India must invest in its human capital, or risk a “Demographic Disaster”

Despite its historically high growth, the Indian economy is currently being shackled by a bewildering paradox. India’s population of under-19-year-olds has reached its peak, with its labor force predicted to grow far more slowly in the next 20 years. This trend should be propelling huge economic growth, yet in the past year, the country has seen a declining GDP growth rate, now estimated at 6.8% for the current fiscal year, down from 7.2% in the previous year. 

If New Delhi can’t produce 8.1 million jobs annually, compared to the 5.5 million created in 2017, India’s so called demographic dividend “may transform into a curse,” causing mass youth unemployment. The country suffers from an economic “paradox of high unemployment and talent shortages at the same time.” This predicament is embodied in India’s “booming, world-class information technology sector,” which is facing a skilled-labor shortage limiting its future growth. With 80.9% of India’s employed population working in the informal economy, it’s not surprising that 48% of Indian employers reported difficulties in filling jobs, with 36% deciding to undergo the costly process of training their own workers. If India wants to reclaim the mantle of the fastest growing major economy from China, it needs to invest far more in developing its human capital to prepare its young population for high-skilled, well-paying jobs.

According to Satyaki Roy, a professor at the Institute for Studies in Industrial Development in New Delhi, East Asian countries like South Korea and Taiwan made a “concerted effort…to create the kind of human capital required for industry.” Yet India’s public spending education, at 3.4% of its GDP this year, is down from 3.8% in 2015, and lower than countries like Brazil and Malaysia. Furthermore, according to the India Skills Report 2018, only 4.7% of India’s workforce is formally trained, compared to Germany’s 75% and Korea’s 96%. 

Young Indians will continue to face greater uncertainty in the job market if they can’t acquire the necessary skills to perform in the “new-age workplace.” This problem is in part fueled by Indians’ traditional “emphasis on textbook education and acquiring white-collar jobs,” which has left Indian job seekers mismatched with employers that sorely need new talent. Combine this with “complex labor laws” and “restrictive employment protection legislation,” and it’s no wonder India currently has the highest unemployment rate in over 45 years.

Solving this problem will not only require greater investment in skill development, but also a “close-knit apparatus between the industry, the government, and the academic world” to educate and prepare Indian youth for entrance into the workforce. Modern high-paying jobs require “expertise in disruptive technologies like “Augmented/Virtual Reality, blockchain, cybersecurity,” and soft skills like “creativity, decision-making, customer orientation, strategic thinking, interpersonal communication, cognitive intelligence, and time management.”

For India’s young population to even become aware of this new “knowledge based economy,” New Delhi will need to “strategically increase technology penetration,” as a majority of India’s youth live outside large urban centers. The 2017 Annual Status of Education report found that among India’s rural youth, 59% had never used a computer and 64% had never used the internet.

If India wants its demographic dividend to be an asset for economic growth and not a disaster for social stability, it needs to invest heavily in rural youth education and skill development. Indian sectors with the highest growth potential are also those with the greatest need for skilled workers.

One sector in particular that has both high growth and high employment potential is the renewable energy industry. In the past five years, India’s renewable energy workforce has quintupled, with the “capacity addition in India’s renewable energy sector” outweighing “additions in thermal power”. With New Delhi proclaiming ambitious targets of 40% renewable energy by 2030, the renewable sector has the potential to generate “hundreds of thousands of jobs.” 

Despite these optimistic signals, renewable job growth has slowed in 2019 due to a lack of financing, the Goods and Services Tax, and likely, a shortage of necessary skilled labor. Saurabh Marda, co-founder of Freyr Energy, a solar provider in Hyderabad, explains how “there is currently a lag between demand and supply when it comes to human resources in the industry.” Furthermore, according to Dr. Praveen Saxena, CEO of the Skill Council for Green Jobs, if demand for skilled labor is to be met, a larger pool of skilled workers needs to be created through “quality training programs,” increased “collaborations with industry,” and “deepening penetration of training institutes in smaller cities and rural areas.”­

Skill development programs like those mentioned by Dr. Saxena will be critical for India’s youth to have a chance at gainful employment. Otherwise, the so-called “demographic dividend will surely turn into a demographic disaster.”