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PODCAST
Sep 19, 2024
24:24 MINS
The Decisive | Ep. 14 - India's Demographic Dividend
As the world's most populous country, India faces unique opportunities and challenges in maximizing its labor potential for economic growth. This episode covers key topics such as employment prospects post-elections, government initiatives for upskilling, and the critical role of female labor participation. Tune in for insightful analysis on how India can harness its workforce to become a global manufacturing hub while navigating the complexities of a dynamic labor market.
This special episode complements the release of S&P Global and CRISIL's thought leadership journal, India Forward, presented by the India Research Chapter. The inaugural addition of India Forward, Emerging Perspectives, which will be launched on Sept. 19.
More S&P Global Content:
- Asia-Pacific: Key themes to watch in 2024
- India's election impact: Insights and analysis
- Exploring the post-election landscape for reshoring to India
Credits:
- Host: Farhan Husain
- Guests: Sophie Malin, Ashima Tyagi
- Produced and Edited By: Kristen Hallam
- Published With Assistance From: Sophie Carr, Deepa Kumar
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Transcript
- Transcript for this The Decisive Ep 14 - India's Demographic Dividend
-
Farhan Husain 00:00:16
Welcome to a very special episode of The Decisive Podcast from S&P Global Market Intelligence. I'm your host, Farhan Husain, Global Head of Communications for S&P Global Market Intelligence. Today, we're talking about India's demographic dividend. This episode complements the release of S&P Global and CRISIL's Thought Leadership journal, India Forward, presented by the India Research Chapter, which we launched at the end of 2023. India, home to 1.4 billion people is now the world's most populous country. 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 the risks and opportunities on the horizon for India to reap its demographic dividend? I have the pleasure to be joined by 2 experts from Market Intelligence's Pricing and Purchasing team, Sophie Malin, Principal Economist; and Ashima Tyagi, Economics Associate Director. So let's start with the first question. Sophie, I'll bring you in for 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?
Sophie Malin 00:02:07
Yes, absolutely. So we definitely saw that employment prospects certainly influence both choices across Indian states. Just to put the Indian employment picture into perspective, according to our macro team, the unemployment rate was 9.3% in 2023 and the employment to population ratio was 53% -- so India's objective really is to try and improve this picture, bring it to levels that we see in other countries like Vietnam, Thailand and China, where unemployment 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 has still got strong growth ahead of itself, but we've got a population that's continuing to grow and participation rates are steadily increasing. So really, the 2 major questions for India in the next decade will be how to create enough jobs to absorb that inflow of labor. But secondly, then how to improve the quality of these jobs because we really do have a high proportion of informal employment in India. Those are key objectives, but then another one is really to address the high unemployment seen within the youth of India, and we particularly see this in those that are college educated. Now graduates in India are likely quite affected by the fact that there's a mismatch between the education they've received and then the skills actually needed in the market. This is for 2 major reasons. So we've got graduates coming 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 focused in gaining service-related qualifications, particularly those for the IT sector. But this is where we've seen a real sluggishness in hiring of late. Particularly we've seen firms restructuring after previous quite strong hiring pushes. So what we've seen is really just the youth overlooking other sectors where demand has been stronger and where skilled labor is actually very much in need. So we could look to the 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 because growth being supported by either the Make in India program or the ongoing diversification of supply chains.
Farhan Husain 00:04:48
Great. Let's stick to that skill development area in the post-election budget announcement from this past July, there seem to be positive signals with specific initiatives announced to support employment and skills development. Can you talk us through that?
Sophie Malin 00:05:03
Yes. So we've seen INR 2 trillion be allocated towards 5 different employment support schemes over the next 5 years. Now upskilling has been a target of the government for some years through the Skill India program, but we're going to see further support to this initiative through the upgrading of 1,000 industrial training institutes. This will really help to close the skill gap that we see in India and help bring that workforce better in line with the skills needed within the market today. In addition to this, there's financial support that's been pledged to place 10 million young workers in internships at the top 500 companies in India. So through this initiative, we'll see graduates really gain valuable market experience, give them the opportunity to actually develop those practical skills that they're missing, and this will certainly help improve their employment prospects. Now another area that we're seeing support is manufacturing sector. It's already been supported by production-linked incentives under the Make in India program I spoke about earlier, but we've now actually seen the addition of employment-linked incentives. So that's to really make sure 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 on job growth. And so really, the success of these schemes will be limited by the private sector's ability to help support the ambitious aim of 41 million jobs created over the next five years amid still quite modest private 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 year across the next 5 years to meet that 10 million placement goal. We have to place this against the backdrop that a recent report by the Bank of Baroda found that growth 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 the level of employment support needed in India.
