India's Demographic Dividend

According to Market Intelligence estimates, India's population will continue to grow over the coming decade. This presents India with an advantage, especially at a time when countries around the world are grappling with declining birth rates and tight labor

markets. With our experts today and on this podcast, we'll discuss in the post-election environment, how can India maximize its untapped labor potential for economic growth, how closely linked are India's ambitions to become a global manufacturing hub and its initiatives for the labor market upskilling, and what are horizon for India to reap its demographic

dividend. I have joined by 2 experts from Intelligence's Pricing team, Sophie Malin, Principal Economist; and Ashima Tyagi, Economics Associate Director. So let's start with the first question. Sophie, this one. India's parliamentary elections. Employment emerged as a key topic of consideration during and after the elections, particularly among India's young workforce. Can you talk a little bit more about this?

rates sit around that 1% to 4% range. And then the employment to population ratio sits between kind of a low 60% to 70% range. Now India's still got strong growth population that's continuing to grow and participation rates are steadily increasing. So really, questions for India in the next decade will be how to absorb that inflow of labor. But secondly, then how to improve the quality of these jobs high proportion of informal employment in India.

another one is really to address the high unemployment seen within India graduates in India are affected by the fact that there's a mismatch between the education needed in the market. This is for 2 major reasons. So out of university or training with theoretical knowledge, but not necessarily those practical or industry-specific skills that are really needed. But also they've been gaining service, service-related qualifications, particularly those for

the IT sector. But late, restructuring after previous quite strong hiring pushes. really just And much in need. So we construction sector, given the strong infrastructure investment we've seen in recent years or in the manufacturing sector, where we really do need skilled labor by either the the ongoing diversification of supply chains.

companies in India. So through this initiative, we'll gain them the opportunity to actually develop those practical skills that they're missing, and improve their employment prospects. Now another area that we're seeing support is manufacturing sector. It's supported by production-linked incentives under about earlier, incentives. So that the growth that we're seeing in the sector actually translates into tangible employment growth. These are great

initiatives. The only issue is that it heavily relies on the private sector to be the engine really, the success of these schemes will be limited by the private sector's ability to help support the ambitious investment environment. So just to break this down a bit more, the intern program alone will require each top 500 company to place 4,000 interns each the next 5 years to meet

placement goal. We have to place by the Bank in employment in the corporate sector slowed from 5.7% in the 2023 fiscal year to 1.5% in 2024. So really it's going to take efforts from both the private and public sector to provide employment support needed in India.

necessary you may ask? There is data from the 2019 time use survey national statistical that the average Indian woman spends about 5 hours a day on unpaid domestic work while men only clock in about 1.5 hours. That's a huge gap and really shows the burden women carry, which definitely impacts their ability to join the workforce. Naturally, the numbers are

also reflecting these challenges. The latest periodic labor force survey data cites that the female labor force participation rate is just 25.6% in urban areas, while it 74.7%. That's quite a contrast. So where is international trade. It is an established fact that countries that are more open to trade tend to have greater opportunities, higher incomes traditionally employing more women. But India's openness to trade as trade to GDP ratio

desired. India's trade to GDP ratio was actually 46% in 2023 data, which is lagging behind other alternative destinations for supply chain, such as Mexico, which is at 74% and Vietnam had an impressive 184%. Again, through trade, we help us pinpoint opportunities for women. And let's not forget about capacity-building initiatives for supply chain. For example, women are heavily involved in agriculture and spice value chains in Northeast India, for instance,

in trade. And those are mostly lower tier roles like cultivation and packaging. This can help women move into I would say, in a nutshell, boosting female labor force participation is all about taking a comprehensive approach. Changing societal norms will take time, improving trade policies in the meantime, building capacity and ensuring women are represented at every level.

conditions. But talking about India's evolving stance, historically, India has been hesitant to include labor standards in trading agreements. In fact, during WTO ministerial conferences in Singapore alongside many other developing nations like Brazil and Malaysia discussions. see a shift. India is beginning to balance its international obligations

with domestic realities. Just this March this year, India concluded a free trade agreement with European Free Trade Association, or EFTA, which includes specific clauses on labor and environmental standards, something that was previously very challenging to negotiate. In fact, there's a Chapter 11 in this agreement member will enforce its own labor laws in them. So this means that domestic labor standards won't be used to restrict imports from the other member countries.

