With India crossing China’s population next year, how we can create mass prosperity

Why in News?

• The United Nations recently projected India’s population to reach 1,428.63 million, surpassing China’s (1,425.67 million) by 2023.
• On the one hand, India has doubled life expectancy from 31 years in 1947 to 70 years in 2022, while on the other hand, assuring mass prosperity for a vast population has proven difficult.
• The article thus emphasises the need of human capital-driven productivity in creating mass prosperity in India.

 

What is India’s demographic scenario?

• Population Growth: India has a population of 138 crore in 2022, which is four times since the time of Independence in 1947 (34 crore).
  • It accounts for about 5% of the world’s population which is projected to reach 150 crores by 2030 and 166 crores by 2050.
• Decline in India’s TFR: The total fertility rate (TFR) refers to the average number of children that a woman will have during her lifetime.
  • In 2021, India’s TFR slipped below the replacement level fertility (which is 2.1 children per woman) as compared to a TFR of 6 in 1950s.
• Mortality Indicator: Life expectancy at birth saw a remarkable recovery graph from 32 yrs. in 1947 to 70.19 yrs. in 2022.
  • The infant mortality rate (IMR) declined from 133 per 1000 live births in 1951 to 27.6 in 2022.
  • The Maternal Mortality Ratio (MMR) of India has improved from 2000/lakh live births in 1947 to a spectacular 97/ lakh live births in 2022.
• Crude Death Rate (CDR): India witnessed CDR of 9.1 per 1000 people in 2022, an improvement from more than 200 per thousand population post-independence.

 

Human capital: Meaning and significance for India

• What is human capital?
  • According to the OECD, human capital is defined as the knowledge, skills, competencies, and other characteristics embedded in humans and used to produce commodities, services or ideas for market.
  • These characteristics determine the productive capacity and earning potential of the labour force and are important for technological advancement, social innovation, etc.
  • It differs from physical capital, which refers to non-human assets such as machines, buildings, computers, and so on that aid in the manufacturing process.
• Its significance for India:
  • India’s demographic dividend holds the potential for economic gains as the share of the working-age population (15 years - 64 years) is higher than the non-working age group (14 and younger, and 65 and older).
  • Also, considering India’s current median age of 28 yrs. compared to 38 in China and the US, 43 in Western Europe, and 48 in Japan, it needs to harvest this demographic boom by investing in human capital.
  • India’s software industry holds strong evidence for human capital driven growth as it generates 8% of GDP while employing just 8% of workers.
  • Investing in human capital is reinforced as India received more than $100 billion remittances in 2021 from overseas population, which is less than 2% of India’s population.
    • In 2021, USA replaced the UAE as the single biggest source country for India with 23% of remittances.
    • This signifies qualitative shift during the previous five years from low-skilled, informal employment in Gulf countries to high-skilled formal jobs in high-income countries.
  • The rich forex remittance in India - around 25% greater than FDI and 25% less than software exports - is fruit from the tree of human capital and formal jobs.

 

Strategies adopted across world during pandemic

• Monetary policy: The major central banks provided substantial liquidity to help alleviate the sharp tightening of financial conditions associated with the COVID-19 pandemic.
  • US Federal bank did large purchases of long-maturity bonds and its balance sheet ballooned from $4.2 trillion in March 2020 to almost $9 trillion two years later.
  • Also, the rich-country borrowing rates have risen by 300% plus, adding to fiscal pressure and inflation hurting poor the most.
• Fiscal policy: During the pandemic, advanced economies borrowed heavily to support consumption more than production.
  • This spending or reduced taxation supported consumption by people with incomes well above the median.
  • Also, policies like administering medicine with poorly understood side effects exacerbated the Covid related mortality in these nations.

 

Case of India – Focusing more on Human Capital

• India adopted a judicious mix of fiscal and monetary policies to mitigate the negative impact of COVID-19 on the economy.
• For example, the government in 2020 announced the Aatma Nirbhar Bharat Package (ANBP), a special economic and comprehensive package of Rs 20 lakh crores.
• It aimed to encourage business, attract investments along with several relief measures like free food, cash transfers to vulnerable sections, wage increase for MGNREGA workers etc.
• Also, employment provision for migrant workers under the Pradhan Mantri Garib Kalyan Rojgar Abhiyaan, collateral-free lending programme to MSMEs helped rejuvenate demand in the economy.
• The RBI also announced regulatory measures like moratorium on term loans (including agricultural term loans, retail and crop loans) to enhance liquidity support in the economy.
• All these steps combined with previous structural reforms (GST, IBC, UPI, DBT etc.) helped to deal with slowdown due to COVID-19.

 

How can India enhance its Human Capital?

• The Finance Bill in the upcoming budget must target productivity by legislating human capital and formal job reforms. It can be furthered by following measures:
• Education reforms: The phased implementation path for National Education Policy 2020 should be reduced from 15 years to five years.
  • The separate licensing requirements for online degrees should be abolished and all accredited universities should be allowed to launch online learning.
• Apprenticeship reform: India has only 0.5 million apprentices, comprising 11% of the workforce (China has 20 million, Japan 10 million).
  • Thus, by allowing all universities to launch degree apprentice courses can help accelerate growth of our apprentices to 10 million.
• Factory reform: The budget should also notify the four labour codes for all central-list industries while appointing a tripartite committee to converge them into one labour code by the next budget.
• Ease of Doing Business (EoDB) reforms: These can be advanced by designating every enterprise’s PAN number as its Universal Enterprise Number.
  • The manufacturing employment can be boosted by abolishing the Factories Act which accounts for 8,000 of the 26,000 plus criminal provisions in employer compliance.
• Ease employer related provisions: The budget should also envisage to create a non-profit corporation (like NPCI in payments).
  • It will operate an API-driven National Employer Compliance Grid and enable the government to rationalise, digitise and decriminalise employer compliances.
• Link employer incentives with job creation: The budget should link all employer subsidies and tax incentives to high-wage employment creation.
• Employee related reforms: The gap between gross salary and net in-hand salary should be reduced by making employees’ provident fund contributions optional but raising employer PF contributions from the current 12 to 13%.
  • Budget should notify announcement to create employee choice in their contributions to health insurance (ESIC or insurance companies) and pensions (EPFO or NPS).

 

Conclusion

• Owing to India’s democracy being her strength, India needs more structural transformation steered by employment in sectors such as manufacturing and modern services where productivity, value-addition and average incomes are higher.
• Experience and evidence now strongly suggest that strategies focusing on human capital and formal jobs rather than fiscal or monetary policy raises the probability of mass prosperity in the world's most populated nation.

 

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Q1) What is the demographic dividend?

The demographic dividend is the economic growth potential that can result from shifts in a population’s age structure, mainly when the share of the working-age population (15 to 64) is larger than the non-working-age share of the population (14 and younger, and 65 and older).

 

Q2) Who publishes Human Capital Index?

The Human Capital Index is a report prepared by the World Bank. The Index measures which countries are best in mobilizing the economic and professional potential of its citizens.

 

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Source: India projected to surpass China as world’s most populous country during 2023: UN report