In a nutshell
- ±õ²Ô»å¾±²¹â€™s youth boom needs targeted skills training for sustainable growth
- Without structural economic reforms, unemployment may rise
- Regional divides and gender gaps hinder ±õ²Ô»å¾±²¹â€™s economic and social progress
In 2023, India became the world’s country, and its population is to reach 1.7 billion by 2060. With a middle class of over 500 million, a labor pool of 600 million and a of 29, the country has a potential demographic dividend that is expected to last for the next three decades. But this advantage could just as easily turn into a disaster without targeted investment in human capital and a focus on higher economic growth.
Building ±õ²Ô»å¾±²¹â€™s human capital
As many countries face a decline in their working-age populations, having more young people capable of working than children and the elderly is considered a domestic dividend. Less-affluent countries can take advantage of this only if over time they invest in training workers, gradually increasing their skills until they can attract higher-paying jobs and more lucrative forms of investment. Historically, however, governments have underinvested in its human capital.
±õ²Ô»å¾±²¹â€™s is 75 percent, which is far behind China’s 97 percent. Annually, India produces up to 2 million graduates, 70,000 and 29,000 . India is also the top country contributing to the global technology workforce. Yet, show that 95 percent of Indian engineers are unfit for software development roles and more than three-quarters lack basic spoken English skills essential in the knowledge economy.
As countries worldwide de-risk from China, the global manufacturing hub, India would benefit from integrating its vast workforce into this sector, especially amid ongoing supply chain realignments. However, this requires undertaking long-overdue structural reforms in land acquisition and labor markets. India must also foster an environment conducive to large-scale, competitive manufacturing by expanding its workers� skill sets.
By 2030, it is projected that one in five working-age individuals worldwide will be Indian.
Yet, that is not being done fast enough. A skilled workforce is essential for productivity gains, economic growth and attracting higher-quality jobs. Entire sectors of the economy, such as information technology and advanced services, cannot exist without strong human capital. ±õ²Ô»å¾±²¹â€™s skills deficit is stark â€� only 20 percent of the country’s 600 million-strong labor force is compared to a global average of 80 percent in developed countries.
±õ²Ô»å¾±²¹â€™s lack of skills infrastructure poses a massive problem for a country with a rapidly growing population. The predominantly low-skilled workforce makes the country an undesirable location for highly skilled jobs, even with a growing young labor force. Moreover, higher-skilled jobs offer positive societal benefits as well. When foreign manufacturers tap into local suppliers and employ the domestic workforce, it sets off a chain reaction that energizes the local economy.
The difficulty of job creation compounds this issue. Indian youth are faced with both and . Approximately 12 million young people the workforce annually, and the country has been unable to generate jobs for most of them. Indian media frequently highlights about highly qualified graduates applying for low-ranking government positions.
±õ²Ô»å¾±²¹â€™s job creation and economic growth rely primarily on the services sector. For a country of its size and labor force, this sector alone cannot provide all the jobs required. This overreliance also limits ±õ²Ô»å¾±²¹â€™s potential to benefit from its demographic dividend and risks chronically underutilizing and underpaying its growing workforce.
In the global landscape, New Delhi has recognized its demographic yield as a crucial bilateral tool to build labor exchanges with countries in the West and Asia facing labor shortages and aging populations. By 2030, it is projected that one in five individuals worldwide will be Indian. As most high-income economies grapple with an aging talent pool in the labor market, ±õ²Ô»å¾±²¹â€™s bilateral negotiations with these countries often include discussions on workforce exchanges. For instance, India has signed labor cooperation agreements with , , and .
For over three decades, India has benefited from a globalized world, not only in trade and services but also in labor. India leads globally in remittances, $129 billion in 2024, accounting for roughly of its gross domestic product (GDP). However, as witnessed during the Covid-19 pandemic, remittances can decline, and labor flows can stop when countries close their borders. In recent years, many nations, particularly in the West, have tightened their immigration policies, which is likely to limit ±õ²Ô»å¾±²¹â€™s outward migration. This, in turn, will only exacerbate ±õ²Ô»å¾±²¹â€™s economic and social challenges.
Social impacts of ±õ²Ô»å¾±²¹â€™s demographic hurdles
According to the United Nations Department of Economic and Social Affairs, one-fifth of live in India, and over 66 percent of the country’s population is under the age of 35. The country’s bulge in working-age population is the reason for a declining dependency ratio, which measures the proportion of children and the elderly relative to the working-age population. In 1990, the country’s stood at 77 percent, but today it is 47 percent, compared to a global average of 58 percent.
Nevertheless, India is experiencing a decline in birth rates. In 1950, the was as high as five births per woman, but that figure has now dropped to around half that. At the same time, there has been an unprecedented growth in the at a decadal rate of 41 percent. By 2050, seniors are expected to make up 20 percent of the population. In just two decades, India will face the challenges of an aging demographic in a society that does not offer a social security net. Although it could take cues from countries like Japan, which provide tax incentives for companies hiring older employees, this could prove difficult due to the abundant availability of younger workers needing jobs.
Gender inequality persists as a key dimension of ±õ²Ô»å¾±²¹â€™s demographics. Female labor force in the 20-49 age group is only 29 percent, compared to over 50 percent in emerging economies like South Africa and Brazil and 74 percent in many high-income countries. Cultural and sociological factors contribute to this . India cannot aspire to become an economic powerhouse without expanding women’s participation in productive economic activities.