Farhan Husain 00:07:31
I don't think I've ever wanted to be in the position of an intern, but it sounds like a very lucrative market. I'd love to drill down a little bit further and, Ashima, bring you into the conversation. In last year's Look Forward Journal, both you and Sophie wrote a piece specifically on India's labor market, concluding that boosting female employment will be key in harnessing India's demographic dividend. Let's dive a little bit further into that. With the new government in place, what would be the key focus areas or policy initiatives that could support female labor participation, especially given India's ambition to be at the center of supply chain diversification.
Ashima Tyagi 00:08:12
Thanks, Farhan, for bringing up this very important subject. When we discussed improving female labor force participation rate in our article last year, we knew that it's going to be a gradual process. We're talking about major structural shifts in society, and that kind of social change doesn't happen instantaneously. Now why is the shift necessary, you may ask. There is data from the 2019 Time Use survey from India's National Statistical Office, which states 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 is 3x more for men at 74.7%. That's quite a contrast. So where can policy focus on? One promising avenue is international trade. It is an established fact that countries that are more open to trade tend to have greater opportunities, lower inequality and higher incomes for women with exporters traditionally employing more women. But India's openness to trade as measured by trade to GDP ratio leaves much to be desired. India's trade to GDP ratio was actually 46% in 2023 as per World Bank data, which is lagging behind other alternative destinations for supply chain, such as Mexico, which is at 74% and Vietnam at an impressive 184% -- if we want to empower women through trade, we really need trade statistics by gender. This will again 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 is as per a World Bank study. What we need is training and resources that can help women move into higher skilled positions like research and marketing. So 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.
Farhan Husain 00:11:14
Now let's dive a little bit into a slightly different area, but just as important, that's around labor provisions. Ashima, I'll stick to you for this question. Specifically, labor provisions and free trade agreements or FTAs. Many developing nations, including India, have long contended that externally imposed labor standards can undermine the comparative advantages in labor-intensive manufacturing. How do you see India, in particular, navigating this challenge while at the same time, committing to globally acceptable labor standards and FTAs?
Ashima Tyagi 00:11:49
Yes, very interesting. Inclusion of labor standards into trade agreements has been a complex and sensitive issue globally, in fact, for decades. On one side, the proponents argue that countries with lower labor standards enjoy reduced production costs, which will, in turn, give them an unfair edge over nations with higher standards. But the critics point out that imposing unsustainably high labor standards could limit market access for developing countries without really improving wages or working 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 in 1996 and Seattle in 1999, India, alongside many other developing nations like Brazil and Malaysia, strongly opposed the inclusion of labor standards in WTO discussions. Fast forward to today, we do 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, which states that each member will enforce its own labor laws in a way that shouldn't hinder trade among 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 India's ongoing discussions with European Union and the United Kingdom. But there's another specific case that I'd like to highlight, the U.S.-led Indo-Pacific Economic Framework for Prosperity, or IPEF, where India has joined the pillars related to supply chain resilience, clean economy and fair 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 and rights at works. So yes, essentially, what I'm trying to say is that India is generally supporting these ILO conventions, but is careful about future ratifications. There is definitely a willingness to engage with international labor standards, but keeping national interest and socioeconomic conditions in mind at the same time.
Farhan Husain 00:14:43
Undoubtedly, this is going to be a really important area to focus on. I'd love to shift more folks on the supply chain area. So Sophie, let's bring you back in for this. As we're hearing, India wants to leverage the rewiring of global supply chains while also being a focal point of growth in Asia in recent years. But how competitive is Indian employment compared to its Asian counterparts?
