Demographic dividend vs. Demographic divide

 India is at the cusp of demographic transformation when every 1 in 3 Indian is young. The median age of the country is 28 compared to Japan, which is 48 or China, which is 37. By 2020, India is projected to have the largest youth percentage in the world. This “demographic advantage” can give India a tremendous edge over ageing economies of west and east to provide workforce. But the presence of a large youth bank alone is not sufficient to meet the manpower requirement of the global economy. The need of the hour is the availability of skilled manpower whose shortage can hold back the most vibrant of economies. Skilled, educated and healthy individuals can be more productive and contribute greater to the economy at large. The investment in skill training, education and medical care empowers individual for a lifetime and enhances the human capital. Although Human capital is non-transferrable by nature, it can spill over through knowledge sharing practices and also pass through generations.

Demographic dividend can increase economic growth through six channels. The first channel is through the swelling of the labour force, as more people reach working age. The second channel is the increased fiscal space created by the demographic dividend to divert resources from spending on children to investing in physical and human infrastructure. The third channel is the rise in women’s workforce that naturally accompanies a decline in fertility, and which can be a new source of growth. The fourth is the increase in savings rate, as the working age also happens to be the prime period for saving. The fifth channel is an additional boost to savings that occurs as the incentive to save for longer periods of retirement increases with greater longevity. The sixth channel is a massive shift towards a middle-class society that is already in the making. Growth, education, home ownership, better economic security, and a desire for more durable goods are the cause and consequence of young demographics. But demographic dividend can also transform into a curse, and we examine its impact in Reshaping Tomorrow—Is South Asia Ready For The Big Leap?, World Bank.

Dividend or curse?

• The growth benefit of a demographic dividend is not automatic. A lot depends on whether the bulge in working population can be trained, and enough jobs created to employ the 10 million more people who will join the labour force every year. There is mounting concern that future growth could turn out to be jobless due to de-industrialization, de-globalization, and the fourth industrial revolution and technological progress. While digital technologies may enable the creation of new products and more productive jobs, they may also substitute existing jobs. India may not be able to take advantage of these opportunities, due to a low human capital base and lack of skills.
• Lack of jobs combined with a demographic dividend will increase the share of the population that is dependent on the working population. This will increase the economic insecurity of the elderly, as there will be fewer people generating wealth.
• Whether the demographic dividend promotes growth or transforms into a curse depends on how prepared the states that should benefit from a young population are. Bihar, Uttar Pradesh and other lagging states will experience a much bigger bulge in working population than more developed states like Tamil Nadu. Unfortunately, the less-developed states are also the least prepared to take advantage of the demographic change they will undergo.

Building human capital
Investing more and more efficiently in people will enable India to tap into its demographic divided, and prepare the country for the future. There is a powerful link between these investments and economic growth, stability and security. Investing in people through healthcare, quality education, jobs and skills helps build human capital, which is key to supporting economic growth, ending extreme poverty, and creating more inclusive societies. Human capital is now the fastest-growing component of India’s wealth. It is already the largest component of global wealth. More developed and richer countries have vastly more human capital wealth than developing countries.
India’s human capital base may not be adequate for the future or in a position to benefit from the demographic dividend. India is home to the world’s largest concentration of illiterate people in the world. It has made gains in human development, but challenges remain, including big barriers to secondary schooling, low-quality public services, and gender discrimination. New technology could be exploited to accelerate the pace of building human capital, including massive open online courses and virtual classrooms.
Pursuing a more aggressive education agenda fits very well, not just with countries that will benefit from the demographic dividend, but also with what many governments in rich countries are trying to do, even in its absence. Demographic dividend is a time-limited opportunity, and policymakers should have a greater incentive to redouble their efforts to promote human capital so that it can contribute to economic growth and job creation.
No country can achieve its potential and meet the challenges of the 21st century without the full participation of working population, both women and men. High-quality education is one of the strongest ways for countries to reduce poverty, achieve gender equality, and create more jobs. Building human capital translates into higher rates of economic growth and job creation. Demographic dividend without investments in human capital will be a wasted development opportunity, and it will further widen economic and social gaps, instead of narrowing them.

Barriers to reap the benefit of our demographic advantage: Pillars for Human Capital Formation

Converting human resource into productive asset requires focus on improving the reach and quality of our education, health, and skill training. These are the three pillars for human capital formation.

