The Demographic Dividend and Its Limits
India has long seen its large working-age population as a source of perpetual economic growth, called the "demographic dividend."
The growing number of people seeking jobs, education, and housing has led to resentment, often expressed in political calls to reserve jobs for locals.
Fertility rates are declining, with many states below the replacement level, signaling a future decline in the working-age population.
The Middle-Income Trap
India risks falling into a middle-income trap as its demographic advantage wanes.
Despite modest income gains, India’s fertility rate has dropped from 2.6 in 2010 to 1.99 today, slowing the potential for sustained economic growth.
Wasted Potential in Low-Productivity Jobs
India’s demographic dividend is being wasted as many people remain stuck in low-productivity agricultural jobs or unemployed while preparing for exams.
Since liberalisation, India has reduced the percentage of its workforce in agriculture by only 17 percentage points (from 63% to 46%), far slower than China.
The labor force participation rate in urban areas remains low (50%), which risks India falling into a "middle-income trap."
The Need for Manufacturing Growth
Economic growth relies on shifting workers from low-productivity agriculture to higher-productivity sectors like manufacturing.
Manufacturing, particularly in labor-intensive industries like textiles, can create more jobs than services and is crucial for India’s economic future.
Policy Recommendations for Economic Growth
India must improve its business environment: reduce tariffs, make manufacturing easier, and simplify labor and land regulations.
The central government should prioritize trade agreements, and state governments should implement labor reforms and improve infrastructure for factories to boost job creation.
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