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INDIA'S DEMOGRAPHIC DIVIDEND: REALITIES

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The Indian Journal of Labour Economics, Vol. 57, No. 1, 2014

research notes
INDIAS DEMOGRAPHIC DIVIDEND:
REALITIES AND OPPORTUNITIES
Chaitanya Talreja*
The growth of the population and its bearing on a nations growth constitute a
two-way phenomenon. The population growth adds to the growth and development
of a nation through the supply of a workforce but at the same time, it also adds to
the number of dependent individuals in the economy. India has the opportunity to
reap the so-called demographic dividend (an increase in the ratio of the population
aged 15-64 years to that aged 0-15 years and above 65 years) till 2040, after
which the population would start ageing. This benefit can materialise only if this
huge potential of the working age population is channelised in the right direction,
that is, if the labour force can be gainfully employed. The challenge is to transfer
the surplus labour from agriculture to industry, thereby increasing productivity
in both the sectors, and also to minimise the informal sector employment in order
to maintain the quality of work in all sectors. This challenge itself represents a
dual aspect because both sides, that is, the supply of and the demand for labour,
need to be focused upon. On the supply side, a huge skill gap has to be bridged
while on the demand side, there is need for skill matching and the creation of
opportunities. Against this background, this paper seeks to explore the realities
and opportunities that the Indian economy is confronted with today.
Keywords: W
 orking age population, Demographic transition, Demographic
dividend, Employment growth, Informal unemployment, Working poor,
Youth employment, Skill mismatch, Technological change, Skill gap
I. INTRODUCTION
Empirical analysis has shown that during the process of demographic transition also, countries
undergo a change in the age structure of their populations. This view is different from the
views prevailing in the twentieth century (primarily during the 1980s) that population growth
has a neutral effect on economic growth ceteris paribus as the positive and negative effects
cancel each other out and the effect of the population on economic growth was not clear.
Also some people feared that excess population would have a negative effect on economic
growth. Contrary to this view, some researchers have now shown that population growth
can have a positive effect on economic growth through the changing age structures of the
population. This is further endorsed in the following quote from Bloom and Canning (2004):
* Research Assistant, Tax Havens Team of the Centre for Economic Studies and Planning, Jawaharlal Nehru University
(JNU), New Delhi; Email: chaitanya4092@gmail.com

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Peoples economic needs and contributions vary over the life cycle. For example, young
people tend to be net consumers, while working-age people tend to be net producers and
savers, with the elderly falling somewhere in between. This implies that the age structure
of a population may be very consequential for its economic performanceas measured by
income per capita. Large youth and elderly cohorts might slow the pace of economic growth,
while large working-age cohorts might speed it.

Economic growth is attributed to the rise in the share of individuals of working age
(15-64 years) in the total population with respect to those in the non-working ages (0-15
years and above 64 years). Demographic transition initially starts with high death rates
and birth rates, with a gradual decline in mortality rates [primarily Infant Mortality Rates
(IMRs)] resulting from the availability of better health facilities and sanitation, followed
by a lagged decline in birth rates. The decline in birth rates comes about due to changing
social norms regarding childbirth, the increased use of contraceptives, implementation of
population policies by the Government, the spread of education, reduced IMRs, increased
female Labour Force Participation Rates (LFPRs), an increase in the age of marriage, and
region-specific reasons. This leads to a growth in population (with the birth rates being higher
than the death rates), which is referred to as the baby boom, as this type of population
growth occurs due to the existence of a larger number of young persons as compared to
earlier periods. This boom has an echo effect, which lasts for around 25 years when the
initial baby boomers reach their reproductive age and another round of young population gets
added to the total population, which in turn, leads to a rise in the working age population.
This phenomenon provides a link between population growth and economic growth, but this
link is not an automatic link. Bloom and Canning (2004) have shown that this link has to
be established through sound institutions, flexible labour laws, openness of trade, and good
governance. They have presented the cases of Ireland and Taiwan, which have successfully
reaped the benefits of the demographic dividend. The former benefited through an increased
labour supply while the latter saw an increased savings rate and investments. In each of the
countries, the government has intervened in the appropriate areas. Healthcare and education
are given adequate attention, and investment in these sectors can be recouped in the long
run. It has also been noted that Latin American countries too had a similar opportunity for
recouping but they wasted it due to the lack of relevant policies. Sub-Saharan Africa has
been plagued by the spread of HIV/AIDS, which accounts for the death of a large section of
its population annually, and mostly among the young age groups. There are thus examples
of both demographic dividend as well as demographic debacles.
The objective of this paper is to present a brief inquiry into the Indian situation with respect
to the benefits that it can derive due to its demographic advantage, given the constraints it
faces. Section II of the paper illustrates a picture of Indias present and future demographics.
Section III is sub-divided into three parts, wherein sub-section 1 discusses the employment
scenario in India, followed by sub-sections 2 and 3, which present the concept of skill mismatch
and the effects of skill mismatch and technology on employment; and the possibility of skill
mismatch in India respectively. Section IV concludes the analysis.

