Some of you might have seen the recent media hype about the Goldman Sachs report, which projected India to become one of the 6 largest economies in the World along with Brazil, Russia and China by the year 2050. The report projects that among the current members of the G-6 only Japan and the US will remain in the top six by that time.
The report cited demographics as one of the key factors that will drive the growth of Indian and Chinese economies. The conventional pattern across the world is that with increasing development coupled with higher literacy and better health care, one will see increased life-expectancy and lower fertility rates. This means that across the developed world, the population will either be stabilized or will actually see a decline, while the population of countries like India with relatively lower literacy rates and life expectancy will continue to rise.
Demographically, this will mean that India and China will have relatively much younger population as a proportion of their total population when compared to the developed world. It is startling to note that even today, 71 % of Indians are below 34 years of age, making it one of the youngest countries in the world in demographic terms. The key underlying assumption of the Goldman Sachs report, is that these economies will grow as per projections. However, such growth is possible only if we create the right institutional framework in terms of better schooling, rule of law, health care facilities and macro economic stability.
This is where India falters the most, especially when compared to its Asian rival, China. For the better part of the past 5 decades, we have been consistently failing on key social fronts – in providing better schooling (both primary and higher education sectors) and health care, whereas China has consistently done far better than us on those fronts.
Apart from education and health care, there are two other key issues, which need to be urgently addressed by the policy makers in India. One is the deeply flawed nature of our higher education system. In any industrialized economy, the maximum need is for semi-skilled workers at the bottom (like electricians, plumbers, masons etc.), a mid-layer of professional experts (like engineers, doctors etc.) followed by a narrow band of super specialists at the top. In India, we have exactly the opposite - we have what is known as an “inverted pyramid” structure of manpower. We have more number of engineers and doctors than technicians and nurses! The tragedy is that even those with professional degrees are very often poorly trained and are unemployable. Yet, we continue to start more engineering and medical colleges by the day, to produce more number of useless graduates!
The other issue, which could potentially play havoc with the rosy projections is that the rate of industrialization in India continues to be dismally low. The normal transition for any developing economy is from agriculture to industry to services. The most developed nations will have predominantly service economies like the US.
China adopted the conventional path and has done all the right things, i.e. massive investments in education, health care and emphasis on industries with potential for mass employment. That is the reason China was able to generate more than 100 million jobs in the past 20 years, while India hasn’t been able to generate even 10 million in the same time frame. In fact some reports indicate that in India, the scale of industrialization as well as percent of people employed in industrial sector have declined in real terms in the past decade. Unfortunately, the much-hyped high-technology or the BPO segments cater to the select few and have absolutely no scope for generating mass employment on the scale that India requires. As a consequence, tens of millions of youngsters have no productive avenues left for employment, and such skewed growth will only lead to social anarchy. The killings that we have witnessed recently in Assam and Bihar is just one example of the potential anarchy the country will be facing unless urgent remedial steps are undertaken.
If we, as a nation have to live up to the potential projected in the Goldman Sachs report, we have to undertake radical restructuring of our educational system. The higher education system has to be completely reoriented to produce more number of people with marketable skills instead of the useless numbers of mediocre hi-tech workers. We should also realize that service sector alone will not be able to generate employment opportunities for “Young India”. Hence we need a vibrant manufacturing sector. If we examine the history of the most successful economies, it becomes evident that they succeeded because they enhanced the productive capacities of their young people, and provided ample opportunities to realize their potential. That is the only realistic path we can, and should, follow.