The document discusses India's large youth population as either a potential asset or liability for the country's economic growth. It notes that while India will have a large workforce for several decades, there are concerns about whether there will be enough jobs available and whether the workforce will have the necessary skills. Some experts argue that India has focused more on skilled services than labor-intensive manufacturing. There is a debate around how well India can quickly train its large unskilled workforce to meet future skill demands.

1. India's Demographic Dividend: Asset or Liability?: India Knowledge@Wharton
(http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4717)
India's Demographic Dividend: Asset or Liability?
Published : January 09, 2013 in India Knowledge@Wharton
Half a century ago, there was only one answer to the question of
India's growing population. In a 1967 book titled Famine 1975!:
America's Decision: Who Will Survive?, U.S. economists William
and Paul Paddock even advocated that the population of India
should be allowed to starve as the country was a hopeless case.
America should allocate its aid dollars to other countries with
greater chances of being able to feed their hungry, the authors
argued.
Ten years ago, the India's growing masses -- the population
officially crossed one billion in 2000 with the birth of Aastha Arora
on May 10 of that year -- were still considered a liability by many. This is a single/personal use copy of India
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Somewhere along the line, however, economists discovered a silver
lining: The world was aging, but India was growing younger. There was a "demographic dividend" that
the country could hope for, and ultimately exploit. Ann April 2012 International Monetary Fund (IMF)
paper titled, "Asia and the Pacific: Managing Spillovers and Advancing Economic Rebalancing," noted
that "in many Asian countries, aging populations are now causing, or are about to cause, a decline in the
working-age ratio. The Japanese workforce has been shrinking since 1995, and the Korean workforce will
start to decline beginning 2015. China's working-age ratio will peak in 2013 and then decline by a
substantial amount in the next few decades.... The second most populous country in the region (and the
world) affords grounds for cautious optimism. India's demographic transition is presently well underway,
and the age structure of the population there is likely to evolve favorably over the next two to three
decades." The democratic dividend could add 2 percentage points to per capita GDP growth per annum,
according to the IMF.
There are some challenges related to those seemingly favorable demographics, however. The first is in
finding jobs for all these people. Second, and more importantly, India's young people will need to develop
the right skills for the modern job market.
Different Views on Job Growth
Opinions on future job growth diverged at the recent 20 th Anniversary Symposium of the University of
Pennsylvania's Center for the Advanced Study of India. During a panel discussion titled, "Building an
Inclusive India," one speaker envisioned the country exporting armies of skilled labor to the world.
Another worried about a generation of unskilled Indian workers left behind. "Only 5% of India's labor
force is estimated to have had any formal training," said panelist S. Ramadorai, vice-chairman of Tata
Consultancy Services and an advisor to the Prime Minister for the National Council of Skill Development.
Developing India's human capital is essential in the coming decade, Ramadorai noted. To make
manufacturing a genuine engine of growth, the government has announced new policies as part of the
12th five-year plan (2012-2017) that aim to create 100 million work opportunities by 2022 -- many in
labor-intensive manufacturing sectors such as textiles, gems and footwear.
The government is also working to expand access to education and vocational training for workers in the
countryside, including new rural broadband networks that will connect remote areas with educational
opportunities. "Technology is going to play a very critical role in connecting the haves and the have-nots,"
Ramadorai said.
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2. India's Demographic Dividend: Asset or Liability?: India Knowledge@Wharton
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With the right skills and training, Ramadorai sees workers from India prospering not only at home but
also abroad. According to the United Nations, the working-age population will increase by about 600
million globally in the next decade. While there will be a decline in the developing countries by almost 17
million, the global economy as a whole is expected to experience a skilled manpower shortage of 56
million by 2020, he added.
India will be one of the few countries in the world with a working age population that exceeds its number
of retirees. "By 2020, the average Indian will be only 29 years of age, compared with 37 in China and the
U.S., 45 in Western Europe, and 48 in Japan," Ramadorai pointed out. That means India will experience
an age advantage for at least three decades, through 2040. "So this is where I see an unprecedented
opportunity," he added. The future is bright "if Indians skill themselves to suit the future demand for jobs
both domestic and abroad."
If India can make employment and skill level a priority, it might be able to fill the gaps in the world's
manpower shortage and "become the resource pool of the world," Ramadorai said. "We need to see this
as an opportunity," he added. Getting India's labor pool ready for export will be "the largest and most
complex human resources exercise in the world."
Arvind Subramanian, a senior fellow at the Peterson Institute for International Economics and senior
fellow and director of the India Initiative at the Center for Global Development, was more skeptical
about India's ability to train its unskilled workforce. "I hope Mr. Ramadorai will succeed in his mission,
because India needs that, but I'm a little more pessimistic," he said. India suffers from a "precocious
model of development," Subramanian noted. "We have developed based on skilled services rather than
using our abundant pool of unskilled labor. All of East Asia, even China, in the early phases developed
using low-skilled, abundant labor. We have completely neglected that."
