India’s Demographic Dividend: Empowering the Youth for a Brighter Future

India’s demographic dividend, which began in the 1980s and will end by 2040, has been a significant factor in its economic growth. Unlike China, which ended in the mid-2010s, India has fully capitalized on its 9-10% annual growth rate for three decades. In 2022, China’s GNI per capita was around Int$20,300, while India’s was around Int$8,200.

To ensure a consistent annual GDP growth of at least 8%, India needs to generate enough non-farm jobs for its young population. Despite the 2008 global financial crisis, India achieved 7.9% growth on average between 2004-2014, with a population growth of 1.4% per annum and an average GNI per capita of 5.5% per annum.

The economy created an average of 7.5 million new non-farm jobs annually, reducing youth and total unemployment and removing workers from agriculture. Rapid growth was accompanied by structural changes in employment, with manufacturing’s share of employment rising from 10.5 to 12.8% of total employment between 2004-11.

India’s GDP growth has declined to 5.7% under Prime Minister Narendra Modi, largely due to structural factors like corporate overborrowing and poor economic policies. Exports fell from 25% to 22% in 2022, and Modi’s snap demonetisation in 2016 negatively impacted cash-dependent MSMEs, causing a tailspin in the economy.

A national Goods and Services Tax was introduced six months after demonetisation, causing further damage to largely unregistered MSMEs. GDP growth slowed for almost three years and dropped to 4% before the COVID-19 pandemic broke out. The government encouraged public banks to resume lending to the construction sector through non-banking financial companies, but as slower job growth suppressed consumption, the real estate sector and new lenders collapsed.

In March 2020, India implemented a national COVID-19 lockdown, halting all economic activities, including those of MSMEs. This led to a shift in employment from agriculture to services, with the informal sector shrinking while the formal sector grew. To realize the demographic dividend, India needs to create non-farm jobs for three population groups: farmers, better-educated youth, and the openly unemployed. The country needs to pull millions out of agriculture to counter reverse migrations, improve the quality of education, and address the openly unemployed.

To restore non-farm jobs and resume high GDP growth, India needs a manufacturing strategy similar to China and East Asia that raises the share of labour-intensive manufacturing in output. A slow global economy may not generate export demand, but boosting domestic demand can create jobs. A renewed focus on MSMEs is also needed to regenerate jobs, and the quality of education, particularly for girls, needs more attention. Such policies can help sustain GDP growth and the realization of the demographic dividend.

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