So this successful negotiation with EFTA is actually bringing a lot of optimism for European Union and the United Kingdom. But there's I'd like to highlight. The U.S. led Indo-Pacific Economic Framework Prosperity or IPEF, where India has joined the pillars related to supply chain resilience, clean economy economy, but it has taken an observer status in the trade pillar. Now why is

that? The trade pillar had provisions related to labor, including enforcement of national laws based on the ILO declaration on fundamental principles rights at work. So yes, essentially, what I'm trying to say is that India is generally supporting these conventions, but ratifications. There is definitely a willingness to engage with international labor standards, but interest and socioeconomic conditions in mind at the same time.

of 22% of employers. And picture replicated in our PMI. So our PMIs are they measure the overall health sector, but they also include subindices relating to employment growth. Again, employment expansion settled into a softer pace in 2023 in our PMIs after the particularly 2022. But when we compare employment expansion in India to other Asian nations, it really did show comparative manufacturing PMI. We've seen persistent manufacturing reaction to several of our key Asian manufacturing

nations. So this includes Vietnam to Thailand. But our employment subindex for India only reported 3 months of job cuts in the last 24 months, thanks very much to support of robust domestic demand. Actually, in fact, if you look at the average across 2023, India recorded the highest score in terms of our manufacturing employment subindex when we compare to that we

these laws. Unfortunately, implementation is unlikely in the near term given the new coalition dynamics in India, but the simplification and the flexibility of the new laws really would be crucial in helping to support growth. Conversely actually more support is needed for the economy. So the current labor laws don't adequately address their needs. We enhanced job security, better working conditions and better pay.

create better employment opportunities for these workers, which actually then in turn boosts consumer spending and then facilitates even further employment growth. So that would really be key. But if we look more at like sectorial opportunities, there's 2 sectors I want to pick out for different reasons. So that's the manufacturing and health care sectors. The manufacturing sector would provide quite substantial employment opportunities because of its ability to absorb large quantities of labor,

particularly unskilled labor. So continuing support to the industry in not only the incentives seeing, but infrastructure investment will be key to supporting FDI inflows and allowing us to see expansion that has a greater capacity to provide the scale of jobs do need in India. On the other hand, the health care sector provides opportunities strong hiring growth, labor shortage issues within the sector.

So the opportunities are we've got an expanding the demand for India is steadily increasing, making it quite a reliable source for continued employment growth. However, the labor shortages reported stem in part from the fact that there's a mismatch between the training given, and the in the sector. So really ensuring the relevancy of medical education will help translate those job opportunities I talk

about into actual employment. And beyond these 2 industries, there are many other sectors showcasing employment opportunities, especially the expansion that we're seeing in renewable energy. However, unlocking the opportunities that are present in India will really depend on ensuring that the current workforce has the but also that actually being guided into these industries of opportunity.

understand the scale of this issue. From a gender inclusive trade growth point of view, women, first workforce and those that do end up working in export-oriented sectors face all the more challenges. India exports jewelry, handicrafts, but these sectors sometimes allow for very limited production capabilities or very constrained access to funds. And there can be a lot of difficulty in establishing business networks or finding international partners, for instance.

Government is also taking a I think there was a national trade facilitation action plan reading about where improving gender inclusivity agenda item in itself, and I think that's a big step. I think in the fiscal year 2022-23, some 41 ministries, departments, they reported a collective allocation of, again, USD 20 billion to gender budget statement. So this means that they would evaluate a lot of programs

lens. Again, India is making progress in institutional reforms and promoting gender-inclusive trade, but more can still be done to achieve tangible results and improve labor market outcomes. Again, given the disproportionate burden on women for caregiving that I talked about earlier and it's been widely suggested that the government might need to invest heavily in public sector care infrastructure, which in turn will have a ripple effect in generating jobs for women and allow

them to move into formal employment. So yes, with well-designed policies, concrete action on the ground, I think, will be visible for sure.

today. So thank for sharing your insights with us on this dynamic labor market and to our listeners, thanks for tuning episode of The Decisive.