research notes 141

II. THE INDIAN DEMOGRAPHICS

The trends in Indias demographics show that India is home to relatively the youngest
individuals across the world (see Figure 1). We can see from Table A.1 that in 2010, the
total working age population in India was 64.5 per cent of the total population, which is
projected to rise to 68.3 per cent by 2040, after which we would see a declining trend in
the share of the working age population in India. A careful analysis of Figure 2 and Table
A.1 indicates that the rising trend in the working age population, in fact, started around
1970. Tables A.3 and A.4 show that there has been a sharp fall in the crude birth rate and
the total fertility rate since the year 1970 onwards, coinciding with the rising trend in the
working age population. Now if we look at Table A.2, we would be able to appreciate the
fact that the rising trend in working age population is also accompanied by a falling trend
in the total age dependency ratio and child dependency ratio. This implies that the bulge
in the working age population can be attributed to a decline in the number of dependent
individuals in the age group of 0-14 years, which is also reflected in the falling crude birth
rate and the total fertility rate. In Table A.6, the individuals in the age group of 15-24 years
as a percentage of the total population can be seen to be falling marginally since 1975, but
this fall has been sharper since 2010 onwards, the implication of which is discussed in subsection 3 under Section III.
Figure 1
Age Structure of the Indian Population
Total
60+
7.5%

0-4
10.0%
5-9
10.0%

10-14
10.9%
15-59
61.6%

Source: http://www.censusindia.gov.in/vital_statistics/srs/Chart_-2010.pdf, Accessed on 06/05/2013.

The old age dependency ratio exhibits a rising trend from 1995 onwards and has been
forecast to rise continually. It is most likely that the dependency would shift from the
lower to the higher age groups due to the ageing of the population by 2050. According to
Chandrasekhar, et al. (2006), in 2020, the average Indian would be around 29 years old
as compared to a corresponding age of 37 years in China and the US, 45 years in Europe,
and 48 years in Japan. This clearly shows that India has a relative demographic advantage,
which might be translated into a higher national income and better standard of living due

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Figure 2
Projection of the Indian Population by Major Age Groups

Source: United Nations, Department of Economic and Social Affairs, Population Division (2011): World
Population Prospects: The 2010 Revision, New York, Updated24 October 2012 (GKH).

to the higher number of individuals who would be working and saving. However, this link
between the demographic advantage and economic growth needs to be engineered with the
help of active Government support in the areas of education, healthcare and employability
in order for the rising labour force to be productively employed, failing which the supposed
demographic advantage could turn into a demographic disaster.
III. THE EMPLOYMENT SITUATION IN INDIA
This section highlights the employment situation in India and its sector-wise composition.
It also discusses the skill mismatch and technological change in light of the conceptual
understanding and case studies of a few economies. This is followed by an attempt to plug
these factors into the Indian case as possible explanations for Indias unemployment pattern
and the skill gap that has to be bridged from both the labour demand and supply sides.
1. Economic Growth and Employment in India
Employment has for long been understood as a corollary to economic growth. At first glance,
it seems obvious that as the national income in an economy grows faster, there would be
trickle-down effects on employment growth as well. However, when we talk about Indias
employment growth, the available data suggests that the latter has not been commensurate
with its economic growth. Indias GDP growth hovered at around 3.5 per cent until the
1980s after which it picked up. It was more pronounced after liberalisation during the 1990s.
The employment trend has not been similar, as historically, labour force growth has been
surpassing employment growth, rendering many unemployed.
(i) The Employment Scenario in India
The report of the working group on employment, planning and policy for the Twelfth
Five Year Plan (2012-17) (GoI, 2011), presents the current employment situation in India

India's demographic dividend 143

on the basis of three criteria, viz., Usual Principal and Subsidiary Status (UPSS), the
Current Weekly Status (CWS) and the Current Daily Status (CDS) between 1999-2000
and 2009-2010.
According to the above report, the LFPR declined between the years 2004-05 and 200910, on the basis of all the three approaches, that is, the UPSS, CWS and CDS from 43 per
cent, 40.7 per cent and 38.1 per cent, respectively, to 40 per cent, 38.4 per cent and 36.5
per cent, respectively. Similarly, the Workforce Participation Rate (WPR) declined from
42 per cent, 38.9 per cent and 35 per cent to 39.2 per cent, 37 per cent and 34.1 per cent,
respectively, during the corresponding period. The available data suggests that the female
LFPR was significantly lower than that of males during both the periods in both rural and
urban areas. The unemployment rate declined on the basis of all the three approaches with
the maximum drop seen in the CDS approach, from 8.2 per cent to 6.2 per cent of the
labour force while as per the CWS and UPSS approaches, the declines were from 2.3 to 2
per cent and from 4.4 to 3.6 per cent of the labour force, respectively, between 2004-05 and
2009-10. During the five-year period under study, the maximum addition to the workforce
and labour force was observed in the CDS category. The rural labour force and workforce
declined on the basis of UPSS and CWS but registered an increase on the basis of the CDS
in absolute terms. During both the periods, the size of the labour force and workforce was
higher in rural areas than the urban areas. The overall increase in the CDS-based labour
force and workforce may be interpreted as a sign of the increasing non-permanent nature
of jobs in the country.
(ii) Sector-wise Employment in India
Mehrotra, et al. (2012) delineate the sector-wise employment distribution for the
years 1999-2000, 2004-05 and 2009-10 in India. Table A.7 also provides a glimpse of this
distribution.
The agricultural sector has been the largest employer during all the three periods. The
employment share of this sector in the total employment, however, decreased from 60 per
cent to 53 per cent between the years 1999-2000 and 2009-10. The employment share of the
manufacturing sector in the total employment, on the other hand, rose from 11 per cent to
21 per cent during the first half of the decade, but declined again to 11 per cent by 2009-10.
In the non-manufacturing sector, construction has been the biggest employer over the
decade with its employment increasing by almost 2.5 times, with the increase being more
pronounced during the latter half of the decade, which is attributed to the commitment
made towards infrastructure development in the Eleventh Five Year Plan. The changes in
the mining and quarrying, and water, gas and electricity supply sectors have been minor.
However, employment in the services sector increased from 24 per cent to 25 per cent over
the decade. The major employer in this sector has been wholesale and retail trade.
The study also highlights the nature of employment in all the sectors. It can be observed
from Table A.8 that 92.8 per cent of the total employment accounted for by the informal
sector in 2009-10. In the non-agricultural sector, 86 per cent of the employment is attributed

