Can India reap the youth dividend?

India can realise the potential of its youthful workers only if those joining the labour force can be absorbed in non-agricultural jobs, since agriculture is burdened with surplus labour

How many young people look for jobs in India in any given year? This question has exercised policy-makers for many years. It has acquired greater urgency as recent data from multiple sources indicate that job growth is slower than the rate at which new entrants are joining the labour force. The question of how many enter the labour force is relevant because India can reap the demographic dividend only if those joining the labour force are absorbed in 

non-agricultural jobs, since agriculture already has surplus labour.

Between independence in 1947 and 2004-05 the share of the workforce employed in agriculture declined slowly, while the absolute numbers in agriculture continued to increase, demonstrating that structural transformation in the economy has been slow.

However, a myth has gained ground in India that 12 million join the labour force each year, and hence one million new jobs must be created every month. Actually, the number joining was 12 million a year only between 1999-2000 and 2004-05, never before or since. Between 2004-05 and 2011-12 only two million joined the labour force per year.

India’s labour force growth was relatively small between 2011-12 and 2015-16, as demonstrated by the Labour Bureau’s annual survey (which has a sample size as large as the NSS). The labour force grew by only 10 million over those five years.

However, the youthful labour force (ages 15 to 29) saw a very sharp increase of 40 million, from 147 million to 187 million over those five years. Thus the entire increase in the labour force comes from young people leaving school and joining the labour force. In fact, the older part of the labour force (above the age of 29) would have declined by 30 million if the youthful part increased by 40 million,  since the overall increase is only 10 million workers.

The share of the workforce in agriculture has been falling steadily (from 60 per cent in 1999-2000 to 49 per cent in 2011-12), but the fall slowed sharply after 2011-12, when the pace of non-agricultural job growth slowed along with GDP growth. In fact, never before in India's post-independence history had the absolute number of workers in agriculture fallen until 2004-05. Slow structural transformation in employment in India is demonstrated by the absolute numbers rising in agriculture between 1950 and 2004-05. Between 2004-05 and 2011-12 the numbers in agriculture fell sharply.

However, there has been a sharp slowdown since 2012 in the numbers leaving agriculture compared to the years 2011-12 to 2015-16, as non-agricultural jobs have grown slowly since 2011-12. There was a minor decline in employment in agriculture from 230 million to 225 million. By contrast, the fall in numbers in agriculture between 2004-05 and 2011-12 was 37 million, because non-agricultural jobs grew at the rate of 7.5 million a year.

However, the more worrying fact is that while the number of youth in agriculture fell between 2004-05 and 2011-12 (from 87 to 61 million), after 2011-12 there has been a significant increase in the number of youth in agriculture. Between 2011-12 and 2015-16 there was a 24-million increase (from 61 million to 85 million) in the number of youth in agriculture. The share of workers in the 15-29 age group who were employed in agriculture rose from 44 per cent to 47 per cent — a retrogressive development, since education levels have risen and educated youth aspire for urban, non-agricultural jobs.

How slow job growth has been since 2011-12 is demonstrated by the fact that the manufacturing workforce (organised plus unorganised) has declined overall, and for youth as well. It appears that as GDP growth slowed after 2011-12, youth — who had benefitted significantly from jobs in manufacturing — have suffered disproportionately due to the manufacturing slowdown.

The share of all youth who had manufacturing jobs was much lower in 2015-16 than it was in 2011-12. Of the youth employed, their share in manufacturing had risen between 2004-05 and 2011-12 from 14.5 per cent to 16 per cent. That share dropped precipitously to 10.8 per cent, just as the share of all employment in manufacturing fell between 2011-12 and 2015-16.

The years 2010 to 2015 saw a remarkable increase in secondary school enrolment in India, from 58 per cent to 85 per cent for the relevant age cohort. In other words, just as more youth were getting a better education, fewer were being able to find employment in manufacturing. In fact, manufacturing, far from being an absorber of surplus labour, has in fact been shedding labour since 2011-12. This is consistent with the slow growth rate of manufacturing in the last five years. Unsurprisingly, youth were left with no choice but to remain in agriculture after 2011-12.

Clearly, the only sector of the economy that has seen a significant increase in absorption of surplus labour — especially of the young joining the labour force — is services, in which employment jumped from 36 million in 2011-12 to nearly 52 million in 2015-16 for youth, and for all labour from 127 million to 141 million. Services employment grew not only significantly between 2004-05 and 2011-12, but also between 2011-12 and 2015-16.

While service sector employment across the board has increased, the traditional services (wholesale and retail trade) have been growing rather slowly in employment terms. It is a welcome development that it is modern services that have shown the greatest dynamism over the entire period from 2004-05 to 2015-16. These modern service sub-sectors are sale and maintenance of motor vehicles, hotels and restaurants, air transport, posts and telecommunications, financial intermediation, insurance and pension funding, computers and related activities, and research and development.

In addition, education and health have also seen a significant increase — education much more than health, though almost all of it in the private sector (not public health or public education). This is consistent with the fact that the size of the Indian state (relative to GDP) has not grown at all in 25 years, quite unlike the growth experience of industrialised countries at an earlier stage of development.

The writer is Professor of Economics and Chairperson, Centre for Informal Sector and Labour Studies, Jawaharlal Nehru University, New Delhi