• India, the world’s fastest-growing major economy and the fifth largest globally, is at a critical demographic crossroads. With 63% of its population in the working-age group and a median age of 28 years, the country possesses significant growth potential.
• However, realizing this demographic dividend depends on effectively addressing employment-related challenges. The 2022 International Labour Organization (ILO) report places India’s labour force participation rate at 55.2%, underscoring the need to transform this advantage into meaningful economic opportunities.

India’s demographic dividend is characterized by a large working-age population relative to dependents. However, despite strong economic growth, job creation remains inadequate. The economy, driven largely by the services sector, is experiencing declining labour intensity, leading to concerns about how to generate sufficient employment for the growing workforce.

 Economic Implications

The structural pattern of India’s economy raises concerns about job creation and long-term sustainability:

• The capital-to-output ratio is decreasing, while the capital-to-labour ratio is increasing due to technological advancements. This means that while India invests in automation and digital transformation, these investments do not necessarily translate into job creation.
• Nearly 45% of India’s workforce remains in agriculture, even though the sector contributes only 18% to GDP, indicating a need for labour reallocation to more productive sectors.
• The unorganized and non-agricultural sectors, which employ 19% of the workforce, face challenges such as low productivity and lack of formal employment structures.
• Emerging technologies like Artificial Intelligence (AI) and Machine Learning (ML) are expected to expand significantly, with the global market projected to reach $826.73 billion by 2030. To leverage this growth, India must invest in workforce upskilling.

 Skill Development Challenges

India experiences a skills paradox—a surplus of labour but a shortage of workers with industry-relevant skills.

• Only 4.4% of the workforce aged 15-29 has received formal skills training, creating a critical mismatch between labour supply and industry demands.
• Advanced sectors like AI and ML face a 51% gap between demand and available skilled talent. Without intervention, this gap will widen, limiting India’s ability to capitalize on high-growth industries.
• The country’s skill development ecosystem needs greater flexibility and adaptability to keep pace with evolving technological and labour market trends.

 Sectoral Focus

India must prioritize high-growth sectors and labour-intensive industries to generate employment:

• Manufacturing remains crucial for large-scale job creation. Industries such as toys, apparel, tourism, and logistics offer significant potential for absorbing surplus labour.
• The economy must move up the value chain by improving workforce skills to meet high-tech industry demands.
• Micro, Small, and Medium Enterprises (MSMEs), which serve as the backbone of employment, require policy and financial support to scale operations and generate more jobs.

 Technological Impact

The rapid advancement of AI and automation presents both opportunities and risks for India’s workforce:

• AI and ML threaten to replace repetitive, low-skill jobs but also create opportunities for high-skilled employment.
• India has the second-largest AI/ML talent pool globally, yet to fully utilize this advantage, it must implement regulatory measures and education reforms.
• Maintaining human oversight in AI applications is critical to ensuring ethical standards and minimizing automation-related job losses.

 Government Schemes

Several policy initiatives aim to address employment and skill development challenges:

• The New Education Policy (NEP) 2020 emphasizes foundational and higher-order cognitive skills to align with evolving economic demands.
• Labour code reforms and manufacturing sector incentives seek to simplify hiring practices and encourage business expansion.
• Ease of Doing Business initiatives are designed to attract investment in job-creating industries.

Road ahead

To fully harness its demographic dividend, India must implement a multi-pronged strategy:

• Deepening economic reforms to ensure that growth translates into widespread job creation.
• Improving labour market flexibility while expanding formal employment structures, particularly in non-agricultural sectors.
• Enhancing skill development through modernized educational curricula, industry-aligned vocational training, and public-private partnerships.
• Encouraging entrepreneurship to create new employment avenues and reduce dependence on traditional job markets.
• Focusing on labour-intensive industries that can absorb India’s expanding workforce and drive sustainable economic growth.

 Maximizing the demographic dividend requires a robust strategy that integrates education reforms, workforce upskilling, sectoral expansion, and technological adaptability. A holistic, reform-oriented approach will ensure that India’s workforce remains globally competitive and contributes to long-term economic progress.