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to the informal sector, while the formal sector accounted for only 14 per cent of the total
employment during 2009-10. At the same time, a large portion of organised sector employment
was also of an informal nature.
The available data suggests that an overwhelming majority of the Indian population lies
outside the scope of social security benefits and is engaged in jobs that are less productive.
An assessment of the informal employment provides a rough idea of the number of working
poor in India, but a note of caution needs to be sounded herethis is that not all the people
engaged in the informal sector would be the working poor and also that those employed in
the organised informal sector may be below the poverty line. CDS unemployment, to some
extent, exhibits the working poor or can be a proxy for it but is not a completely exhaustive
measure for calculating the number of working poor.
(iii) Youth Employment
Mitra and Verick (2013) discuss the nature and characteristics of youth employment in
India over the previous decade across various age groups for both males and females, and
across rural and urban areas.
The study classified the working age population into different categories, including 1519 years, 20-24 years, 25-29 years and 30-59 years, in 2009-10. It notes that the female
LFPR in both rural and urban areas was much lower than the corresponding figure for males.
The data gathered during the study shows that the rates of youth unemployment in all age
categories were much higher than the corresponding unemployment rate in the age group
of 15-59 years, on the basis of both UPSS and CDS approaches in 2009-10.
Another important finding of the study is that of increasing casualisation of jobs among
the youth. Almost half the male and female youth (in all age categories) in the rural areas
were found to be self-employed in 2009-10. Only a few percentage points are accounted
for by regular wage employment in the rural areas for both male and female youth, with a
little less than half being reserved for casual labour.
As regards sectoral employment, most of the rural youth were engaged in the primary
sector during the year 2009-10, and this was true of all categories for both males and
females. The incidence of secondary sector employment in the rural areas for both males and
females was higher than that in the tertiary sector, while in the urban areas, the secondary
and tertiary sectors were the major employers of youth.
The study also shows that a large number of educated youth in the country are facing
unemployment, which casts a doubt not only on the quality of the education being imparted
but also on the job-creating capacity of the economy. It has been noticed that in 2009-10,
the unemployment rates at lower education levels were lower than the corresponding rates
prevalent among the educated cohorts, a phenomenon that may be attributed to the fact that
those dropping out early from education may not be economically strong enough to continue
education, which could have made working necessary for these individuals. However, the
peculiar finding of the study is the prevalence of a high degree of unemployment among
the educated. For example, as many as 80.2 per cent of the rural females were found to be

research notes 145

unemployed in 2009-10, even after attaining a technical degree. An unemployment rate of

17.7 per cent was found to prevail among graduates in the country while among those having
attained a diploma after graduation, it was even higher at 22.4 per cent.
According to the study, there might be a skill mismatch in the job market, which not only
highlights the lack of opportunities for Indian youth to attain the requisite vocational training
but also points to the fact that the youth of the country face lack of opportunities in the job
market even after getting educated. This makes it imperative to discuss the ills that could
be plaguing the Indian job market, a discussion that is undertaken in the following section.
2. Skill Mismatch and Technological Change
In order to explain the possible reasons for growing unemployment among all age groups
of the youth, along with its incidence among the educated cohorts, it is necessary to dwell
on the concept of skill mismatch.
Desjardins and Rubenson (2011) have worked on the direct measures of skills in a
comprehensive way in order to conceptualise this unobservable phenomenon. They distinguish
between the related concepts of education mismatch and skill mismatch. According to them,
skill mismatch is a complex and unobservable phenomenon, which can better explain the
job market situation. Education mismatch, on the other hand, implies that the education
attained by an employee is not in accordance with the job requirement. The employee may
be under-/over-educated for the job, which would make it a case of vertical mismatch. There
are also cases of horizontal mismatch wherein the employee is not under-/over-educated for
the job but the job requirement is not as per the employees educational attainment. This
has been a major policy issue in various European and non-European countries across the
world. Skill mismatch, on the other hand, pertains to the inability of the employers to find
candidates who are suitably skilled employees in the labour market. This could be due to
technical change, changes in the business cycle, or geographical reasons. Various theories
have provided a basis for the reasons behind such a mismatch. Some focus on the supply
side of labour while others talk of the demand side of labour. Further, there are also theories
that comprehensively collate the characteristics of both sides to identify the reasons for the
skill match or mismatch. The study clearly explains that skill needs to be seen intuitively
as a heterogeneous concept, and that isolating skills in an individual on the basis of his/her
educational qualifications per se is misleading as educational qualifications may only signal
particular skills in a candidate but do not signify a sufficient condition for identifying skills.
A worker attains skills over his or her lifespan, wherein various factors including the nature
and quality of education, the number of years worked, the intrinsic characteristics of the
person, job characteristics, and the industry and/or occupation in which s/he is employed,
along with the social and political milieu in which all these factors coalesce, are equally
important. However, for an employer, the easiest criterion for observing skills would be
the employees educational qualifications, in the absence of which, it might be difficult to
ascertain the skill of a candidate. On the basis of these theories, the skill matchmismatch
has been classified into the following four categories: high skill and high skill engagement

