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India is at the cusp of demographic transformation when every 1 in 3 Indian is young. The median age of the country is 28 compared to Japan, which is 48 or China, which is 37. By 2020, India is projected to have the largest youth percentage in the world. This “demographic advantage” can give India a tremendous edge over ageing economies of west and east to provide workforce. But the presence of a large youth bank alone is not sufficient to meet the manpower requirement of the global economy. The need of the hour is the availability of skilled manpower whose shortage can hold back the most vibrant of economies. Skilled, educated and healthy individuals can be more productive and contribute greater to the economy at large. The investment in skill training, education and medical care empowers individual for a lifetime and enhances the human capital. Although Human capital is non-transferrable by nature, it can spill over through knowledge sharing practices and also pass through generations.
Demographic dividend can increase economic growth through six channels. The first channel is through the swelling of the labour force, as more people reach working age. The second channel is the increased fiscal space created by the demographic dividend to divert resources from spending on children to investing in physical and human infrastructure. The third channel is the rise in women’s workforce that naturally accompanies a decline in fertility, and which can be a new source of growth. The fourth is the increase in savings rate, as the working age also happens to be the prime period for saving. The fifth channel is an additional boost to savings that occurs as the incentive to save for longer periods of retirement increases with greater longevity. The sixth channel is a massive shift towards a middle-class society that is already in the making. Growth, education, home ownership, better economic security, and a desire for more durable goods are the cause and consequence of young demographics. But demographic dividend can also transform into a curse, and we examine its impact in Reshaping Tomorrow—Is South Asia Ready For The Big Leap?, World Bank.
Dividend or curse?
Building human capital Investing more and more efficiently in people will enable India to tap into its demographic divided, and prepare the country for the future. There is a powerful link between these investments and economic growth, stability and security. Investing in people through healthcare, quality education, jobs and skills helps build human capital, which is key to supporting economic growth, ending extreme poverty, and creating more inclusive societies. Human capital is now the fastest-growing component of India’s wealth. It is already the largest component of global wealth. More developed and richer countries have vastly more human capital wealth than developing countries. India’s human capital base may not be adequate for the future or in a position to benefit from the demographic dividend. India is home to the world’s largest concentration of illiterate people in the world. It has made gains in human development, but challenges remain, including big barriers to secondary schooling, low-quality public services, and gender discrimination. New technology could be exploited to accelerate the pace of building human capital, including massive open online courses and virtual classrooms. Pursuing a more aggressive education agenda fits very well, not just with countries that will benefit from the demographic dividend, but also with what many governments in rich countries are trying to do, even in its absence. Demographic dividend is a time-limited opportunity, and policymakers should have a greater incentive to redouble their efforts to promote human capital so that it can contribute to economic growth and job creation. No country can achieve its potential and meet the challenges of the 21st century without the full participation of working population, both women and men. High-quality education is one of the strongest ways for countries to reduce poverty, achieve gender equality, and create more jobs. Building human capital translates into higher rates of economic growth and job creation. Demographic dividend without investments in human capital will be a wasted development opportunity, and it will further widen economic and social gaps, instead of narrowing them.
Barriers to reap the benefit of our demographic advantage: Pillars for Human Capital Formation
Converting human resource into productive asset requires focus on improving the reach and quality of our education, health, and skill training. These are the three pillars for human capital formation.
Investing in these sectors will have a positive externality in the production of human capital.
How the budget is 2018-19 poised to face this challenge?
Right actions spurred, implementation to follow
Deploying our human capital is the best policy option at the moment. The budget allocation tells us that action has been spurred in all the right directions. The implementation of schemes is critical to achieve the objective of various initiatives. These cross-sector linkages that aid in the strengthening of human capital needs to be understood and facilitated. NITI Aayog’s health and education indices would enable tracking the progress of the states in these sectors.
By: Abhishek Sharma ProfileResourcesReport error
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