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K. Ramkumar
Challenges conventional notions and speaks his mind out, encourages others to do the same

Demographic Dividend or Burden?

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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excellent presentation. I fully agree with you that the much hyped demographic dividend in our country may prove to be a burden if proper development strategy is not chalked out and implemented with all sincerity.

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“On a lighter note, I may say that unlike a corporate dividend, the demographic dividend will not be directly credited to our account or couriered to our address. It will be available to us only if we are proactive and well prepared for it and this fact has been very well brought out by Ram and his team. It is a great opportunity which India cannot afford to lose. Much have been boasted about the demographic dividend that is believed to be due to India. This article however throws light on the other side especially the climax which I believe, will compel every reader to think likewise.”
This is a very thought provoking post, which addresses an extremely relevant issue in today’s context. You make a valid point that job creation is vital to leverage the dividend. However, the inability of the landmark Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) by the Government, aimed at providing employment through primarily semi or unskilled work to people living in rural India, to fulfill this requirement indicates that this might not be the desired approach. Getting people into employment at an early stage might shift the focus from education and deprive them of opportunities for social mobility. As per the 2011 census data, the most productive part of today’s workforce comes from the more developed states of Tamil Nadu, Karnataka, Maharashtra, Punjab and Kerala. However, most of the births in the last decade have been in states with the lowest human development indices. This indicates that the need of the hour is for multiple stakeholders to get together and explore ways in which the basic development needs are fixed at the grassroots lest tomorrow’s workforce be even less employable. Apart from basic programs that focus on health and nutrition, quality education is a critical requirement at various levels. What would work in this context is a spectrum approach, akin to what we at SHRM in India are using to focus on HR. At one end, we are improving the quality of HR education by designing and enhancing the curriculum for upcoming institutes. Further along the spectrum, we are liaising with corporates to bridge the gap for students from tier II and III institutes to help them gear-up for the changing needs, skill requirements and hiring requisites of their respective industries, thereby getting them corporate ready. On the other end, we have undertaken a research project on Multigenerational Diversity in the Indian workforce with Prof Vasanthi Srinivasan from IIMB to help us understand and prepare organizations become more inclusive for the incoming workforce and leverage its diversity and strengths. Such programs need to be scaled up at multiple levels. The key is to integrate and leverage the initiatives across business, NGOs and the government to compound the results and address the requirements at a macro level. Thank you for initiating this extremely pertinent conversation on a public forum. This subject merits open debate to highlight the underlying, oft neglected issues and translate the thought leadership that emerges through such platforms into actionables.
Human capital of India is seen by the developed and progressive countries as a competitive advantage considering they have low birth rate and increasingly they are vulnerable to the challenges of lower productive work force because of higher ratio of old people,this will also impact poor resource mobilization and slower GDP growth rate.
India will have to leverage on the advantage by increasing higher proportion of GDP expenditure on quality educations,skill building vocational trainings,health and insurance since the combination of available natural resources with skilled population can help India to repeat the China story for atleast next two decades.The challenge before China post 2020 will be the growth rate of skilled working population ,when India will be in a comfortable double digit growth China will be grappling at a single digit growth.
Various data analysis and forecasting model shows China,Russia and India alone are expected to account for 30.4% of global GDP in purchasing power parity(PPP) by 2020.
The challenge will be the rapid climate change can limit the growth trajectory of the sectors like agriculture,natural resource linked manufacturing.However, service sector can sustain the growth trajectory with proper nurturing and skill building of healthy human capital in balancing demand creation and matching consumptions.
The other side of the challenge on non leveraging of human capital right on time can expose India to severe scarcity of resources, ,contracting the investments and consumptions thereby limiting the growth story and exposing to economic crisis.
Human capital of India is seen by the developed and progressive countries as an competitive advantage considering they have low birth rate and increasingly they are vulnerable to the challenges of lower productive work force because of higher ratio of old people,this will also impact poor resource mobilization and slower GDP growth rate. India will have to leverage on the advantage by increasing higher proportion of GDP expenditure on quality educations,skill building vocational trainings,health and insurance since the combination of available natural resources with skilled population can help India to repeat the China story for atleast next two decades.The challenge before China post 2020 will be the growth rate of skilled working population ,when India will be in a comfortable double digit growth China will be grappling at a single digit growth. Various data analysis and forecasting model shows China,Russia and India alone are expected to account for 30.4% of global GDP in purchasing power parity(PPP) by 2020. The challenge will be the rapid climate change can limit the growth trajectory of the sectors like agriculture,natural resource linked manufacturing.However, service sector can sustain the growth trajectory with proper nurturing and skill building of healthy human capital in balancing demand creation and matching consumptions. The other side of the challenge on non leveraging of human capital right on time can expose India to severe scarcity of resources, ,contracting the investments and consumptions thereby limiting the growth story and exposing to economic crisis.