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match; high skill and low-medium skill engagement mismatch (surplus mismatch); low
skill and high skill engagement mismatch (deficit mismatch); and low skill and low skill
engagement match. In the study, literary and numeracy skills have been used as parameters
for determining skills. Such categorisation is comprehensive, as it focuses on both the
supply side skill level of the candidate along with the demand side skill requirement of the
job. The results show that the candidates falling in the high skill and high skill engagement
category not only earn higher than the others but they are also in a better position to acquire
employer-/self-provided higher education and training. It has also been mentioned in the
findings of the study that in some cases, employers might appoint over-skilled candidates,
who might be better able to cope with the technical changes.
Candidates found to be in the surplus skill mismatch situations may be those who are
searching jobs in accordance with or appropriate for their skills, while those in situations
of deficit skill mismatch might not have received foundation skills, or their skills may have
become obsolete due to technical advancement in the spheres in which they had acquired the
skills or due to lack of adequate use of their skills. The candidates in both these situations,
therefore, have a higher incentive to skill themselves vis--vis those found to be in low
skill and low skill engagement situations. The policy implications for all these categories of
workers depend upon the situation of the economy. For instance, it needs to be assessed as
to which sector of the economy has to be pushed ahead and what category of the workforce
is under- or over-skilled on the supply side, which implies focusing on better utilisation or
optimisation of the existing skill base on the demand side.
Therefore, the previous section shows that unemployment among the younger age groups
is relatively higher than among other age groups and that most persons among these age groups
were engaged in informal sector jobs due to the fact that formal employers prefer higher
education levels and work experience for measuring skills. Unemployment among the educated
cohorts can be related to the concept of skill mismatch as even after getting educated, these
categories of workers may not fulfil the skills requirements for the jobs concerned. This also
brings to the forefront questions pertaining to the quality of education in India and the lack of
opportunities from the demand side in the job market. It could also be inferred that there is
polarisation of skill matches among the Indian labour force (primarily among the Indian youth).
This polarisation occurs due to the following situations:
Persons with low level of skills and low skill engagement are thrown into the informal
industry and services after their migration from the agricultural sector.
Persons with high skill levels and high skill engagement end up working in the
small Indian formal sector.
This pushes persons with medium skill levels into deficit/surplus mismatch situations
in both the organised and unorganised sectors of the informal economy.
Consequently, many medium-skilled and educated youth are left unemployed,
as low-skill informal sector jobs may not be suitable for them, or alternatively,
employers requiring high skill levels among their employees may not recruit such
medium-skilled workers.

India's demographic dividend 147

For further understanding, we could dwell into factors like technological change and the
rapidly changing global environment, as also institutional organisations bringing volatility
into world trade and capital markets, which may exacerbate the situation of skill mismatch
or in some cases even cause it.
Mitra (2009) investigates the effect of the import of technology on the employment of
the importing country (that is, primarily the manufacturing sector of developing countries).
His study analyses the economies of the South and East Asian, African and Latin American
countries during the period 1990-2004. Various issues have also been discussed to identify
the effect of imported technology on the efficiency of labour in the importing country. The
basic premise, however, is that the developing countries are labour-abundant and skill-scarce
though the technology they import from the developed world is capital- and skill-intensive.
This leads to a rise in productivity and national income but employment growth does not
necessarily follow in such a case. In fact, it has been shown that the employment growth is
negatively related to the growth in value added in the economy in such a scenario. Basically,
the imported technology improves productivity but the rise in productivity is not attributed
to the labour but the capital-intensive technology, which reduces the demand for unskilled
workers, even when productivity is rising. It has been shown that as the share of manufacturing
imports (a proxy for technological imports) rises in the total merchandise imports, the
value added per unit of labour falls and due to the advent of better technology, the present
set of labourers are deskilled. Here, there is a link between technological change and skill
mismatch, as technological change has to be accompanied with the requisite technical knowhow for operating the more advanced technologies, which, in turn, renders the skill base
of the technology-importing countries obsolete. The skill-scarce developing countries may,
therefore, face employment problems due to technological change caused by skill mismatch.
Another interesting and related study by Mitra and Sato (2008) examines the employment
trends in the Japanese labour market during the period 1980-2003, and highlights the
worsening employment conditions (especially in the manufacturing sector, which appear to
be long-term rather than cyclical) during the same period. The study shows that even with
an ageing population, the supply of labour outstrips the demand, which negatively affects the
living conditions of the ageing Japanese population. There has been a shift from regular to
irregular forms of employment, breaking the previous system of long-term life employment
and the union-based culture along with a seniority-based payment system. The employment
elasticity during the period 1980-2003 has remained more or less the same, with a marginal
increase observed in the labour-intensive construction sector, and a decrease in manufacturing
sector employment. It has been noted that among the working population, the percentage of
people wanting to change their jobs has increased while among the non-working people, the
percentage of those who are involuntarily unemployed has also increased during the same
period. All this has been attributed to the heavy mechanisation of the Japanese economy,
which has negatively affected the employment patterns of this country.
Apart from technological change there are other factors too that might shake the job
market and the skill base in an economy. In relation to this, a study by Estevo and Tsounta

