WORLD ECONOMIC JOURNAL work in recent times are much-needed moves to decongest urban areas and achieve more balanced growth geographically .
EMPLOYMENT AND PRODUCTIVITY CHALLENGES
A part of the current growth is due to what economists refer to as demographic dividend and catch-up growth . In simple terms , an economy benefits from a demographic dividend when it has fewer people to support and more people in the labour force .
India currently has nearly 600 million people in the labour force , which is roughly the same as the population of Europe . By 2036 , it is expected that almost a billion Indians will be in the labour force . While such favourable demographics offer the potential for significant growth , much depends on how effectively the labour force will be employed , and in which sectors .
In order to become a developed nation by 2047 , India needs to maintain its current high growth rates at the very least 1 , which implies creating a significantly larger number of employment opportunities . But the country is currently facing a severe job crisis : there are not enough good jobs available , especially for the youth .
Even more concerning is the current nature of employment . Usually , as countries develop , employment slowly transitions from farming to non-farming sectors . This was the case in India from 2000 to 2019 ; however , during the pandemic , almost 56 million people shifted back to the agriculture sector . A similar reversal of trend is observed in many East Asian economies , including China .
The return to farming itself is not necessarily negative , unless individuals are compelled to do so . But in India ' s case , this can be attributed to a lack of work opportunities outside farming . Many individuals are forced to take up non-remunerative and highly risky farming activities .
Currently , the agriculture sector , which contributes 18 % to the GDP , employs 42 % of the workforce , compared with 53 % and 32 %, respectively , in the service sector . And a considerable proportion of those employed in agriculture lack the necessary skill set to find jobs in the service sector .
Much of the current growth in GDP is driven by highly productive big corporations , which tend to be capital-intensive and employ a smaller number of people relative to their size . Micro , small and medium enterprises ( MSMEs ), which provide large employment opportunities at considerably low levels of capital , have seen a severe decline in recent times . The pandemic to set up manufacturing plants when the lack of skill is a serious concern . For the sake of comparison , the capital subsidies promised to chip manufacturing plants are 150 % of the higher education budget .
On August 15 , 2024 , in his 98-minute Independence Day address , Modi lengthily praised his government ’ s achievements and pledged to make India a manufacturing hub like China . But he said very little about the associated environmental challenges , while India is ranked seventh on the list of countries most affected by climate change .
China ' s industrial growth model from two decades ago is unlikely to serve
Prime Minister Narendra Modi has set a goal of transforming India into a developed nation by 2047 , in time for the centenary of its independence
significantly contributed to the current state of MSMEs , but most of the damage occurred long before 2019 due to very low productivity levels , high indebtedness and a series of policy errors by the Modi government .
In summary , for India to grow as fast as required , it needs to revive its MSMEs and transition its workforce from low-value-added sectors like agriculture to high-value added sectors like services . And the concerning current state of the labour market indicates that these challenges will not be easily overcome .
WRONG MODEL ?
The current budget provides much-needed relief as it takes several steps in the required direction . However , the choices of sectors to prioritise for support are debatable . The government allots enormous capital subsidies as a viable blueprint for India . Firstly , because there is not much to be gained in low-skill manufacturing . Secondly , because China ’ s growth was accompanied by a fourfold increase in its per capita carbon footprint . The world has no space for another industrial China .
India is at a pivotal point in its development . The current policies are neither sufficient nor always relevant to retrain the workforce , modernise and support MSMEs , and scale its globally competitive services sector while achieving sustainable development goals . A substantial political and economic shift appears to be necessary to put the country on the right track .
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The current growth rate might not even be sufficient . Considering China ’ s GDP when it was at the same level as India , and making an assumption that development status means having a per capita nominal GDP of $ 50,000 in 2047 , the Indian economy might need to grow by some 10 % annually , above the current 6-7 %.
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