Sophie Malin 00:15:08
So several reports have suggested India's comparatively rosy employment growth in the region. Yes, we've seen some easing of hiring intentions in India from the robustness we saw in 2022 during that post-pandemic rebound. But even with this slowdown, India has repeatedly been reported to have the strongest hiring intentions across Asia Pacific. And actually, not too long ago, it was also reported to have the strongest hiring intentions globally. This is at least according to the Manpower Group Employment Outlook survey. Just to quantify this a bit more, the latest results of the survey showed a net 30% of employers in India are planning to expand their workforce in the third quarter of 2024 compared to the Asia Pacific average of 22% of employers. And we've seen this picture replicated in our PMI. So our PMIs are Purchasing Managers Indices. They measure the overall health of a sector, but they also include sub-indices relating to employment growth. Again, employment expansion settled into a softer pace in 2023 in our PMIs after the particularly strong expansion in late 2022. But when we compare employment expansion in India to other Asian nations, it really did show comparative strength, particularly within our manufacturing PMIs. We've seen persistent manufacturing job cuts, obviously, in reaction to weak global demand across 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 the 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 all other Asian countries that we report on.
Farhan Husain 00:17:18
And Sophie, maybe just a follow-up on that. What would you identify as risks and opportunities that would impact future employment growth within India?
Sophie Malin 00:17:26
Yes. So implementation of previously approved labor market reforms really will be crucial to unlocking the future employment growth potential in India. The current laws, they're just really complex and rigid, and it's holding back employment. So we're seeing businesses focus on capital expansion instead of labor expansion to really avoid the labor-related liabilities because of 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 further employment growth. Conversely, actually, more support is needed for the informal and gig economy. So the current labor laws don't adequately address their needs. We need enhanced job security, better working conditions and better pay. So this will 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 continued support to the industry in not only the incentives that we're already seeing, but infrastructure investment will be key to supporting FDI inflows and allowing us to see the sort of sector expansion that has a greater capacity to provide the scale of jobs that we really do need in India. On the other hand, the health care sector provides opportunities and the fact that it's experiencing strong hiring growth, but there are clear labor shortage issues within the sector. So the opportunities are we've got an expanding elderly population in India. So the demand for health care services in 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, but the skills in demand 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 skills that it needs to advance, but also that the youth of today are actually being guided into these industries of opportunity.
Farhan Husain 00:20:36
Yes, really interesting. We'll certainly continue to follow these developments. Ashma, I'd love to wrap up here on the trade and supply chain front, what would you identify as risks and opportunities that would impact or support gender inclusive employment growth in India?
Ashima Tyagi 00:20:52
Sophie has already covered a lot of ground there. But what I'll say is that, of course, India's growth prospects in the coming decade as well as further integration into global value chains presents big opportunities for employment in general. Indian government itself in their foreign trade policy document for 2023 has set an ambitious goal of reaching USD 2 trillion in exports by 2030. However, as I mentioned earlier, the critical concern is that the participation of women in goods trade is notably low. And unfortunately, we lack official and granular data to fully understand the scale of this issue. From a gender-inclusive trade growth point of view, women, first of all, have to brace hindrances in joining the formal workforce and those that do end up working in export-oriented sectors face all the more challenges. India primarily exports a lot of food products, textiles, 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 lot of steps. I think there was a national trade facilitation action plan that I was reading about where improving gender inclusivity in trade was an important 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 USD 20 billion to gender budget statement. So this means that they would evaluate a lot of programs with a gender 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. Given the disproportionate burden on women for caregiving that I talked about earlier and can talk about it more, 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.
Farhan Husain 00:23:19
That's great. And you can probably go a whole other 30 minutes talking and going a little bit deeper into the dynamic labor market. But I do encourage all of our listeners to look out for our inaugural edition of India Forward emerging perspectives, which will be launched on September 19. It's our inaugural thought leadership piece from the India Research chapter of S&P Global. We'll dive into more insights around India's macroeconomic outlook, the maturing capital markets, maritime, geopolitical strategies, the energy sector initiatives in Gen AI and much more of what you heard Sophie and Ashima discuss today. So thank you, Sophie and Ashima, for sharing your insights with us on this dynamic labor market. And to our listeners, thanks for tuning into this episode of The Decisive.
Kristen Hallam 00:24:06
Thank you for listening to The Decisive podcast from S&P Global. Please subscribe and join us for next week's episode. Until then, stay curious and stay informed.
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