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(2011) shows the effect of the most recent sub-prime crisis on employment in the US
economy. The econometric analysis undertaken in the study suggests that an increase in the
skill mismatch and deterioration in the housing market increases unemployment. Individuals
facing skill mismatch and dampened credit scores due to foreclosures find their bargaining
power reduced in the job market, which, in turn, affects their job search capacity and the
ability to migrate, as they would also suffer capital losses from a reduction of the prices of
properties owned by them. The employment effects of this situation are not just cyclical but
there have also been structural changes in unemployment patterns in the US, which shows
that the problem of skill mismatch plagues even the developed world.
During the previous decade, the Indian manufacturing and services sectors recorded
an abysmal performance in terms of employment, which became even more pronounced
during the period 2004-05 to 2009-10. Therefore, it may not be wrong to assert that global
and internal factors have affected the skill base of the Indian economy by creating a skill
mismatch while also deskilling the existing labour force, to some extent, on the supply side,
and leading to limited job opportunities matching the skill base of the Indian workforce
on the demand side. Indias manufacturing sector recorded a growth of only 1 per cent
in 2012-13, as compared to 2.7 per cent in 2011-12, which was also accompanied by the
sluggish demand side in the job market. The trends of the previous decade thus indicate
that the prospects for employing the large working age population is a mammoth task, and
that unless a strong policy stance is adopted and the better implementation of such policies
ensured, it might lead to massive unemployment and a wasted opportunity in terms of the
demographic dividend.
3. The Skill Gap
In sub-section 2 of Section III, we conceptualised the skill mismatch. Here, an attempt is
being made to situate it in the Indian context. The term skill gap signifies nothing but the
difference between the skills required to take up an activity vis--vis the existing skills of
a worker. The worker can be either over-skilled or under-skilled for the job, but in both
cases, there exists a skill gap between the requirements and the existing skills. Mehrotra,
et al. (2013) have estimated the skill gap in the Indian economy.
To begin with, the study presents the status of education and vocational training among
the Indian labour force (in the age group of 15-59 years) for the year 2009-10. According
to the study, out of 431 million individuals in the labour force for the year being surveyed,
29 per cent were illiterate, while 24 per cent were able to attain only below primary or
primary level of education, which implies that 53 per cent of the Indian labour force had
negligible or extremely low levels of education in 2009-10. The figures for those having
acquired middle, secondary and higher secondary levels of education, and education above
the higher secondary levels (including diploma/certificate, graduation and post-graduation
levels of education) were 17.6 per cent, 12 per cent, and 17 per cent, respectively.
The study also posits that the agricultural labour force, which had a strength of 244
million in 2009-10, should be counted as unskilled workers, as even though cropping and

research notes 149

allied activities are by themselves skilled occupations, yet when these workers migrate to
urban areas, their qualifications or training start becoming inappropriate or inadequate. The
share of those who had received vocational training as part of the non-agricultural labour
force was 20 per cent while the corresponding figure for the entire Indian labour force was
just 10 per cent.
The sector-wise data suggests that 40 per cent of the agricultural workforce, 20 per
cent of the manufacturing workforce, 33 per cent of the non-manufacturing workforce, and
12 per cent of the services workforce were illiterate, and that by adding the numbers of the
below primary level education earners, one would notice extremely low levels of education
among workers in all the sectors. Even though the service sector has relatively fewer
illiterates as compared to the other sectors, yet in absolute terms, the performance of even
this sector is dismal. Apart from this, when we look at the vocational training and technical
education spread across sectors, the previous assertion of polarisation of skills would come
to the forefront. The study shows that of all those who have been vocationally trained in
the age group of 15-59 years in the workforce, 75 per cent belong to the services sector.
The percentages of those who have been vocationally trained in agriculture, manufacturing,
and services are 5 per cent, 27 per cent, and 17.2 per cent, respectively. However, it has
been noted that among the vocationally trained workforce, 92 per cent in the agricultural
sector, 86 per cent in the manufacturing sector, and 56 per cent in the services sector is
of an informal nature. In absolute terms, the services sector employs not only the highest
number of vocationally trained persons but also those who have formal vocational training
and technical degrees. In the non-agricultural sector, it is the services sector that employs
a skilled workforce, while an overwhelming majority of workers in the manufacturing and
non-manufacturing sectors remain trapped at low levels of informal training. As regards
agriculture, the authors suggest that more than vocational training, the workforce requires
support in terms of credit, better irrigation facilities, and guidance by those trained in the
field of agriculture and cropping.
The Eleventh Five Year Plan pledges to skill 500 million individuals in different
departments by the year 2022, but according to the study, this estimate does not include
any particular definition of the skills that would be imparted. The authors also estimate that
the number of those who need to be skilled would be a little more than half of what the
Government has estimated, but at the same time, they caution that this quantitative reduction
itself is a daunting task, as what matters is not so much the number of those who would be
skilled but the quality of skills that would be imparted.
The authors also aver that the process of imparting skills should be completed by 2022,
as any delay in the project would lead to declining employment elasticity with respect to
output and the adoption of more capital-intensive technologies due to scarcity of a skilled
workforce, which, in turn, would render large cohorts of youth unemployed. This brings
us to the implication of what had been left in Section II regarding the decline in percentage
of individuals aged 19-24 years in the population. Table A.6 shows that after 2010, there
has been a sharp decline in the percentage of individuals in this age category, which means

