Bridge over ocean
1 August 2013 CFA Institute Journal Review

India’s Demographic Challenge: Wasting Time (Digest Summary)

  1. Lawrence Gillum, CFA

In the coming decades, India is projected to have a fifth of the world’s working-age population. But because of a weak labor market and politicians’ unwillingness to take corrective actions, the country may squander this demographic advantage.

What’s Inside?

Despite India’s projected demographic advantage of having nearly a fifth of the world’s working-age population, the country struggles to provide its citizens with a thriving and competitive job market. If India’s politicians fail to take corrective action soon, the author contends that the country will waste its opportunity to follow China’s lead.

How Is This Article Useful to Practitioners?

Although it is one of the original BRICs (Brazil, Russia, India, and China), which were identified as global growth drivers for the future, India could potentially squander its opportunity if it cannot remedy its floundering labor markets. With more than 200 million people expected to join the workforce in the next two decades—a time when China’s working-age population is expected to decline—India has the potential to transform its economy into a global powerhouse.

Unfortunately, because of arcane labor laws, informal employment arrangements, and indifferent political leaders, the country thus far has only been able to create relatively unproductive service sector jobs—not the manufacturing jobs necessary to compete at a global level. Although India has done well importing IT operations from firms over the past few years, such imports account for only a few million jobs out of a half billion laborers.

The “obvious” problem, according to the author, is the lack of a true middle class. Although poor, unskilled laborers are able to find jobs in tiny operations, many of the larger operations—firms that could absorb much of the working-class population—prefer to use machines rather than humans. The number of factory jobs has increased but certainly not enough to keep up with population growth. Furthermore, India produces nearly twice as many new graduates each year than it can absorb, which further hampers employment prospects for middle-class citizens. It seems to be up to officials, politicians, and judges to make some changes in order for the country’s prospects to improve.

Abstractor’s Viewpoint

Paradoxically, educated Indian workers are coveted throughout the world, but at home, many are having a difficult time finding jobs. Unfortunately, the country’s labor market prospects rely on politicians to make the right decisions, which they have been unable or unwilling to do thus far. But there is a rising level of political involvement among the country’s younger generations, which could influence policymakers to pay more attention to the struggles of its unemployed citizens.

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