One of the great challenges India faces is to provide productive employment to all our workers. We have about 52.4 crore workers in our labour force, second only to China. Over time, as China’s population ages, we will have the largest labour force in the world. The larger the proportion of population that is at work, the greater is the economic growth potential of a country. More people at work produce more goods and services to meet the needs of domestic population and to export overseas. As workers earn money, they create a further demand for goods and services, boosting investment, employment and production. This leads to a virtuous cycle of growth. That is why economists call the availability of large working population as ‘demographic dividend’.
In order to benefit from demographic dividend, three basic conditions should be met. First, the workers should have skills enhancing their productivity. Second, the government should do its job well by providing rule of law to create a safe environment and settle disputes, build quality infrastructure to sustain a modern economy, and ensure good health of the population to enhance productivity and good quality education to improve skills. Third, an enabling climate should be created to promote investment, job creation and economic growth through economic freedom, sensible, light regulation, tax and other incentives, and trade policies.
Because of decades of failure of governments, we could not create productive employment. Even today, over 80% of the workers are in the unorganised sector without wages, low productivity and little security. Growth and jobs should be our twin mantras. Our education is inadequate for a modern, growing economy. Many of our children leave school too early, and those who attend school or even college are not acquiring meaningful skills. We have a somewhat paradoxical situation. While many youngsters are seeking gainful employment, many enterprises are lamenting shortage of skilled youth. Coleridge in The Rime of the Ancient Mariner lamented: “Water, water everywhere, Nor any drop to drink”. These lines apply to our demographic dividend not being realised. As a result of inadequate skills and education, our workers produce less on an average, and this low productivity is retarding growth and limiting incomes. Low growth generates fewer jobs, and low incomes stimulate less demand. We get into a vicious cycle of perpetuation of poverty.
Governments in India are not doing their job well and therefore growth is stunted and good jobs are not created in large numbers. In recent years infrastructure has been improving. The Union government is investing record amounts in capital expenditure. In 2023-24, budget allocation for direct capital expenditure of the union is Rs 10 trillion, and grantsin-aid to states for creation of capital assets amount to Rs 3.70 trillion. But in many states the committed expenditure on wages, pensions and interest payments, and the ever-expanding individual short-term welfare measures are growing out of control. As a result, the capital expenditure on infrastructure is inadequate.
The Union and some of the more dynamic states are doing their best to encourage new investments. Most governance is in states, and wherever states are performing better, they are promoting new investments, creating jobs and accelerating growth. But excessive regulation, bad policies and ubiquitous corruption dampen investment and growth. Our labour laws and policies have discouraged employment generation in the guise of protection of workers. Most of our regulation, instead of protecting society and environment, has become a source of extortionary corruption and harassment of businesses. Our antiquated policies and mind-set we inherited from the era of state control and monopoly are stifling true competition, and consumer choice and growth.
Political parties and governments are propagating the myth that government will give jobs to the youth. Government’s real job is to fulfil the collective needs of the community that individuals cannot meet. To the extent of fulfilling its mandate to deliver common goods and services, government needs to employ workers, and only to that extent. Our tax-GDP ratio is a little over 18%, and our governments employ about 3.2%, of work force. Government needs to train better, employ more, and deliver efficiently in services like rule of law and healthcare. In education, the number of school-age children is declining. Employing more teachers while student population is decreasing in most states is foolhardy. Instead, we should focus on outcomes. And we have too many clerks, peons and drivers in government; most of them provide no services of value to the public, and are meant to serve the needs and sustain the lifestyles of their bosses. We require to restructure government, not recklessly expand and bankrupt it.
All our national energies should be concentrated on promoting growth and creating real jobs. We need to focus on education and skills, infrastructure, rule of law and healthcare, and economic growth and employment generation. Then our demographic dividend will help us end poverty and promote prosperity. Otherwise there is a danger of us being trapped in continuing poverty with islands of prosperity.
The author is the founder of Lok Satta movement and Foundation for Democratic Reforms. Email: drjploksatta@gmail.com / Twitter@jp_loksatta