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that at present, the relative number of individuals in this age group is high, which is why
the present decade is crucial for training these youth, and consequently, the target for 2022
becomes all the more important.
IV. CONCLUSION
This study shows that at present, India is going through a phase of demographic transition
wherein its young population dominates the labour force of the country. This rise in the
relative share of the working age population in the economy is termed as the demographic
dividend. The study presents an empirical analysis to show that the link between higher
economic growth and favourable demographic conditions is not automatic, and that it has to
be established through sound institutions, good policies, and investment in healthcare and
education, which can be recouped in the long run through higher productivity.
Indias employment data reveals that the LFPRs and WPRs have decreased during the
previous decade, with increased education enrolments, yet the social structure still prevents
females from joining the labour force while there has been no increase in opportunities for
them to join the workforce. The agricultural workforce too has been declining, which is a
welcome trend, but these workers are not being absorbed either in the manufacturing sector
or in allied activities, and due to extremely low levels of education, they land up in the
construction sector. The data on education and training is in accordance with the fact that
there is a prevalence of skill mismatch in the Indian economy. This is also supported by
extremely low levels of education in the manufacturing sector, which is supposed to be the
engine of growth for an emerging market economy. The situation would deteriorate detour
further if employability is not improved in all the sectors (especially in the manufacturing
sector), as it would lead to substitution of labour by labour-saving technologies.
The majority of the manufacturing sector comprises Micro, Small and Medium Scale
Enterprises (MSMEs), which generally invest in and employ relatively small amounts of
capital. Even the MSMEs are largely dominated by the small firms, wherein the employment
is very low (with each firm generally employing less than 10 or 20 workers), and the incentive
to increase productivity and invest in the skill of the employees is also low. This is because
most of these firms operate in the unorganised sector and remain unregistered. Apart from
the difficulties in acquiring lands, funding and access to good quality infrastructure, the
incentives to grow larger are low because growing big not only catapults them into the larger
tax base segment but it also entails their entry into the formal net of various regulations like
labour regulations, in addition to the loss of incentives that are exclusively enjoyed by the
MSMEs. Therefore, the incentive to promote MSMEs itself acts as a disincentive to grow.
Large manufacturing firms constitute a small proportion of the Indian manufacturing sector
and slow employment growth may be attributed to the fact that higher productivity could
also be achieved by capital-intensive technological imports, which may lead to a decline
in the share of labour in increased productivity. With the weak skill base of the workforce
in the Indian manufacturing sector, as has been noted earlier, the demand for less skilled
labour, which is available in plenty in India, may have reduced, and on top of this, India now

India's demographic dividend 151

faces competition from the Chinese manufacturing sector in its domestic market itself, all of
which would make the prospect of capturing the world market sound like a distant dream.
Some critics argue that the labour regulation in India is responsible for its rigid labour
market. In this context, Jha and Golder (2011) show that the effect of labour market flexibility
on employment and economic growth is insignificant. This can also be noticed from the
fact that Indian manufacturing is largely dominated by firms which do not fall under the
purview of labour regulation, and that increased informalisation and the irregular nature
of employment leads to high flexibility in the Indian labour market, which may seem rigid
on paper, but is actually flexible when it comes to enforcement. DSouza (2005) shows
that labour market regulation not only prevents opportunistic behaviour by employees and
employers but also provides social security to the workers, but the labour regulation should
not go to the extent that it prevents firms from retrenching the workers caught shirking. Thus,
a balance needs to be struck between flexibility in the job market and the social security of
the employees. It is important to train the Indian workforce and provide them various other
incentives, which affect entrepreneurs like streamlining the legal procedures for opening and
running an enterprise, and ensuring sound financial markets and high-quality infrastructure,
which, in turn, would lead to increased worker demand. Further, better health facilities
are also required as incurring of higher health expenditure by persons in the working age
group due to the greater incidence of diseases among them would reduce the savings in the
Indian economy.
The Government has launched various policies in order to take advantage of the demographic
dividend. The Eleventh Five Year Plan aimed at skilling 500 million individuals by 2022,
and the skilling policy has been extended in the Twelfth Five Year Plan under the banner of
the National Skill Qualification Framework in collaboration with private players in various
industries, spreading across rural areas. A large number of Industrial Training Institutes
(ITIs) have been set up across states to impart vocational training and the Government plans
to initiate a comprehensive campaign in order to not only help school drop-outs but also to
launch a massive literacy and education drive by providing free and elementary education
for children aged 6-14 years under the banner of the Sarva Shiksha Abhiyan (SSA). This is
accompanied by the New Manufacturing Policy (2011), which aims at increasing the share
of manufacturing from 15 per cent of the GDP to 25 per cent, thereby creating 100 million
employment opportunities in this sector during the present decade.
The National Rural Health Mission (NRHM) was also started in 2005, which targets
the implementation of various disease-specific programmes. In addition, the DelhiMumbai
Industrial Corridor programme, which is a step towards the development of a highly specialised
industrial zone, encompassing eight states and two Union Territories in the western part of
the country, is expected to generate millions of job.
The Government also aims to promote the better handling of land records and settling
of land disputes in order to make land acquisition for industry less tedious through the
National Land Records Modernisation Programme, which was launched in 2008. This
programme aims at digitising and updating land records by the end of the Twelfth Five Year

