🙏India’s demographic dividend will remain unpaid

Clipped from: https://www.business-standard.com/economy/news/india-s-demographic-dividend-will-remain-unpaid-123042500669_1.html

Throughout India’s post-Independence history, only about 10 per cent of workers have received a regular monthly or weekly wage with at least one social security benefit

Photo: Bloomberg

India’s population is set to outstrip China’s. That, along with the rise of Indian unicorns and electronic payment transactions, has stirred heady optimism about the country’s economic prospects. Outside of Africa, India will have the youngest population for the next few decades. The “demographic dividend” of young Indians could power an economic boom. More likely though, a gargantuan problem — seventy-five years in the making — will get worse: given the Indian economy’s chronic inability to absorb job seekers, new generations of young aspirants will enlarge the pool of largely unproductive, poorly paid, and frustrated workers.

The severity of India’s employment shortfall is best measured by its “surplus labour,” a concept much broader than the “unemployment rate.” Quite simply, most Indians cannot afford to stop working. Instead, multiple people (often within an extended family) enter into work-sharing arrangements to do the work of one person — in agriculture, petty manufacturing, retail trade, and myriad services. These work-sharers have long been India’s underemployed. India’s first employment survey, conducted in 1955, showed an unemployment rate of 1 per cent but another 15 per cent could stop “working” without any reduction in economic activity. India’s “effective unemployment rate” — its surplus labour— was, therefore, 16 per cent of the 170-million labour force. The surplus labour was certainly larger: while the underemployed told enumerators they wanted work, many had lost all hope of work and dropped out of the labour statistics. They too were exemplars of the economy’s unproductive, indeed unused, labour force.

Even those who worked long unforgiving hours were engaged then, as they are now, in low-wage, low-productivity tasks with virtually no job security or benefits. Throughout India’s post-Independence history, only about ten per cent of workers have received a regular monthly or weekly wage with at least one social security benefit.

History has relentlessly led India to this point. Starting with its massive jobs challenge, newly independent India also experienced a demographic surge. Birth rates fell at a slower pace than death rates, bringing millions of job seekers into the market every year. But policymakers never grasped the magnitude of their task. A capital-intensive, heavy industrialisation strategy all but eliminated the possibility of using the demographic dividend. India invested poorly in mass education and made little effort to bring women into the workforce, the crucial initiatives that allowed East Asian nations to expand domestic employment through exports of labour-intensive manufactured products.

The next blow to Indian job prospects came in the early 1980s. After the Bombay textile workers’ strike in 1982-83, businesses turned away from manufacturing to invest in property and finance. Just about then, the Chinese behemoth came on stream as the world’s manufacturing hub, causing Indian business to scamper further away from labour-intensive manufacturing. 

In another of history’s ironies, “liberalisation” of the economy created a modern manor-serf system in the early 1990s. India desperately needed the liberalisation to greatly reduce controls on imports and industrial production. But while a financial sector and construction boom produced a new generation of super-rich Indians, manufacturing — the intended target of the liberalisation — proved unable to compete in either global or Indian markets. The financial sector created few jobs, and construction created low-wage, physically precarious jobs. The surplus labour pool grew. In the year 2000, the unemployment rate was 2.4 per cent but underemployment constituted another 11.4 per cent, making the effective unemployment rate nearly 14 per cent of the now 420 million-sized labour force. As the super-rich ensconced themselves in new manors, they had a vast supply of serf-like pliant workers for their businesses and homes.

The manorial-serf system took on its most virulent form in the early 2000s, with steadily weaker corporate governance, disregard for environmental protection, and, above all, a fierce bid to beat down labour costs through weakening labour rights. Symbolising the new era, Indian corporate entities rushed to claim the minerals that lay beneath the forests in the states of Chhattisgarh and Jharkhand, home to and source of livelihood for generations of Adivasis. In a consensus that spanned political parties, the Indian state supported private vigilante armies that beat back protesting Adivasis. In the state of Gujarat, then Chief Minister Narendra Modi advertised the so-called Gujarat model of development, which subsidised large corporations and handed them no-fuss environmental clearances to establish capital-intensive factories that needed few workers.

The manorial-serf system coalesced under Prime Minister Modi. Weak corporate governance and disregard of environmental regulation made the rich richer, while the pool of surplus labour grew. An ill-conceived demonetisation, which sucked out 86 per cent of the cash in the economy, and a botched roll out of the Goods and Services Tax dealt severe blows to the most vulnerable workers. The number of people employed by the Indian economy fell. Just before the Covid scourge struck, the unemployment rate had risen to 6 per cent, the underemployment rate was 10 per cent for an effective unemployment rate of 16 per cent of the 495 million people in the Indian labour force.

Making matters worse, increasing numbers (mainly, but not only, women) — discouraged by the perennial lack of availability of jobs — stopped reporting they were available for work and dropped out of the labour force. The vast bulk of jobs offered by Indian businesses came with pitiful wages and harsh working conditions. For most Indians, a government job was the dream: it came with regular pay and good benefits. But whether in schools, police force, judiciary, railways, or regular civil service, the government kept many vacancies unfilled, pushing hundreds of aspirants to compete for one job in unpredictable, often corrupt, recruiting processes.

After Covid wiped out tens of millions of jobs, Indian job seekers faced an even bleaker future. Many who had lost jobs declared themselves “self-employed,” a euphemism for severe underemployment. Many who had for long said they were not looking for work also joined the ranks of the self-employed. Of these newly self-employed, a stunning 50 million people described themselves “household helpers” in family-run farm and non-farm businesses. Unpaid for their services, these quintessentially surplus workers surged exactly when the world celebrated Indian unicorns and electronic payments transactions. The stress on workers ratcheted up also because the government unconscionably delayed wage payments in its rural employment guarantee scheme.

For over seven decades, India has squandered its demographic promise into an ever-expanding pool of surplus labour. And just as right after Independence, those who toil long hours do so at wages that remain mean-spirited with no social security to fall back upon. Accompanying such distress is not just low productivity but the robbing of people’s dignity and bringing up another generation of poorly nourished children. Today, the incentive for the business and political elite is to maintain a big pool of servile workers. Not surprisingly, the entrenched manor-serf divide has extended itself to new professions. When recently delivering a book, an exhausted gig worker asked the homeowner for a biscuit. “I am hungry,” he said.

Ashoka Mody is Visiting Professor of International Economic Policy at Princeton University. He previously worked for the World Bank and the International Monetary Fund. He is the author of India is Broken: A People Betrayed, Independence to Today 

(Stanford University Press, 2023)