India is now the country with the largest labor force in the globe, as its population has surpassed that of mainland China. But if there are not enough decent employment opportunities, this unparalleled advantage could prove disastrous.
According to UN population estimates, India has surpassed China as the world’s most populous nation, the most significant demographic transition since records began. It is also the first time since 1950, when the UN began maintaining global population statistics, that China has been surpassed.
Is India ready to become the “demographic dividend”?
In light of its limited resources, India has implemented family planning initiatives for decades in an effort to limit its population expansion. Then, as the Indian economy flourished following liberalization in the 1990s, the country’s policymakers altered course: New Delhi argued that the country’s vast, young labor pool was a “demographic dividend” that would pay off handsomely for the Indian economy.
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In April, India surpassed China to become the world’s most populous nation, putting the fulfillment of this pledge to the ultimate test. Although India’s birth rate has slowed in recent years, the country has a larger working-age population than any other significant economy, both in absolute numbers (1.1 billion) and proportion (75 percent of the population).
It is anticipated that the country’s population will continue to rise over the next few decades, reaching its peak of 1.7 billion in 2064. India has an average of 86,000 births per day, whereas China has only 49,400.
What happened in China?
China’s population had declined for the first time in more than 60 years in 2022. China’s population decline is the result of decades of stringent laws designed to rein in the country’s exploding birth rate, including the implementation of a one-child policy in the 1980s. This included penalties for having an excessive number of children, forced abortions, and sterilizations. Initially highly effective in population control, these policies have become victims of their own success, and the country is now dealing with an aging population in precipitous decline, which could have severe economic consequences.
Furthermore, its economic growth, which had skyrocketed by nearly 10 percent per year on average since 1978, is now anemic: The country’s gross domestic product (GDP) increased by only 3 percent in 2022, and even according to Beijing’s own projections, it is only anticipated to increase by 5 percent in 2019. COVID-19 and rising geopolitical tensions with the West have also prompted industries and investors to consider alternative locations for their supply chains and facilities than the world’s second-largest economy.
Recent Chinese policies intended to encourage women to have more children have had little effect on population growth. Women continue to have only 1.2 children, and the population is projected to decrease by nearly 10 percent over the next two decades. The Chinese population could fall below 1 billion by the end of the century, according to projections.
Can India capitalize on China’s economic struggle?
Could India’s population and potential labor force make it the next major economic story, able to capitalize on China’s economic difficulties, or does the world’s largest economy have a flaw that could undermine these hopes?
Policymakers have been looking at the so-called “demographic dividend,” which happens when most of a country’s population is between the ages of 15 and 64 and can work, as a way to boost economic growth.
According to Centre for Monitoring Indian Economy (CMIE) CEO Mahesh Vyas, this dividend has already contributed to India’s economic development since the 1990s. “In the 1990s, India succeeded quite well in moving people from farms to factories.
This was a cultural change caused by policy interventions and helped by the demographic changes, he added.” In addition to a large workforce, a considerable young population could become a source of future investments if it earns well and saves, according to Vyas.
“Many studies have shown that the economic growth that has happened in many other parts of the world, historically and even recently, is largely attributable to the demographic dividend,” he said. “So, we in India have this benefit available to us, added Vyas.”
Yet, for this young workforce to earn and save adequately, there must be a sufficient number of well-paying jobs intended to support the modern economy. This is becoming an increasing challenge for India.
What are the areas of concern for India?
India has one of the world’s fastest-growing economies and just overtook the UK as the fifth-largest, but analysts say it needs to invest more in education and jobs to take advantage of a young population over the next several decades. India continues to grapple with high youth unemployment and fewer than half of Indians of working age are employed. As India develops, women’s participation in the official labor market is even lower, at 20%.
India must create sufficient employment opportunities for its youthful population of working age in order to realize a demographic dividend. According to the Centre for Monitoring Indian Economy (CMIE), only 40% of India’s working-age population works or wishes to work. As they spend less time in their working years giving birth and caring for children, more women would require employment. According to CMIE, only 10% of women of working age participated in the labor force in October, whereas 69% of women of working age in China did so.
Concerns are also focused on India’s less developed, poorer northern states such as Uttar Pradesh and Bihar, where education levels are lower and the population is increasing more rapidly than in the south, where population growth rates have slowed more rapidly as literacy rates have increased.
The youth surge in India is a double-edged sword. To benefit from it, India will have to create enough jobs for the millions of people who enter the workforce each year, a challenge it is presently unable to meet. To achieve this, India must attract global investment. The window of opportunity is closing, and if India does not act swiftly, its demographic dividend could easily become a nightmare of unemployment.