152

The Indian Journal of Labour Economics

Plan. As regards the policy stance of the Government, it needs to focus on the enforcement
of the existing policies to ensure better utilisation of the existing resources and skill base,
and promotion of innovation in accordance with the demands of the Indian labour market.
The Indian market is growing while the Indian economy is presently the tenth largest in
the world in terms of the nominal GDP. India therefore, needs to promote its MSMEs in
order to export and capture various product markets abroad. However, given the volatility
of the world markets and the contagion that occurs in various economies of the world
following a recession, the Indian economy should cushion itself from these shocks by
simultaneously capturing its domestic markets. Today China exports most items ranging
from toys to religious idols to sophisticated electronics in the Indian market and similarly
indigenous products in the markets abroad are available cheaper than what domestic
manufacturers charge abroad. Therefore, India may find it extremely difficult to replace
Chinese exports the world over, but it must adopt a strong policy stance with regard to
its home market because the expansion of the Chinese market is happening at the expense
of employment in the Indian manufacturing sector. In this situation, it is imperative to
ensure higher levels of education and employment, which would not only lead to increased
productivity and income but would also increase the economic freedom of individuals,
preventing them from falling prey to the populist policies of various political parties. This
further implies that reforms would become part of the agenda of the contesting political
parties. There are examples of economies that have created opportunities for themselves
and come out of the box to show unprecedented levels of growth and development, while
India at present has naturally received an opportunity, which still can be converted into
the demographic dividend, provided it confronts the realities facing its economy in a
practical and appropriate manner.
References
Bloom, D.E. and D. Canning (2004), Global Demographic Change: Dimensions and Economic Significance,
Working Paper 10817, NBER Working Paper Series, Cambridge, MA.
Chandrasekhar, C., J. Ghosh and A. Roychowdhury (2006), The Demographic Dividend and Young Indias
Economic Future, Economic and Political Weekly, Vol. 41, No. 49, pp. 5055-64.
Desjardins, R. and K. Rubenson (2011), An Analysis of Skill Mismatch Using Direct Measures of Skills,
OECD Education Working Papers No. 63, OECD Publishing, Paris.
DSouza, E. (2005), Are Labour Laws Inefficient?, Paper presented at the 47th Annual Conference of the
Indian Society of Labour Economics, Jawaharlal Nehru University, New Delhi.
DSouza, E. (2008), Labour Market Institutions in India: Their Impact on Growth and Employment, ILO
Asia-Pacific Working Paper Series, New Delhi.
Estevo, M. and E. Tsounta (2011), Has the Great Recession Raised US Structural Unemployment? IMF
Working Paper No. WP/11/105, Western Hemisphere Department, Washington DC, pp. 1-46.
Government of India (GoI) (2011), Report of the Working Group on Employment, Planning and Policy for
the Twelfth Five Year Plan (2012-2017), Labour, Employment and Manpower (LEM) Division, Planning
Commission, Government of India, New Delhi.
Jha, P. and Golder, S. (2011), Interrogating Empirical Support for Labour Market Flexibility, Labour and
Development, Vol. 18, pp. 1-24..

research notes 153

Mehrotra, S., A. Gandhi, P. Saha and S.K. Bimal (2012), Joblessness and Informalisation: Challenges to
Inclusive Growth in India, IAMR Occasional Paper No. 9/2012, Institute of Applied Manpower Research,
Planning Commission, Government of India, New Delhi.
Mehrotra, S., A. Gandhi and B.K. Sahoo (2013), Estimating Indias Skill Gap on a Realistic Basis for 2022,
Economic and Political Weekly, Vol XlVIII, No. 13, pp. 102-11.
Mitra, A. and H. Sato (2008), Labour Market Outcomes: The Japanese Tale, The Indian Journal of Labour
Economics, Vol. 51, No. 2, pp. 263-80.
Mitra, A. (2009), Technology Import and Industrial Technology Import and Industrial Developing Countries,
Ceis, Labour, Vol. 23, No. 4, pp. 697-718.

Appendix

Year
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050

Table A.1
Population Aged 15-24 Years
(%)
(thousands)
59.4
220804
57.9
235147
56.3
252137
55.1
273478
55.7
308370
56.4
350612
56.9
398052
57.5
451188
58.3
509046
59.5
573715
61.1
643532
62.8
716391
64.5
789750
65.8
861118
66.6
923050
67.3
981726
67.9
1034326
68.2
1078019
68.3
1111744
68.1
1133073
67.6
1143065

Year
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050

Table A.2
Dependency Ratios
Total
Child
68
63
73
67
78
72
82
76
80
74
77
71
76
70
74
67
72
65
68
61
64
57
59
52
55
47
52
44
50
41
49
38
47
35
47
33
46
31
47
29
48
28

Old-age
5
5
5
6
6
6
6
6
6
7
7
7
8
8
9
11
12
14
15
18
20

Source:World Population Prospects: The 2010 Revision,Population Division of the Department of Economic
and Social Affairs of the United Nations Secretariat, Available at: http://esa.un.org/unpd/wpp/index.
htm, Accessed on 6 May 2013.

154

The Indian Journal of Labour Economics

Table A.3
IndiaCrude Birth Rate
(births per 1,000 population)
Period
Crude birth rate
1950-1955
43.3
1955-1960
42.1
1960-1965
40.4
1965-1970
39.2
1970-1975
37.5
1975-1980
36.3
1980-1985
34.5
1985-1990
32.5
1990-1995
30
1995-2000
27.2
2000-2005
24.8
2005-2010
23.1
2010-2015
21.3
2015-2020
19.6
2020-2025
18
2025-2030
16.7
2030-2035
15.5
2035-2040
14.5
2040-2045
13.6
2045-2050
12.8
2050
1143065

Table A.4
India Total Fertility Rate
Period
Total fertility
1950-1955
5.9
1955-1960
5.9
1960-1965
5.82
1965-1970
5.69
1970-1975
5.26
1975-1980
4.89
1980-1985
4.47
1985-1990
4.11
1990-1995
3.72
1995-2000
3.31
2000-2005
2.96
2005-2010
2.73
2010-2015
2.54
2015-2020
2.38
2020-2025
2.26
2025-2030
2.15
2030-2035
2.06
2035-2040
1.98
2040-2045
1.92
2045-2050
1.87
2050
20

Source: World Population Prospects: The 2010 Revision,Population Division of the Department of Economic
and Social Affairs of the United Nations Secretariat,Available at: http://esa.un.org/unpd/wpp/index.
htm, Accessed on 6 May 2013.

