India’s policy makers, for sure, must be debating how to weather the shock slowdown in its world-leading growth rates. Prime Minister Narendra Modi, however, faces another uphill task to address what is seen his government’s biggest failing: Job creation.
India will have the world’s biggest labour force by 2027. However fresh employment opportunities are scarce and the administration has lagged in training workers to help them survive the threat of automation. Questions are now rising about Modi’s ability to fulfil his 10mn-jobs-a-year campaign pledge with less than two years to go for the re-election.
There’s demand for the skilled. The government estimates the country will need an extra 110mn workers across 24 sectors by 2022 compared with the 105mn who will enter the workforce.
But the gap is wide, according to Bloomberg calculations. India’s working age group of 15-59 years accounts for 62% of the total population, while its average age of population by 2020 will be 29 years compared with 40 in the US and 46 in Europe. But here is the catch. Only 5% of the people in India possess formal skills against 68% in the UK, 75% in Germany, 52% in the US and as high as 80% in Japan.
India has a gargantuan task of skilling 400mn workers/jobseekers by 2022.
To be fair, India’s demographics are generally considered better than China’s. An ageing population and low birth rates are causing the prime working-age population – aged 15-59 – to decline in China. From 2015-2040, this group is estimated to shrink by more than 115mn.
India, at the same time, is seen as a laggard in productivity. Of the potential global oversupply of 90mn low-skilled workers in 2020, 27mn will be in India, according to the McKinsey Global Institute. Output per worker is projected at $3,962 for India in 2017, a fraction of Germany’s $83,385, says the International Labour Organisation.
India could now be forced to cut spending on more desperately needed infrastructure and training programmes for the workforce as lower-than-expected tax collections and sluggish growth have upset the government’s budget calculations. Tax receipts stood around $7.8bn in July – a little over half the monthly target – blamed mostly on noncompliance with the new nationwide Goods and Services Tax (GST) regime.
Growth itself slowed to 5.7% in the April-June quarter from 7.9% a year earlier, another GST offshoot, partly. Economic growth, which slipped to a three-year low in the last quarter, could take a further hit if public spending were to be slashed.
India needs to consistently grow above 8-9% to provide enough jobs for what will be the world’s biggest workforce, and some of the country’s best economic phases came when its society was most open, according to Raghuram Rajan, the former governor of the Reserve Bank of India.
The jury is still out on how long the slowdown in India’s growth will last given it’s been at least partly triggered by one-time events. Investors, mostly, seem to be on Modi’s side, but time is not.
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