India’s demographic dividend is not possible without a skilled workforce

From EquityMaster:

China’s one child policy and aging population may just wipe out its biggest competitive advantage – cheap labour. It is the most populous country in the world with 1.35 bn people. But its populace is graying at a fast pace and there are too few babies born. According to government statistics, the proportion of the population aged between 15 and 64 fell to 74.4% in 2011. This was the first fall in ten tears. This Asian giant may face economic stagnation akin to Japan if it fails to adopt certain reforms to compensate for its shrinking workforce. Japan’s demographic dividend disappeared in 1990, and its economy stagnated ever since.

Wages in China have been steadily rising over the years, even rising in double digits. Now they seem to be on a permanent upward trajectory. The standard of living has improved in many parts of the country. An aging population also calls for increased wages to pay for healthcare and other allied expenses. Possibly the only answer to this predicament is for China’s growth engine to completely turn on its head. Rather than simply focusing on a cost advantage it needs to bring something else to the table. It needs to focus on innovation and productivity. Or can another country win the race?

On the other side of the Himalayas, India has a big advantage. India is one of the few countries in the world having a positive birth rate and a huge demographic dividend. Its working-age population mainly consists of youth (15-34 years). As a result its economy has the potential to grow more quickly than many others. But, it may not be doing enough to leverage on this potential.

Currently only about 2% of the Indian workforce has formal training as against an average of 75% in Europe. To bridge this divide the government needs to earnestly focus on skill development. The Prime Minister’s National Council on Skill Development has endorsed a vision to create 500 m skilled people by 2022. But, will this be another target India fails to achieve? Measuring the quality of the training given is another matter altogether.

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One thought on “India’s demographic dividend is not possible without a skilled workforce

  1. Indians politicians, economists, and the people talk absolute nonsense with regards to demographic dividend and how the entire world will age so that Indians would have to be the global supplier of cheap labor. Have you ever wondered why the Chinese government is still adhering to the “one child policy” despite the entire world telling them that there population would age and that they will get old before they get rich? Do you think that the Chinese Communist Party (CCP) leaders and their economist are stupid just to continue to implement this one child policy when they are properly planning everything across their economy? Have you ever wondered why are the CCP leaders risking a revolution by implementing such policies that may not go well with the feelings of the general public (one child policy) rather than just sitting in power for their entire life, mooching tax payers money and sending them to their Swiss Bank accounts like their Indian counterparts? The reality is that there is no such thing as a demographic dividend (when you have a rising uncontrolled population accompanied by depleting resources as the case in India, it often leads to a civil war as depicted historically as in many African countries, recently in Pakistan, etc) and it’s a propelled illusion created by the global media otherwise Africa would have been the richest in the world right now (Africa had way too many people before, why didn’t investments go there if their was so called demographic dividend?). On the other side, the goal of Chinese is not to deliver cheap products across the globe forever, but to slowly move into high skilled manufacturing, automation (this would rapidly decrease the need for cheap labor even when the so called population ages and wages rise in China, hence the prices of goods will be still stay low and the firm grip of CCP on 45 percent of it’s gdp investments will slow down the outsourcing levels), and service sector economy to lift it’s poor.

    On the other side, what makes you think that the population slow down (often a natural tendency as population goes through wave-like pattern as depicted by history) will force all the current developed nations to simply bring in low quality Indian labor (85 percent of graduates are un-hirable right now and many earn degrees through parrot learning).

    Stupid people of India…keep producing babies thinking that the world will want all the cheap labor forever when small pockets of uprising have already started across the world blaming cheap labor exported from India as the cause for destroying the jobs of people in developed world (History will tell you that when there is such uprisings, the elites in developed nation often tend to shift their support for cheap labor and start to support their national interests by blaming cheap labor as cause of recession to protect their wealth and assets).

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