Table A.5
India: Population Aged 0-14 Years
(thousands)
(%)
139387
37.5
158472
39
182197
40.7
207157
41.7
227497
41.1
250191
40.2
277114
39.6
304503
38.8
331659
38
352627
36.6
365785
34.7
371404
32.6
374587
30.6
376641
28.8
376394
27.1
371144
25.4
363151
23.8
353785
22.4
343713
21.1
332902
20
321278
19

Table A.6
India: Population aged 15-24 years
(thousands)
(%)
72007
19.4
76303
18.8
79695
17.8
85842
17.3
103632
18.7
123458
19.8
136690
19.5
151755
19.3
168012
19.2
186490
19.3
205951
19.5
222487
19.5
234642
19.2
241106
18.4
243367
17.5
246449
16.9
248569
16.3
246710
15.6
242305
14.9
236505
14.2
230337
13.6

Year
Year
1950
1950
1955
1955
1960
1960
1965
1965
1970
1970
1975
1975
1980
1980
1985
1985
1990
1990
1995
1995
2000
2000
2005
2005
2010
2010
2015
2015
2020
2020
2025
2025
2030
2030
2035
2035
2040
2040
2045
2045
2050
2050
Source: World Population Prospects: The 2010 Revision,Population Division of the Department of Economic
and Social Affairs of the United Nations Secretariat,Available at: http://esa.un.org/unpd/wpp/index.
htm,Accessed on 06/05/2013.

India's demographic dividend 155

Table A.7
Number of Workers (in millions and as a percentage) by Sector,
for the Years 1999-2000, 2000-05, 2009-10
(in millions) (As % of total)
Employment across Sectors
1999- 2004-05 2009-10
1999- 2004-05 2009-10
2000
2000
Agriculture
237.7
258.9
244.9
59.9
56.6
53.2
Manufacturing
44.1
55.8
50.7
11.1
21.5
11.0
Mining and quarrying
2.2
2.6
3.0
0.5
1.0
0.6
Electricity, gas and water supply
1.1
1.3
1.3
0.3
0.3
0.3
Construction
17.5
26.0
44.1
4.4
5.7
9.6
Non-manufacturing
20.8
30.0
48.3
5.3
6.5
10.5
Trade and repair
36.6
43.4
43.5
9.2
9.5
9.5
Hotels and restaurants
4.6
6.1
6.1
1.2
1.3
1.3
Transport, storage and communication
14.6
18.5
20.0
3.7
4.0
4.3
Banking and Insurance
2.3
3.1
3.8
0.6
0.7
0.8
Real estate, renting and business activities
2.7
4.7
5.8
0.7
1.0
1.2
Public administration and defence activities
10.5
8.8
9.5
2.6
1.9
2.1
Education
8.5
11.4
11.9
2.1
2.5
2.6
Health
2.6
3.3
3.6
0.7
0.7
0.8
Other community, social and personal services
10.0
8.8
8.6
2.5
1.9
1.9
Other services
1.9
4.8
3.6
0.5
1.0
0.8
Services
94.2
112.8
116.3
23.7
24.7
25.3
Total
396.8
457.5
460.2
100.0
100.0
100.0
Source: Calculated from NSS 55th, 61st, and 66th Rounds, Employment and Unemployment Surveys, by
Mehrotra et al. (2012).

Table A.8
Formal and Informal Employment in the Non-agriculture Sector
(in millions) for2009-10
Workforce
Total
Unorganised
Organised Share in Percentage
Total
460.22
387.34
72.87
100
Normal
33
2.26
30.74
7.2
Informal
427.22
385.08
42.13
92.8
Share in Percentage
100
84.2
15.8
Non Agriculture
215.37
145.23
70.13
100
Formal within Non-agriculture
31.00
2.26
28.74
14.4
Informal within Non-agriculture
184.37
142.97
41.39
85.6
Share in Percentage
100
67.4
32.6
Source: Calculated from the NSS 66th Round, Employment and Unemployment Survey, 2009-10, by Mehrotra,
et al. (2012).

INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

(Organ of the Indian Society of Agricultural Economics)

Vol. 68

October-December 2013

No. 4

CONTENTS

ARTICLES
Unravelling Food Basket of Indian Households: Revisiting
Underlying Changes and Future Food Demand

S.K. Srivastava, V.C. Mathur,

N. Sivaramane, Ranjit Kumar,
Rooba Hasan and P.C. Meena

Possible Alternatives for Biomass Consuming Agriculture in the

Western Ghats: A Study of Uttara Kannada District

Seema S. Hegde

Quantity and Value of Milk Losses Due to Technical Constraints

A Case of Crossbred Cows in North-Eastern States of India

Response of Lettuce ( Lactuca Sativa L .) to Trickle Irrigation under

Different Irrigation Intervals, N Application Rate and Crop
Geometry

Debabrata Paul,
B.S. Chandel and Jui Ray
Tejaswini Patil, Man Singh,
Manoj Khanna, D.K. Singh
and Murtuza Hasan

RESEARCH NOTES
Impact of Gujarats Krishi Mahotsava (Agrarian Festival)
Campaigns: Results of a Perception Survey of 1445 Farmers
from 25 Districts

Tushaar Shah,
Itishree Pattnaik, Sonal Bhatt,
G. Kopa and Amita Shah

Factors Affecting the Price of Bullocks in the Organised Cattle

Fairs of Rajasthan

Goutam Das and D.K. Jain

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