Over the next 40 years, the world’s population of seven billion will grow by about 2.4 billion more people. The majority of this increase will be between the ages of 15 and 64, the so-called working age population. The increase in this age “cohort" arises because of a simultaneous combination of declining infant mortality rates and falling fertility rates. In the next 30 years or so, about a quarter of the world’s increase in working age population will come from India.

The working age ratio is a key determinant of a potential demographic dividend. India’s working age ratio is likely to rise substantially over the next 30 years. As the working age ratio rises, as a general matter per capita income rises as well, giving rise to the demographic dividend.

This much is well understood.

Less talked about is the impact of two other related trends with profound significance for India. One is the wide variation among Indian states today. So much so that the demographic dividend may have substantially played itself out in the hitherto fast growing states of the south and west of India. The other is the increase in the number of women in the workforce.

Most states in India began the 1960s with a working age ratio of about 53%. In the high growth states from the west and the south, this ratio has evolved over the last 40 years to over 60% today. Among the slow growth states of north-central India, the working age ratio has remained mostly static in the 50s. In the next 20 years, Uttar Pradesh, Bihar, Rajasthan, Madhya Pradesh and (paradoxically) Maharashtra will contribute over 2/3rd of the increase in India’s working age group.

Allowing for some migration, nearly seven million new jobs per year will have to be created in these “Ma-Bimaru" states. Tamil Nadu, Kerala, Andhra Pradesh, Karnataka, Delhi and West Bengal will begin to see a cresting and decline in the working age group.

While jobs will be still be important, these states will also have to be at the vanguard of pension and heath-care policy changes to cater to an ageing population. This fracture into two India’s of very different age speeds will require careful political navigation.

If the variation among states seems stark, the evolving difference between men and women in the labour force is even more so. According to the latest available World Bank data, the female labour force participation rate in India—the number of females, 15 and older, who are economically active as a ratio of the total female population—is 29% and actually declined in the preceding decade. That is a full 50% lower than the same ratio for men in India. Academics have shown that female labour force participation first reduces then increases as an economy grows. The “U" curve comes about because men are disproportionate beneficiaries of education and employment in the initial stages of development.

Women’s wages and opportunities for work change relatively slowly while unearned income rises fast, so the positive (substitution) effect of rising female wages is likely to be dominated by a negative (household income) effect. Over time, with higher wages and socially acceptable types of work, more women enter the work force.

With the rapid urbanization and the large contribution of services to its economy, India is arguably at a stage when it can and should focus on enabling elements that accelerate the increased participation of women in the labour force.

This is the smartest way to convert a potential demographic dividend into a major income and prosperity boost to society.

In India, poor (often rural) women work because they have to, and highly educated women work because they can. In the group of the vast “middle-class" of women, often under-educated, is the huge opportunity.

The first step in this transformation is simply awareness. Not enough research is being done in this area. Only if the topic is fully investigated will policy alternatives suitable for India emerge.

An obvious but important second step is to lengthen the stay of girls in the educational system. Conditional cash transfers are another good way to reward households that encourage girls to finish schooling. The emerging focus on skilling, apprenticeship and vocational training at the national level should add targeted incentives for women.

In the workplace, one of the biggest contributors to the employment of women is affordable, quality childcare. Can India pioneer citywide, affordable day care for children of poor working women? The geographic and gender disparity in India’s work force is not something we can wish away. The real opportunity is to convert this into a major contributor to India’s development.

PS: “People think at the end of the day that a man is the only answer (to fulfillment). Actually a job is better for me". Princess Diana.

Narayan Ramachandran is an investor and entrepreneur based in Bangalore. He writes on the interaction between society, government and markets. Comments are welcome at narayan@livemint.com

To read Narayan Ramachandran’s previous columns, go to www.livemint.com/avisiblehand

Close