Sanjai Tripathi
There is nothing like this dividend is coming automatically, if complementary institutions to improve skill and economic policies are not in place, this dividend could turn out to be a ‘nightmare’ rather than a ‘gift’ because a large cohort of young unemployed people can turn into an economic and social disaster. Most populous states in India like UP and Bihar are at lower rung in economic growth only due to non existence of policies and planning to take advantage of the growing population..
Rakesh Jambusaria
Demographic dividend in abundance beyond sustainability can very well become a problem of plenty. The key enablers to leverage the dividend are the ones that are oulined in the blog. With the other resources being very scarce in comparision to the demographic resources, productive utilisation of these resources would be a key success factor. Sufficient productivity of the incremental and largely external resources could act as a multiplier to incremental resources flowing in leading to a platform to fully leverage demogrpahic resources to dividend. Another area that could be relevant would be the adherence to accountability in utilisiation of all resources to optimise productivity and eliminate waste.
Another datapoint / reference point for the argument in the blog - Let us for a moment assume that we are able to even address the gap in the soft skills amongst engineering graduates to the extent of 10 to 20% across the country, which is a need being articulated by many. Are there jobs for them? Not so sure, since the hiring has come down dramatically in one of the largest employment sectors namely IT. A second thought is on is there not an 'optimum' like it is is in all facets of life. Number of employable people beyond a particular threshold can be counter-productive and in fact lead to social tensions. And this threshold has to be determined for each country / state based on their local context and conditions. Could the futureunfold a scenario, where global mobility (not restricted to IT) helps create an equilbrium.
I completely agree with you, Ram. If we don't act quickly on the imperatives that you have outlined, the Demographic Dividend could turn into a Demographic Nightmare. Consider the scenario where millions of aspiring young Indians, armed with college degrees and dreaming of a brighter tomorrow, do not have enough opportunities; or as Ram points out, there are not enough farm jobs or employment generating investments in the infrastructure sector. It's scary. Unfortunately, we have tended to hype the economic side of the India story, while not paying enough attention to the social dimension. It is not too late, even now, but we must act fast.
"Demographic dividend" in economic parlance portends a huge opportunity. "Opportunity is a bird that doesn't perch". It often beats me that we as a nation with our globally accepted intellectual capital are unable to embark on the path that Ram and his erudite ilk are so eloquently enumerating day after day. Political class is faced with a stalemate like situation - politically populist budget or practically economical one with long-term horizon. The same demographic dividend - unguided, untapped, unskilled - will become our bane if they go for the former than the latter!
There is undoubtedly a demographic advantage. Whether the demographic advantage can be leveraged to get dividend or not would, on the labour factor, be impacted by labour mobility and labour productivity. The US and western Europe did not manage to earn long term dividends due to high capital mobility and low labour mobility - a result of their inward looking culture. High capital mobility led to flight of long term capital and resulted in stagnating national income and declining standards of living for the majority. India and China, in comparison, has been more outward looking and have had people exploring education and work opportunities worldwide. A continuing trend is likely to have positive impact over the long term. The other significant contributor factor would be labour productivity. I agree that there has been considerable movement on the services sector, but the manufacturing and agricultural productivity is not comparable to international standards. We have never had a decade long sustained revolution, the country always been driven by a reformist agenda. The enablers mentioned and a decade long boost to manufacturing and agricultural productivity would go a long way in conversion of the demographic advantage into a dividend.
I am enclosing herewith an equation showing contribution to per capita GDP of India. Indian GDP Per Capita GDP = ------------------------- Indian Population Agro GDP + Industrial GDP + Service GDP 15% 20% 65% = ------------------------------------------------------------ Agro + Industrial + Service Workers Workers Workers 53% 12% 35% As can be seen from the equation, if India’s per capita GDP is to go up, it can only happen if the Industrial GDP goes up from 20% to say 30% and the work force depended on industry goes up substantially from 12% to let us say 52% of which 40% will be redeployment of the agricultural labour. The only skill the agri labour knows is agro and related skill and retraining them manufacturing skills is important. Such skill development could not only increase productivity of the work force in the existing industrial activity but also is required for government plan to raise manufacturing activity by 10%. But not only that skilled work force to creation but a desciplined work force is important and that is only possible if apprenticeship with skill development to create descipline work force is created. It will not only make them employable but in the process also increase contribution of manufacturing to the GDP ratio and in the process increasing per capita GDP
Manish Sabharwal
Couldnt agree more Ram. India is a hostile habitat for job creation. Entrepreneurs have to substitute for the state (generate our own power, provide transport, security and even skill our own employees) and infrastructure is key to making India fertile soil for job creation. Once job creation accelerates, all else will follow.
