Indian Defence Review

Dependency Ratio.

Economists tell us that a nation’s population can be divided into: those in the labour force (15-64 years) and those out side it. The ratio of those in the work force to those outside is called the dependency ratio.7 This ratio effects surplus availability for investment. Shifting age structure can have significant implications for economic growth. The periods characterised by low dependency ratio would have higher growth.8 Die hard optimists point to our quantum jump into the 9 per cent GDP growth path as an outcome of the youth bulge and lower dependency ratios making available huge surpluses/savings for investments and hence dramatic growth.

The Naxalities and Maoists are all in the 15-30 age group. If the Indian state fails to provide large scale employment to its burgeoning youth population, it will have to prepare to deal with the consequences of unrest and violent movements amongst large bands of the rural unemployed.

This optimistic view however, is highly misleading. A key factor that must be considered is not just the ratio of the population in the labour force and those outside, but equally those in the actual workforce and those available for work but out side the workforce as the unemployed.9 Jayati Ghosh and CP Chandrashekhar write “The window of opportunity available when the population bulge enters the working age group….can translate into acceleration of the process of development only if the quality of those entering the workforce is of the desired level and these workers find employment opportunites.”10

This is where the need for alarm has arisen. The 1990s turned to be an era of jobless growth for India. Organised employment stagnated. Urban employment decelerated. Aggregate rural employment experienced the lowest growth since the fifties.11

Inspired by the demographically graying west, we went on a manpower cutting spree. Downsizing was the all pervasive mantra. Job cutting was considered the key to institutional efficiency. What we needed was an emergency programme to skill our population and equip them for large scale employment. The exact opposite was happening. Jayati Ghosh writes, “The key results of the National Sample surveys 55th round (over 1999-2000) reveal a sharp and even startling decrease in the rate of employment generation across both rural and urban areas. Indeed so dramatic is the slow down in the rate of employment growth that it calls into serious question the pattern of growth over this decade.14

The much touted IT sectors ability to absorb manpower so far has been marginal and largely illusory. In 1999-2000, employment in the Indian IT sector amounted to just 0.21per cent of the non-agricultural workforce.

Unique Character of India’s Economy

The growth of the Indian economy presents a unique case study. The established models of growth (as enunciated by Steiglitz and others) see an economy transit from an agriculture predominant stage to one in which the industrial sector becomes the prime engine of growth and finally gives way to a massive services sector. India, however, is growing from the other end.

The services sector accounted for more than half of its economy in 2006, with agriculture and industry accounting for roughly equal shares of what remained. This resembles an economy at the middle income stage of development (much as Greece or Portugal should look).15 However, unlike Greece or Portugal, India has a vast army of 470 million labourers in the hinterland. Providing employment on a massive scale is India’s central conundrum. If this does not happen, we could encounter serious socio-political repercussions in the decades ahead.16