India will overtake China this year to become the world’s most populous country.
The prospect of India passing that major milestone in a few months rose on Tuesday, when China reported that its population shrank in 2022 for the first time in more than 60 years.
This shift will have major economic ramifications for both Asian giants, which each have a population of more than 1.4 billion.
Along with population data, China also reported one of the worst economic growth figures in nearly half a century, highlighting the severe challenges the country faces as its workforce shrinks and its retirees swell.
For India, what economists and analysts call the “demographic dividend” can continue to support rapid growth as the number of healthy workers increases.
However, there are fears that the country may miss out. That is because India is simply not creating jobs for the millions of young job seekers who are already entering the workforce each year.
The working-age population in the South Asian country is more than 900 million, according to 2021 data from the Organization for Economic Co-operation and Development (OECD). This number is expected to reach more than one billion Over the next decade, according to the Indian government.
But experts have warned that these numbers could become a drag if policymakers do not create enough jobs. Data is already showing that an increasing number of Indians are not even looking for work, given the lack of opportunities and low wages.
India’s labor force participation rate, an estimate of an active labor force and people looking for work, is 46%, among the lowest in Asia, according to 2021 World Bank data. By comparison, rates in China and the US are 68% and 61% respectively in the same year.
For women, the numbers are even more alarming. World Bank data showed that the female labor participation rate in India was just 19% in 2021, down from around 26% in 2005.
“India is standing on a ticking time bomb,” Chandrasekhar Sripada, professor of organizational behavior at the Indian School of Business, told CNN. “There will be social unrest if you cannot create enough jobs in a relatively short period of time.”
India’s unemployment rate in December was 8.3%, according to the Center for Monitoring the Indian Economy (CMIE), an independent think tank based in Mumbai that publishes job data more regularly than the Indian government. In contrast, the rate in the US was around 3.5% at the end of last year.
“India has the largest youth population in the world… There is no dearth of capital in the world today,” Mahesh Vyas, CEO of CMIE, wrote in a blog last year. Ideally, India should seize this rare opportunity of easy availability of labor and capital to support rapid growth. However, it seems that he lost this bus.”
The lack of quality education is one of the biggest reasons behind the unemployment crisis in India. There has been an “utter failure at the level of education” by policy makers, Sripada said, adding that Indian institutions stress “rote learning” over “creative thinking”.
As a result of this toxic combination of poor education and lack of jobs, thousands of college graduates, including those with Ph.D., you end up applying for modest government jobs, such as those of “clerks” or office boys, who pay less than $300 a month.
The good news, Sripada said, is that policymakers have recognized this problem and are starting to put a “reasonable focus on skills creation now.” But he added that it would be years before the new policies had an impact.
Asia’s third largest economy also needs to create more non-farm jobs to realize its full economic potential. As per recent government data, more than 45% of the Indian workforce is employed in the agriculture sector.
The country needs to create at least 90 million new non-farm jobs by 2030 to absorb the new workers, according to the McKinsey Global Institute’s 2020 Report. Experts said many of these jobs could be created in the manufacturing and construction sectors.
With tensions rising between China and the West, India has made some progress in boosting manufacturing by attracting international giants like Apple to produce more in the country. But, factories still make up only 14% of India’s GDP, according to the World Bank.
With a growth of 6.8% in GDP Outlook For the fiscal year ending in March, the South Asian country is expected to be the fastest growing major economy in the world. But, according to a former central bank, even this growth is “insufficient”.
“A big part of that growth is the growth of the unemployed. Jobs are basically a single task for the economy. We don’t need everyone to be a programmer or software consultant, Raghuram Rajan, former governor of the Reserve Bank of India, told media company NDTV last year. But we need decent jobs.”
According to a McKinsey report, for “gainable and productive employment to grow of this magnitude, India’s GDP will need to grow by 8.0% to 8.5% annually over the next decade.”