million urban females were potentially available for work in industry and services. In addition, there were 1.5 million urban females who exited agricultural labour during this period and were available for employment outside agriculture.

On the other hand, consider the number of urban females who were actually absorbed in industry and services in India between 2004-05 and 2011-12: a meagre 3.7 million.

Where does that leave the rest of the incremental population of urban females in India during 2004-12? A vast majority of them opted out of the labour force. According to NSSO, as many as 17.7 million out of the incremental population of 26 million urban females in India during this period (2004-12) were attending to domestic duties in their own households.

There were a total of 230 million women in India who were attending to domestic duties and were considered to be outside the labour force in 2011-12. Significantly, this numbers exceeds the entire population of Brazil. The proportion of females attending to domestic duties in India is relatively high among the better educated and among those belonging to richer households.

Policies should promote growth of decent jobs, especially for women

The slow growth of jobs in the Indian economy is an obstinate hurdle, stopping females on the march to claim their rightful place in the economy and society at large. Without doubt, India’s economic policies need to be geared towards a significant revival in the growth of decent jobs, especially for women. A failure to do so would put India at the risk of losing its demographic dividend - the female part of this dividend in particular.

A shorter version of this column appeared in the Hindu Business Line.

Notes:

  1. Ehrlich, P. (1968), The Population Bomb, New York: Ballantine.
  2. NSSO’s 61st, 66th and 68th rounds of surveys held in 2004-05, 2009-10 and 2011-12 respectively, were used. Details available in articles by the author published in the Economic and Political Weekly on 22 December 2012 and 8 February 2014. Full references are in the Further Reading section below.
  3. See Ramachandran and Rawal (2010) and articles published in the Review of Agrarian Studies (available at http://www.ras.org.in/)

Further Reading

  • Ramachandran, V K and Vikas Rawal (2010), “The Impact of Liberalization and Globalization on India’s Agrarian Economy”, Global Labour Journal, 1 (1): 56-91.
  • Thomas, Jayan Jose (2012), “India’s Labour Market during the 2000s: Surveying the Changes”, Economic & Political Weekly, 48 (51): 39-51.
  • Thomas, Jayan Jose (2014), “The Demographic Challenge and Employment Growth in India”, Economic and Political Weekly, 49 (6): 15-17.
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