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Real job market growth will come from manufacturing

Will the demographic transition then be India's salvation? Deliver what India's politicians have long promised but never delivered? Investment bank Goldman Sachs be lieves it can.

india Updated: Jan 22, 2006 23:40 IST

Will the demographic transition then be India's salvation? Deliver what India's politicians have long promised but never delivered? Investment bank Goldman Sachs believes it can. The increasing numbers of working hands available in India over the next few decades, for instance, can push per capita income in India close to American incomes by 2050. Today, an average Indian earns 74 times less than an American worker. In five decades, they project, this difference could be narrowed down to 5 times.

This, they say, is the potential. For a country that globally ranks 127th on the human development index, this is also the challenge.

If we are going to add half the size of our billion plus population over the next five decades, we will not only have to ensure that India does not run out of resources like land and water but also provide them basic amenities that nearly 40 per cent of India does not have even today.

The task is made much more difficult by the fact that nearly 60 per cent of the increase in population till 2026— and subsequently the work force — will be concentrated in just five states, Bihar, Madhya Pradesh, Uttar Pradesh, Orissa and Rajasthan. These five states are home to 45 per cent of India's population; 56 per cent of its poor. In 20 years, a recent study by London School of Economics professors suggests, they will have more than half of India's population and 75 per cent of the poor.

Drawing on the experience of the nineties, a group of researchers at the Vienna Institute of Demography came to the conclusion that 30 per cent of Bihar (including Jharkhand) and 20 per cent of UP (including Uttranchal) would still be illiterate in 2026.

Another 30 per cent in the four states would just have had primary education. Rajasthan and undivided Madhya Pradesh would not be any better off. Nearly 53 per cent and 60 per cent of their population respectively would have received no more than five years of schooling.

The constitutional amendment guaranteeing education could help but there are limits to how drastic the change will be. Especially when education, or for that matter, health, is nowhere getting close to the priority list in the caste-ridden politics of states like Bihar and Uttar Pradesh.

Between the two of them, they are also home to 40 per cent of the 170 districts identified by the government as "backward". Many of the 10 million people estimated to join the workforce annually over the next few decades will come from these regions. Where will they find work?

Not in agriculture, which is already stretched, contributing nearly 20 per cent of GDP but employing over 55 per cent of the workforce. Not in services, which contributes more than 50 per cent of the GDP but requires applicants to have at least a high school education. That level of attainment will be impossible for a majority of job seeking Indians in these states though it could take care of a big chunk of the better-educated in urban India.

That leaves us with manufacturing, which can provide on-job training and requires at most primary education for most shop floor employees. But India does not have a big manufacturing base.

This sector contributes only 17 per cent of GDP. In East Asian countries, this figure varies between 25 to 35 per cent.

Global management consultancy Accenture gives one example of the road that India needs to take.

The value of labour-intensive manufactures is worth a staggering US $ 1,550 billion; India has just a one per cent share in it. India should seek a larger share of this pie. A poor infrastructure has long been recognised as one of the major hurdles; rigid labour laws are another.

Labour reforms have been stalled because sections of the political class oppose them, ostensibly to protect existing workers. They seem to overlook that they are also stalling the process that would eventually lead to more jobs, not less.

Two years ago when Goldman Sachs first came out with its BRIC report, the BJP celebrated the global recognition of India's potential with its India Shining campaign but never came around to doing the right things to translate the potential. The BJP lost the next elections. India cannot afford to lose.

 BRICs Real GDP Growth % Brazil China India Russia
 2000-2005   2.7

 4.2 7.2 6.1 4.8 
 2010-20154.1      5.9  5.9   3.8  
 2015-20203.8  5.0  5.7

 2020-2025 3.7





4.1 5.9 3.5


3.9 6.13.1







Source: Goldman Sachs BRIOs Model

First Published: Nov 16, 2005 19:37 IST