Anomalous FDI Flows
India's "precocious" development is seen most clearly in "the uphill flow of foreign direct investment
(FDI)," Subramanian said. In theory, economists believe that rich countries should produce the
technology, know-how and capital and then shift those resources to poorer countries in the form of FDI.
But today, emerging countries like Brazil, China and especially India are showing comparative
advantages in certain skilled areas such as management and finance -- and are exporting FDI as a result.
China's FDI goes mostly to emerging African countries, which is consistent with the traditional economic
models, Subramanian noted. "But India is completely anomalous, completely precocious. We export FDI
to the richest countries in the world. That shouldn't be happening at all."
It will be difficult at this point for India to build a manufacturing sector for unskilled labor, Subramanian
suggested. "That is not going to happen." Much of manufacturing today is already shifting toward robots
and machines. "Within manufacturing, it's become much more skill intensive. Within our exports, it's
become more skill intensive. It is not becoming unskilled-labor intensive," Subramanian said.
India's only other option is to upgrade workers' skills so that as the economy demands more skilled labor,
there will be a supply of people to fill those positions. Subramanian expressed doubt that India could train
workers fast enough. "While there will be very good private sector initiatives to respond to this, I think the
public sector will just not be able to supply the kind of skills in the quantities that we need going
forward," Subramanian noted. "What that means is that one or two cohorts of unskilled labor will get left
behind."
Subramanian called the scenario "an unavoidable and inevitable consequence" of India's precocious
model of development. "I think we have a problem on our hands," he added.
The Debate in India
The employability issue is the focus of a heated debate in India, with strong arguments from both sides.
The National Association of Software and Services Companies (Nasscom) has published a study saying
that only 25% of information technology (IT) graduates are employable. This has drawn a strong reaction
from the All-India Council for Technical Education (AICTE), the government's accreditation agency.
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3. India's Demographic Dividend: Asset or Liability?: India Knowledge@Wharton
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According to the AICTE, every year, one million engineering graduates and diploma holders are added to
the workforce. If the number of unemployed engineers was anywhere near what Nasscom claims, "there
would be civil war," AICTE chairman S.S. Mantha told the media recently.
The IT sector has been the biggest recruiter in recent years and has attracted many studies. A report by
Aspiring Minds, a Gurgaon-based employability assessment firm, highlighted the skills gap, particularly
in the product space. According the report, titled "The National Employability Report, Engineering
Graduates, Annual Report-2012," although India produces more than 500,000 engineers annually, only
2.68% meet the skill requirements of the IT products sector. The report estimated that nearly 92% of
engineering graduates in India lack computer programming and algorithms skills and around 56% lack
soft skills and cognitive skills.
The report further noted that only a very small percentage of engineers have the competence to apply
engineering mathematics to solve problems. "There is a clear and measurable distinction between the
talent required to develop IT products vis-à-vis typical IT services talent. While we observe employable
talent is spread across all kinds of colleges, building India's prowess in IT products would require
significant focus and investment in training and evaluating students in core technology," Himanshu
Aggarwal, CEO of Aspiring Minds said in the report.
Sanjay Modi, managing director of online recruitment firm Monster.com for India, the Middle East and
Southeast Asia, suggests that there is a lack of adequate communication and collaboration between the
government, academia and industry in India. "For instance, while business has changed drastically in the
past 10 years, the curriculum in educational institutions is the same as it was a couple of decades ago.
And the sheer process of bringing in any change in the curriculum is so tedious that it simply gets bogged
down," says Modi. "What is needed is a strategy of three Es -- education, employability and employment.
What we have to focus on first is education. This will lead to higher employability."
In an earlier India Knowledge@Wharton article, Manish Sabharwal, chairman of TeamLease Services, a
leading human resource services provider, pointed out that skill development is only one part of the
solution. Sabharwal noted: "There are three problems in the current Indian system: matching supply and
demand, repairing supply for demand and preparing supply for demand. What we are all focusing on right
now in terms of employability ... is only the repair part. This is a low-hanging fruit. But this repair
pipeline will run dry if the prepare pipeline, by way of education reforms, is not fixed. And that is
something that the government and academia need to work on."
A Global Problem
This is, of course, not a problem for India alone; it is more important in the country, however, because of
the numbers involved. According to a recent McKinsey report titled, "Education to Employment:
Designing a System that Works," there is a huge gap in almost all countries between what the educational
system feels it provides and what employers think they get. In the U.S., 87% of the education providers
answered the question, "Are graduates adequately prepared?" in the affirmative, while only 49% of the
employers agreed. India actually scored better, with figures of 83% and 51%. The gap was the widest in
Germany followed by the U.S. "Seventy-five million young people -- 12.6% of global youth -- are
unemployed yet only 43% of employers report there are enough qualified entry-level candidates,"
according the McKinsey study.
S. Krishnaswamy, senior professor and head of the department of genetic engineering at Madurai
Kamaraj University, says that all of these reports are doing a good job of raising awareness. "There is
certainly a problem, but it's not insurmountable," he notes. "Indians are extremely adaptable. They learn
very fast, too."
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