August 28, 2014 12:00 am JST

Prachi Priya: India's youth -- blessing or curse?

India is home to the largest cohort of young people in the world, with 825 million people under the age of 35 -- almost 66% of its population. The median age of the country is just 27, compared with 37 in the U.S. and 46 in Japan.

     Statistics like these suggest that India has a competitive advantage over China and other Asian countries because of its favorable demographics. But any demographic dividend is just a window of opportunity -- it gives no guarantee of economic growth. It certainly does not mean that India will not age at all. By 2050, the median age will be 37, and the number of over-60s will have risen from 100 million to 300 million. The process will be slower and less dramatic than in other countries, but broad-based reforms in the health and education sectors, financial inclusion, and adequate employment opportunities are required to capitalize on the dividend.

    India's policymakers face the dual challenge of simultaneously providing financial security and health care benefits for the elderly and more jobs for young people. The latter will require an expansion of the manufacturing sector, improvements in skills, better education, greater female participation in the labor force and better vocational training.

Wanted: 100 million new jobs

The government has made a start. India's first National Manufacturing Policy, announced in 2011, envisaged a rise in the manufacturing sector's share of gross domestic product to 25% by 2022, and the creation of an additional 100 million manufacturing jobs. As the report put it: "Every job created in manufacturing has a multiplier effect of creating two to three additional jobs in related activities. Therefore, a thrust on manufacturing is integral to the inclusive growth agenda of the government." Yet there are few indications of progress. The share of manufacturing in India's GDP has stagnated at 15%, with only 14% of the workforce employed in the sector.

     India also needs to address an acute skills mismatch that has led to higher unemployment and underemployment. Only 2% of the existing workforce has undergone formal skills training, and only three workers in 20 have marketable skills. But 90% of available jobs are skills-based. Increasing the employability of young workers through improvements in education and vocational training is vital if India is to minimize the aging problems it will eventually have to face.

     In the short to medium term, much more needs to be done to address the financial, psychological and physical needs of the aged. This is, in itself, a challenging objective, not least because the elderly should not be seen as a homogeneous group. In particular, the concerns of urban senior citizens may be very different from those of people in rural areas. A joint study by the Associated Chambers of Commerce and Industry of India and consultancy KPMG found that while health issues and loneliness were prominent problems among the urban elderly, financial problems were a bigger concern in the countryside.

     It is also a job for both the public and private sectors. A national policy to cope with the aging population must address basic needs such as proper health care facilities, sustainable income streams and social security. But the private sector also needs to do more to identify market opportunities. With rising per capita income and rapid urbanization, an aging India has the potential to create more demand for new products and services. With care, an age-friendly approach in business strategy will be profitable in the long run.

     Potential business sectors that could benefit from this demographic trend include retirement housing, cosmetics, financial planning, insurance, health care, leisure and consumer goods. There have already been some successes.

     For example, an elderly-friendly phone launched by iBall, the Indian digital technology group, was quickly followed by competing products from bigger companies, such as Samsung Electronics of South Korea. Other age-related innovations have included hearing aids, retirement homes, nonprescription health products and telemedicine.

     But most businesses are still not prepared to tap the growing gray market. As Boston Consulting Group said in a report: "Companies either do not perceive the magnitude of global aging, or are too consumed by short-term imperatives to act."

Jobless growth?

Despite India's remarkable economic performance since it began to liberalize in 1991, there is some truth in the often repeated criticism that the country has embarked on a path of jobless growth. This is because the service sector-led growth model that India has adopted is capital-intensive rather than labor-intensive, raising the dangerous prospect that economic growth will continue without a big increase in employment opportunities for the young.

     The problem is a pressing one. Already, one in six young male urban graduates is unemployed. This necessitates an urgent overhaul of the education system, combined with a revival of the labor-intensive manufacturing sector. The promise of India's demographic dividend will not last long. By delaying action, the country could easily turn its dividend into a demographic curse.

Prachi Priya is a corporate economist based in Mumbai. She previously worked at an investment bank in Singapore.