Furthermore, ±õ²Ô»å¾±²¹â€™s sex ratio is heavily skewed against women. It stood at 943 women for every 1,000 men in 2024. This impacts the birth rate, participation in the labor force and broader society in general. A large population of unemployed, unmarried young men makes any society ripe for social and political disorder.
Demographics not only significantly influence its civilian labor pool but also its military potential. Like other lower-to-middle-income, populous countries with low GDP per capita, India does not face a recruitment challenge when it comes to the military. Instead, it faces a different hurdle: Joining the armed forces lacks the appeal of a more lucrative corporate job.
Political and regional consequences
±õ²Ô»å¾±²¹â€™s social, economic and human capital challenges are compounded by regional divergence, leading to what economists call the “two Indias.â€� In the 1990s, ±õ²Ô»å¾±²¹â€™s was 2.2 percent; today it is 0.9 percent. However, there are vast differences across the country. The for northern states such as Bihar, Uttar Pradesh and Jharkhand exceed 2.5, while those in the southern states are below the national replacement value of 2.1 (meaning fewer babies are being born than the number of people dying, a trend that will eventually lead to a declining population).
When the next census takes place in 2026, northern states are expected to account for around half of ±õ²Ô»å¾±²¹â€™s population, while the for the south is projected to decrease to just 20 percent, with the remainder filled by the east and west. The southern states are also demographically closer to East Asian countries and exhibit sharp fluctuations in working-age populations. The northern states, with a younger demographic, are expected to see their working-age population plateau only by the middle of the 21st century. Additionally, South India boasts higher literacy rates and performs better on most social indicators like health, education and infant mortality compared to the north. This socioeconomic advantage is reflected in economic output, with contributing 31 percent to ±õ²Ô»å¾±²¹â€™s GDP in the financial year 2023-2024, despite its smaller population share.
Therefore, soon half of the country may face problems related to aging, as greater attention will be needed for elderly citizens and tax revenue will stagnate. The other half will need increased investments in skills development, education and health. The government will need to adopt different policies for the two diverse regions. This so-called “� has political ramifications as well.
The country is divided into based on population, spread across 28 states and eight union territories. India conducts its census every 10 years, and the original aim was that after every three decades, delimitation of constituencies � the process of redrawing parliamentary constituencies and their boundaries � would occur. This clashed with another Indian national objective: the need to incentivize population control. To ensure that states performing better in population control did not lose representation, parliamentary constituencies continued to reflect the 1971 census, when the population was around 548 million.
For some time, the ruling Bharatiya Janata Party, currently led by Prime Minister Narendra Modi, has argued that delimitation should be based on the latest population figures, which would mean the 2026 census. If that happens, northern states will see a double-digit increase in seats, while southern states will likely witness in their representation. The five southern states of Andhra Pradesh, Telangana, Karnataka, Kerala and Tamil Nadu are the engine of ±õ²Ô»å¾±²¹â€™s economic growth, contributing significantly to national GDP, tax revenues and innovation. Weakening their political influence risks undermining ±õ²Ô»å¾±²¹â€™s collective progress at a time when global competition demands cohesion and smart policymaking.
The rising middle class
Growth in ±õ²Ô»å¾±²¹â€™s middle class, a result of the 1991 economic reforms and increasing urbanization, has expanded from 50 million in 2005 to 432 million in 2021 and is to reach 1 billion by 2047. This segment of society is courted by both the government â€� in hopes that rising consumption will stimulate economic growth â€� and by foreign companies seeking to enter the Indian market.
A rising middle class has historically been associated with rising populism, nationalism and identity politics, and a desire for a higher global status and militarism. The 2024 shows India surpassing Japan as the third-ranked power in Asia, behind the United States and China. The Indian middle class aspires for the country to gain higher status on the global stage, commensurate with its civilizational past and future potential, but India has so far struggled to project hard power, either regionally or globally. Moreover, achieving this global stature requires harnessing its young workforce through skilled employment and robust job creation.
Scenarios
Without economic reforms and substantial investment in skills training, India will not effectively utilize its workforce. This raises questions about the priorities of the government and whether the oft-cited correlation between the demographic dividend and consequent economic growth would even apply to India.
Most likely: Current policies continue, resulting in more unskilled labor
In the most likely scenario, India will simply continue its current policies. Historically, administrations have been hesitant to undertake significant economic reforms unless compelled to do so by a global or domestic crisis. The liberalization reforms rolled out in the 1990s, which radically reshaped the economy, were triggered by an economic downturn and global turmoil.
In the short run, the country will benefit from a younger population as it is more productive, will boost savings and provide additional revenue that governments need to finance their programs. But without serious development of human capital, ±õ²Ô»å¾±²¹â€™s youth bulge will only translate into more unskilled workers who are underequipped to participate in the modern economy.
Unless they receive training and are employed, too many unmarried and unemployed young men could become a source of strain in society. This may lead the government to develop schemes like (path of fire), under which young men are offered a chance to work for four years in the armed forces. Such schemes can temporarily alleviate the pressure but will not resolve the underlying issues.
If the government is serious about addressing the challenges of unemployment and underemployment, it will seek to implement the much-needed structural economic reforms that could help boost manufacturing. Currently, there are few indications that this is something the government is seriously considering.
Less likely: Substantial investment to be made in skills training
The less likely scenario is that India efficiently implements long-pending economic reforms and invests massively in skills training. This could result in India productively utilizing its workforce. The likelihood of New Delhi implementing the next generation of reforms is low unless an economic or geopolitical shock compels the government to act.