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For years, India’s demographic transition has garnered significant attention. India is at a stage where population growth is expected to slow down markedly in the next two decades along with a substantial increase in the share of the working-age population, providing us with a demographic dividend opportunity window. While all stages of a demographic transition must be understood well to formulate policies accordingly, the stage wherein the working-age population forms the majority of the overall population is all the more important to consider. A larger reservoir of working-age people signifies a greater scope for labour-force mobilization. As per the National Sample Survey Office’s Periodic Labour Force Survey 2020-21, India’s labour force participation rate for all age groups is around 41.6% (57.5% for males, 25% for females). With our working-age population projected to grow by roughly 9.7 million per year from 2021 to 2031 and 4.2 million annually in the 2031-41 period, there is immense potential to mobilize the expanding working-age population and elevate labour force participation. When the age structure of the population shifts, especially with an expanded share of the working-age population, the economy can benefit from increased income, investment and gross domestic product (GDP) growth. However, to realize this demographic dividend, the population in the working-age bracket must find gainful employment. Mobilizing them into the workforce is key. The competitiveness framework can be a firm basis for India to understand the drivers of labour force mobilization.

The competitiveness approach defines national competitiveness in terms of the expected level of output per potential worker. The ‘output per potential worker’ aspect indicates a broader notion of productivity that captures the productivity of the employed as well as the ability of a country to mobilize its working-age population. Both components are important for creating prosperity. The term ‘potential’ here adds depth to our approach to economic growth by capturing the total workforce that can potentially be harnessed by an economy, and not just the employed portion. Competitiveness is, thus, linked to both components of output per potential worker: output per employed person and the ability of a country to mobilize its workforce. The question then is, how does India improve its ability to mobilize the working-age population and get them into employment? Particular dimensions of a nation’s socioeconomic environment could be especially relevant for understanding drivers of labour mobilization. The competitiveness approach offers a perspective that views potential workers in an economy as a crucial aspect of the region’s competitiveness conditions. Utilizing this approach would help focus efforts on reaping the country’s demographic dividend, and formulate policies accordingly.

The potential to mobilize the labour force depends on a multitude of factors. Job creation must keep pace with the increase in the working-age population. Creating opportunities for gainful employment is crucial.

Finance minister Nirmala Sitharaman stated that the Production-Linked Incentive (PLI) scheme across 14 sectors has the potential to generate 6 million jobs over the next five years. India must prioritize the creation of opportunities for gainful employment. In tandem with job creation, it is necessary to promote employability among potential labour force entrants. Empowering the youth in terms of their education, skills and health should be a critical priority to enhance employability. India is witnessing a surge of effort in this direction. Under the Skill India Mission and through various skill development programmes, around 55.6 million people have undergone skill training since 2015.

Yet another crucial aspect of easing labour force mobilization requires us to look at the issue through the lens of an individual worker’s lifetime. Individuals enter and exit the labour force for a variety of reasons and at multiple points of time. There should be multiple pathways leading into the workforce. The working age bracket is roughly considered to be from 20 to 65 years. However, learning and skilling must be perceived as a lifelong endeavour. In this day and age, continual skilling and upgrading of one’s skill-set have become paramount to gaining remunerative employment. In this light, India’s efforts to promote greater labour force mobilization should be directed in a way that facilitates multiple entry points for an individual into the labour force. It is important to understand that barriers to the labour force market vary for different communities and regions, and especially for women. Social norms have long been dictating the employment choices of women, for example. As per the Periodic Labour Force Survey Annual Report 2020-21, the all-India female labour force participation rate (LFPR) in usual status has increased to 25.1%, as compared to 22.8% a year ago. However, female workforce participation continues to linger at a low level in India. Low participation of Indian women in the workforce could be attributed to a number of factors, including lack of jobs, the burden of unpaid care work, and cultural norms. Mobilizing the Indian female labour force in particular calls for a greater emphasis.

Efforts toward greater labour mobilization should also consider the fact that the evolution of the working-age population varies across Indian states. According to the Economic Survey 2019-20, the size of the working-age population will start to decline in 11 out of 22 major states during 2031-41, including states such as Punjab, Maharashtra, West Bengal and Himachal Pradesh, while it will continue to rise through 2041 in states that find themselves behind others in the demographic transition. It is important to take into account these variations, as they will have a bearing on the labour-mobilization efforts of individual states.

A greater working-age population does not bestow the advantages of a demographic dividend automatically. These benefits have to be reaped from favourable demographics. Ensuring that this potential is harnessed should be the central axis of India’s growth strategy.

Amit Kapoor & Bibek Debroy are, respectively, chair, Institute for Competitiveness, India and lecturer at Stanford University; and chairman, Economic Advisory Council to the Prime Minister.

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