I actually feel humbled and encouraged seeing the comments. The breadth of perspectives is truely stunning. No one writer can have or reflect this breadth. See the beauty here, we can all converse.
My argument in the blog is that we have a challenge to leverage our demography to make it a dividend. For 400 years after Industrial revolution we have always believed that the globe cannot support its bugeoning population and there will be a resource crunch. We have also believed that automation will kill jobs and make people redundant. Both these fears have been proven wrong because of human ingenuity. Though the best we have seen is China finding jobs for 7 crore people in a decade, we need to use the same ingenuity to find 10 crore jobs every decade for the next 3 decades.
The issue with the wealth argument is how it gets deployed and distributed. If it is grossly lop sided and unproductive then we have a problem. No growth can over come the angst of those left behind and social inequity. It will quickly be stalled by those who are being left behind, if not by violence atleast by withholding the land and minerals access. No government can ride rough shod on this.
Lastly Africa has its own problem to deal with. When Africa and China are net exporters of human resource to the other parts of the world, we need to compete there also. Africa has 2000 years advantage of access to Europe for trans placing its human resources. China uses its geo political muscle. We need to find ours. Otherwise our old and tired land will creek at burden of one sixth of the global population, young, aspiring and impatient with lively hood issues. I am not sure that our policy makers and politicians have credible alternatives. That is why we need our discussion and focus to shift to Job creation and not only skilling. Skilling is easier than job creation and has a relatively shorter lead time to achieve, though the sacle will be challenging.
What I find really fascinating about the population profile is the sheer size which would be wealthier that what they ever were in the past and with a trend line which is "northbound".... it is this aspect which would feed consumption demand. This demand in turn would feed the need for investments and the need for infrastructure development which is sustainable and self paying. All this points towards a virtuous cycle.
These tailwinds are perhaps the strongest in India compared to other nations.
The argument about the ability to provide adequate job opportunities for the available employable population is indeed strong. In such a context, I feel the surplus labour will flow to regions of job opportunities. It could well be Africa, China, US or South America over the next 30 years.
While I do agree the enablers you have mentioned are important and facilitative in pushing forward the demographic dividend , I see them as inevitably playing out in the context of the overall global situation we find ourselves..
I for one do believe that the demographic profile is indeed a dividend.
Who doesn't know that India's population is not a 'dividend.' It's going to be a huge crisis.
We are not going towards a future where the world needs 100 million call center professionals that India is going to supply. IBM Watson and its successors will probably take care of that.
The future won't be needing 100 million people on the assembly lines of automakers. Robots are already replacing humans in more and more of these routine jobs.
And the future most definitely is not one where we need 500 million people involved in agricultural activities and doing everything manually. Nor should we aim towards a future where 200 million people are employed as brick-layers or masons at construction sites.
Indeed, if we value human life at all, we should not be employing 'maids' in our houses nor should there be rickshaw-pullers.
What we need is human 'brain' capital — men and women who'll pioneer neuroscience and extend the envelope in materials science and space research and nanotechnology and quantum computing.
@sachi_bbsr
Subhash Subramaniam
Insightful piece and I agree with it for the most part. But the article is silent on one of the key pillars of wealth creation - enterprise (entrepreneurship). Amongst all the factors of production, this one is perhaps the most difficult to measure, to source or to develop. But history has shown that the greatest wealth creation achievements are invariably driven by this factor more than any of the other factors (think Steve Jobs, think Warren Buffet, think Dhirubhai Ambani or Narayana Murthy closer home).
While it is difficult to develop enterprise in the economy with any degree of certainty, there are certain factors which are necessary (but not sufficient) to foster the development of enterprise: (a) an equitable business environment driven largely by market forces (operating on the general principles of risk and return) (b) an efficient and largely reliable judicial and law enforcement system (c) an ecosystem that offers relatively easy access to the other factors of production (capital, land and labour).
Of these 3 factors, while we have managed the third factor for the most part, the first 2 factors have been drifting steadily in the direction of anarchy. Your blog talks about robber barons. While all the noise we hear has been about their misappropriation of national resources and public money, or about their systematic subversion of the governance systems in the country, perhaps their biggest and most unwitting damage has been the subversion of enterprise over a generation.
