Is this the end of India's demographic dividend?

In March 2024, a global study published in the medical journal The Lancet delivered a distressing news. It said, India's fertility rate (TFR) dropped to 1.9 in 2021 — below the replacement fertility rate of 2.1 — and is expected to drop further to 1.29 by 2050. That is, India isn't replacing deaths with new births since 2021 and its population is progressively growing older.

This isn't unanticipated. The Economic Survey of 2018-19 had foreseen it.

It said: "India is set to witness a sharp slowdown in population growth in the next two decades…The southern states, Himachal Pradesh, Punjab, West Bengal and Maharashtra now have fertility rates well below the replacement rate. TFR in Bihar, Uttar Pradesh, Jharkhand, Chhattisgarh, Rajasthan and Madhya Pradesh are above the replacement rate but are also experiencing significant declines. As a result, the national TFR is expected to be below replacement level by 2021."

This survey had also warned that age distribution implies that "India's working-age population will grow by roughly 9.7mn per year during 2021-31 and 4.2mn per year in 2031-41" – a fall of 57% during 2031-41.

Now read the budget speech of 2024 which said: "The Government will form a high-powered committee for an extensive consideration of the challenges arising from fast population growth and demographic changes… in relation to the goal of 'Viksit Bharat'."

Notice the contradictions between the need to arrest "fast population growth" while TFR has already fallen below replacement level and working-age population is set to decline by 57% during 2031-41.

Also consider a few disturbing job-related news in the recent weeks.

On March 27, 2024, the ILO-IHD's "India Employment Report 2024" was released. It used Indian official data sources like the NSS, PLFS, ASI, NAS and RBI-KLEMS database, to deliver two particularly damning verdict: (a) "In 2022, the share of unemployed youths (15-29 years) in the total unemployed population was 82.9 per cent" and (b) key labour market indicators reflect "paradoxical improvements" – improvements in employment rate (WPR), labour participation (LFPR) and unemployment rate (UR) in recent years which "coincides with periods of economic distress, both before and during the COVID-19 pandemic".

This "paradoxical improvement" is confirmed by the PLFS reports too. On the face of it, the PLFS reports show headline employment numbers (WPR, LFPR, UR) are improving but everything else is falling apart – jobs are progressively shifting to informal agriculture (45.8% of sectoral distribution), self-employment (57.3% of category-wise distribution) and unpaid work (18.3% of category-wide distribution), while good quality jobs (regular wages/salaried) are falling from 22.8% in 2017-18 to 20.9% in 2022-23 and so are 'real' wages for regular wages/salaried (by annual average of -2.9%) and self-employed (by annual average of -1.8%), though rising for "casual" workers (by annual average of +0.6%) during 2017-18 and 2022-23.

Talking about good quality jobs, the Azim Premji University's 2023 "State of Working India" report released in September 2024 said: "Since 2019, the pace of regular wage jobs creation has decreased due to the growth slowdown and the pandemic."

While releasing the ILO-IHD's March 2024 report, chief economic adviser V Anantha Nageswaran made a shocking comment. He said it was wrong to assume that the government could solve all social and economic problems, including unemployment, "short of hiring more itself". He adds: "In the normal world, it is the commercial sector that needs to do the hiring."

A few days later, on April 1, 2024, Franziska Ohnsorge, World Bank's chief economist for south Asia said "the issue of joblessness has become particularly fraught in India, which has struggled to create enough work despite its rapid economic growth" and warned that "it's almost like the demographic dividend is being squandered". This is something that Raghuram Rajan too had warned against earlier.

Three days later, on April 4, 2024, came the news that 36% students of IIT-Bombay couldn't secure campus placements – up by 2.8 percentage points over the previous placement season. In 2023, final placements in IITs were down 15-30%. IIT students are far better placed to secure placements than most but this is not a surprise because (i) ‘global is projected to slow for third year in a row”, said the World Bank on January 9, 2024 and (b) three top Indian IT companies, TCS, Infosys and Wipro, shed 64,000 jobs in FY24.

Taken together, the above factors (82.9% unemployed are youths, good jobs falling, jobs are progressive shifting to low-paying informal agriculture, self-employment and unpaid work, TFR fallen below replacement level and the government plans population control measure) point to inevitable conclusion: 'Demographic dividend' is virtually over for India.

Who is responsible for job creations?

Going back to Nageswaran's assertion that job creation is not the government's job but that of "commercial sector", it suffers from four logical fallacies.

One, the incumbent government came to office 10 years ago promising millions of new jobs. In March 2015, it launched 'Make in India' programme with the goal of "creating 100 million jobs over a decade or so" (the other goal being raising the manufacturing share to 25% of the GDP). In the 2022 budget, Finance Minister Nirmala Sitharaman said the PLI scheme aimed "to create 60 lakh new jobs" in next five years.

Two, on June 14, 2022, the Prime Minister promised to fill "10 lakh" vacancies in central ministries and departments in one-and-half years. Several "rozgar melas" have been held to distribute job certificates but the total number of vacancies filled or remain unfilled is not known. There isn't an estimate of total vacancies that exist in the central government's domain – including in PSU, PSBs, autonomous bodies, CAPFs and defence forces etc.

Three, it is the government's responsibility to create jobs – apart from filling 6.8% of total jobs that fall under the government sector (PLFS 2020-21). It can't be passed on to "commercial sector" since job creation is not the primary job of private businesses but incidental to their commercial activities. People elect governments primarily for their own wellbeing, not for anything else.

Nageswaran is actually nailing what is causing low job creation. At least four can be counted.

(a) Centre's reliance on GDP growth to create more jobs is self-defeating because despite high growth for many decades, job crisis has worsened. The very first Economic Survey of 2014-15 under the incumbent government had said (a decade ago) that “employment growth is lagging behind growth in the labour force”. It pointed out that between 2001 and 2011, labour force grew by 2.23% while employment grew by 1.4%, thus constituting “a major policy challenge” for the government. This challenge should have been accepted by the Centre a decade ago. Further, a 2018 study by the Azim Premji University had shown, the GDP growth stopped creating proportionate jobs after 1990, more so after 2000s – when GDP growth accelerated to 7% but job growth declined to 1% due to tech revolutions and capital-intensive manufacturing.

(b) Manufacturing push ('Make in India', PLIs) is not creating more jobs due to advanced technologies and capital intensiveness. PLFS reports show manufacturing jobs are, in fact, progressively falling from 12.1% in 2017-18 to 11.4% in 2022-23. There is no data to show how much employment PLIs is creating.

(c) Centre's capex push is for capital-intensive infrastructure, not labour-intensive sectors. In fact, the entire capex allocation in the 2024 budget, ₹11,11,111 crore, is marked for infrastructure. The focus needs to shift.

(d) Trade push is primarily for merchandise exports – which is causing huge trade surplus – while services trade is generating surplus with less government assistance. Studies have long established that trade liberalisation of 1991 “displaced” exports from traditional, labour-intensive sectors, such as textiles, natural/cultured pearls, vegetable products, animal products, prepared foodstuff, and hides and leather etc. (all of which declined) to skill and capital-intensive ones such as machinery, base metals, chemicals, transport, rubber and plastics etc. That should have been addressed in Foreign Trade Policy (FTP) of 2023 but wasn’t. Protectionism (import barriers) and keeping out of mega trading blocs (RCEP and IPEF) are further hurting the economy. The falling global growth and the IT sector shedding jobs are not good signs.

To sum up, India must take immediate steps to rescue itself from a demographic downturn in the works.