•  A look at the U-DISE data 2015-16 indicates sharp fall in the GER at higher secondary (56%) and the secondary level (80%) suggestive of sharp dropout vis a vis primary education (99.21%). This indicates that more needs to be done to prevent the leakage along this knowledge pipeline.
• The second pillar of the human capital formation is the healthy individuals. The illness can offset the benefits of even the most lauded educational degree or advanced technical know-how. Lack of access to sufficient nutritious food, unhygienic sanitary and drainage provisions impact the state of health and prevent people from realizing their full potential. Our health indicators still remain a cause of much alarm with 38.4% of children under 5 years stunted and 35.7% underweight. (NFHS 4). Such individual have greater barriers to enter and sustain in the labour market, and lesser productivity than those in a good state of health.
• The third important pillar for human capital formation is skill development or building capacities and capabilities. The education profile of our labour force shows that 30.2% of the labour force are illiterate and 24% have completed their primary education. This necessitates skilling/ up skilling and reskilling to make labour force employable.

 Investing in these sectors will have a positive externality in the production of human capital.

 How the budget is 2018-19 poised to face this challenge?

• The budget 2018-19 lays strong emphasis on human capital formation with focus on improving quality of education; availability of affordable health care and by adopting holistic approach; focus on training of teachers, using technology for better outreach; revitalising the infrastructure; more higher education institutions; affordable health care and enhanced focus on skill development.
•  The holistic approach to education as envisaged in the budget would facilitate continuum in the learning processes. The enhancement in the outlays for the Sarva Shiksha Abhiyan (SSA) by 11% and Rashtriya Madhyamik Shiksha Abhiyan (RMSA) 8% clearly indicates government commitment to improve access and outreach of school education. The introduction of Ekalavya model residential schools in all tribal blocks by 2022 would integrate the areas with mainland and offers many opportunities to the youth. The introduction of ‘‘Revitalising Infrastructure and Systems in Education (RISE) by 2022’, would result in upgrading and installing better facilities in research centres and education institutions. The enhanced focus on use of technology shows government commitment to improve the access and quality of education.
•  The District Wise Strategy would facilitate building local challenges and constraints into strategy for improving the quality of education and participation of community to help strategizing standard learning outcomes. The focus on teacher training highlights the importance of teachers in the learning eco-system.
• The 2018-19 budget also places needed emphasis on health. The Ayushmann Bharat Programme would provide affordable healthcare coverage to the poor and also make available comprehensive healthcare centers. The provision for nutrition support to TB patients would ensure that workers have lesser chances of wage loss and low productivity.
•  The Budget also pays strong attention on improved skill ecosystem with increase enhancement under various programmes for delivery of training as also creation of sustainable infrastructure. The Pradhan Mantri Kaushal Vikas Yojana (PMKVY) and the National Livelihoods Missions (NULM and NRLM) are working towards imparting and improving the skills and livelihoods of millions of youth. In FY 2018-19 alone, an amount of Rs 17.6 thousand crores is planned to be spent on skill and human resource development - to tap into the human resource of the country.
• Finally, the focus on a clean, slum-free and a well-fed India through the Swachh Bharat, PMAY and the National Nutrition Missions respectively, will ensure that our workforce can compete globally in the new age economy. In consideration of rural livelihoods, the outlay to NREGA has been increased by 15%. In addition, a huge boost to rural infrastructure is provided through the Agri-market Infrastructure Fund. A corpus of 2000 crore is set aside for this fund, wherein the infrastructure for agricultural marketing infrastructure can be improved.
•  While there is focus on creating human capital, there are efforts also for creating a demand for this vast human resource. The various flagship programmes like Make In India, Smart Cities Mission, Swachh Bharat Mission, Incredible India, Sagar Mala Project, Starup India, Standup India, Digital India etc. create the right demand for human resource and also handhold individuals to set up their business which, in turn, generates more employment.

 Right actions spurred, implementation to follow

Deploying our human capital is the best policy option at the moment. The budget allocation tells us that action has been spurred in all the right directions. The implementation of schemes is critical to achieve the objective of various initiatives. These cross-sector linkages that aid in the strengthening of human capital needs to be understood and facilitated. NITI Aayog’s health and education indices would enable tracking the progress of the states in these sectors.

By: Abhishek Sharma