But all is not lost. The emergence of visionary "economic politicians" (distinct from political economists) such as Mr. Nitish Kumar in Bihar and Mr. Narendra Modi in Gujarat has shown that a few years of the right kind of leadership has the potential to reverse the ill-effects of long spells of dormancy of enterprise and unleash a fresh tornado of growth and positivity. A few more such leaders in some of the other states, and it would generate sufficient momentum to conclusively swing the tide for the nation as a whole.
And powered by that resurgence of enterprise, we would truly have a supercharged demographic dividend beating all expectations.
Well written article. The question raised is very relevant. Before getting into solution, it is key to get the question and problem statement correct. This article raises the same. When we meet a friend after a considerable time and in the interim if he has put on excessive weight around his waist, we generally greet him that he has become prosperous. Growth of country can also be compared to this. We end up being happy at the growth rate, without looking at where we are growing and where we are not. Mere hope that we will continue to grow will not take us anywhere.
It is an enlightening article giving a completely different perspective on the much spoken topic of demographic dividend. One other concern I have is the need to have increased quality food consumption by all the youngsters [enabler 4]. Over the years, our average protein intake has fallen from 62g to 57g during1993-94 to 2004-05 as against world average of 77g/person/day and developing world average of 70g/person/day. Amino acids generated from the protein are the building blocks of our brain’s network. Amino acids can excite or calm our brain; nourish or intellectually starve the brain. Our growth rate of protein foods like dairy outputs and soya in our vegetarian dominant society is much less than the growth rate of our younger generation. We cannot afford to import apples to pulses always, with deteriorating CAD. Underfeeding quality-wise could lead to increasing social unrest by the young. When Condoleezza Rice, former US Secretary of State said that we Indians are eating more rice leading to price rise, we did not like that remark but we should look at the harsh truth more sincerely as made out here. Should not the dividend be in the form of some nobel prizes?
This is very apt for the current situation. The key is not the number alone but the quality of the manpower as well as the support systems mentioned by you.
Milind Sharad Bhalerao
There is a saying in Mahabharata somewhat like this "Raja Kalasya Karanam va Kalo va Karanam Raja; iti sanshayo ma bhoot; Raja kalasya karanam" As the ruling political leaders do not have vision and playing vote bank politics for short sighted electoral gains, the young population will be a burden. They are not interested in development of India but interested in clinging to power by any means. Not only young population even nature is a huge dividend to India. But for last 66 years after independence, our rulers have wasted natural dividend also. India is the only country blessed with timely rainfall yet we have acute water shortage in many cities. "Raja" ie our rulers are "karanam" ie cause for this "kalasya" ie bad state of many things in India. Yet our elite class shies away from calling these rulers unfit eg Manmohan Singh. We deceive ourselves when we look for analysis of things somewhere else
Sai prasad somayajula
I fully agree with your views. The preference towards service sector jobs at both job seekers and job creators end is disproportionately high. Be it for lack of dignity of labour or any other reason i guess. In canada, depending on student performance at high school, his or her career path is well defined between apprentice (shop floor jobs like car me hanic, ac technician etc), workplace (accountant, office assistant etc), academic (university degree for higher research). High schools start counselling students in their graduating year of high school about their recommended career path and transition them seamlessly. Approximately, an equal number head to apprentice, workplace studies and universities
I want acknowledge the background work for this blog done by my colleagues: Srirang, Sunil Prabune, Abhijit Bhattacharya, Nidhi Kajharia, Amit Vatsa and Sohadeep Singh. This team helped me with the data and also to think through this blog. Thanks guys.
 
 
K. Ramkumar
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.
 
 
 
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April 15, 2014 18:00 pm by sujatha
excellent presentation. I fully agree with you that the much hyped demographic dividend in our country may prove to be a burden if proper development strategy is not chalked out and implemented with all sincerity.
August 12, 2013 16:50 pm by Demographic Dividend or Burden? | The Other View
[...] 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. Read more [...]
April 19, 2013 12:19 pm by IntelleCash » Blog Archive » Understanding Urban Skill Development
[...] http://forbesindia.com/blog/business-strategy/demograhic-dividend-or-burden/ [...]
April 19, 2013 12:05 pm by Understanding Urban Skill Development
[...] http://forbesindia.com/blog/business-strategy/demograhic-dividend-or-burden/ [...]
April 12, 2013 12:30 pm by Dilip Mohatta
“On a lighter note, I may say that unlike a corporate dividend, the demographic dividend will not be directly credited to our account or couriered to our address. It will be available to us only if we are proactive and well prepared for it and this fact has been very well brought out by Ram and hi...