INCLUSIVE GROWTH
As per OECD, inclusive growth is economic growth that is distributed fairly across society and creates opportunities for all. It includes providing equality of opportunity, empowering people through education and skill development.
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Inclusive Development Index (by WEF): India ranked 62nd out of 74 emerging countries and was among the least inclusive countries in Group of 20 (G-20) countries.
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Benefits of Inclusive Growth
- Social
- Lower incidence of poverty: The concept of IG takes all stakeholders simultaneously, which will reduce the incidence of poverty.
- Broad-based and significant improvement in health outcomes: IG means enhancing capabilities of all, which will also improve health outcomes.
- Universal access for children to school: Will not only lower illiteracy but also improve employment opportunities.
- Increased access to higher education: Improved standards of education, including skill development.
- Improvement in provision of basic amenities: Like water, electricity, roads, sanitation, and housing.
- Reduction in disparity: Due to IG, there will be reduction in disparity among various ethnic and tribal groups.
- Economic
- Better opportunities: For both wage employment and livelihood.
- More balanced growth: A decisive reduction in poverty and an expansion in economic opportunities for all sections of the population will enhance balanced growth.
- Gender equality and economic growth: Gender equality will promote economic growth with positive impacts on macro-level growth, human capital, and labour productivity.
- Initiate virtuous cycle: Inclusive growth and financial inclusion lead to the culture of saving, which initiates a virtuous cycle of economic development.
- Increase labour force participation: With the empowerment of females, there will be an increase in labour force participation.
- Demand-Supply match: There will be a better match in skill demand and supply, as IG will promote greater skill development.
- Demographic boon: With better demographics, India can become the largest contributor in the global supply chain.
- Political
- Decrease in violence: With empowerment of vulnerable sections, there will be less incidence of violence.
- Freedom and dignity: IG provides freedom and dignity, without social or political obstacles.
- Right to equality: IG ensures equality in opportunities, which is the enshrined goal of our constitution.
- Good governance: Taking all factors together will make governance efforts more precise and streamlined, enhancing development for all.
Challenges in Achieving Inclusive Growth
- Widespread Poverty
- As per the Multidimensional Poverty Index 2018, India lifted 271 million people between 2005-06 and 2015-16. Still, despite the massive gains, 373 million Indians continue to experience acute deprivations.
- Growth vs. Development
- Over a period since economic reforms, India’s economic growth has witnessed a mixed effect on real development.
- GDP is considered the key parameter of economic growth.
- In reality, the increasing GDP growth rate has not trickled down to the bottom of the pyramid.
- Regional Disparities
- Traditional cultures, caste systems, and the rich-poor divide have favored certain groups, leading to regional disparities that existed both before and after independence.
- And also due to the development in agriculture and industrial sector, some regions in India have developed fast while other places are still facing scarcity.
- Agriculture backwardness
- Steeper decline in per capita land availability, shrinking of farm size, low labor productivity in agriculture, decline in yield growth due to land and water problems, vulnerability to world commodity prices, farmer suicides, etc.
- Massive unemployment
- The quality and quantity of employment in India are low due to illiteracy and over-dependence on agriculture.
- The quality of employment is a problem as more than 80% of people work in the informal sector without any social security.
- Problems in Social Development
- Low level and slow growth in public expenditures, particularly on health.
- Poor quality delivery system.
- Malnutrition among children is a major problem.
- Illiteracy and digital divide.
- Lack of identification of target beneficiaries
- In order to allow the economic development process to reach all sections of society, especially the downtrodden, there is a need to identify the beneficiaries properly. Without proper identification, the process of development will lack efficiency.
- Societal opposition
- Whenever the government tries to bring backward communities into the forefront, there will be certain opposition from established groups. Lack of support from society will result in the process of inclusive growth being hampered.
Inclusive Growth and 12th Five Year Plans
The plan document discusses the following aspects of inclusiveness:
- Inclusiveness as Poverty Reduction: Ensuring adequate flow of benefits to the poor and the most marginalized.
- Inclusiveness as Group Equality: Inclusiveness should embrace concerns of various groups such as SCs, STs, OBCs, Minorities, women, the differently-abled, and other marginalized groups.
- Inclusiveness as Regional Balance: Ensuring that all states and regions benefit from the growth process.
- Inclusiveness as Reducing Inequality: Keeping inequality within tolerable limits.
- Inclusiveness as Empowerment: Not only ensuring a broad-based flow of benefits or economic opportunities but also promoting empowerment and participation.
- Inclusiveness through Employment Programmes: Emphasizing the quality of assets created to determine if MGNREGA can go beyond a safety net to become a springboard for entrepreneurship, even at the lowest income levels.
NITI Aayog’s Strategy for Inclusive Growth
New India @75 vision has the following objectives for inclusive growth:
- To have a rapid growth: Targeting 9-10% growth by 2022-23, which is inclusive, clean, sustained, and formalized.
- To Leverage technology: For inclusive, sustainable, and participatory development by 2022-23.
- To have an inclusive development: In cities, to ensure that urban poor and slum dwellers, including recent migrants, can avail city services.
- To make schools more inclusive: By addressing the barriers related to the physical environment (e.g., accessible toilets), admission procedures, as well as curriculum design.
- To make higher education more inclusive: For the most vulnerable groups.
- To provide quality ambulatory services: For an inclusive package of diagnostic, curative, rehabilitative, and palliative care, close to the people.
- To prepare an inclusive policy framework: With citizens at the center.
Way Forward
- India can take cues from some internationally best inclusive programmes:
- Brazil – ‘Bolsa Familia’: Provides financial aid to poor Brazilian families; if they have children, families must ensure that the children attend school and are vaccinated.
- Mexico – ‘Oportunidades’: A government social assistance program in which cash payments are made directly to families to decrease overhead and corruption.
- Sri Lanka – ‘Samruddhi Kosh’
- China – ‘Harmonious Development’
- Relevant skilling: With the onset of the IT revolution, it has become necessary to acquire even higher levels of skills. Therefore, it is urgent to provide adequate facilities for relevant skills to the disadvantaged.
- Improve government education: There is a need to improve the functioning of government schools without delay. There is also a need to expand and modernize teacher-training facilities.
- Labour-intensive development: Growth in developing economies should remain labor-intensive and broad-based, as generating production employment opportunities on a large scale is perhaps the best way.
- Agricultural development: Research needs to be greatly strengthened, both in terms of resources devoted and by implementing institutional reforms along the lines recommended by the Mashelkar Committee and the Swaminathan Committee.
- Taxation: A more progressive tax system in India would help raise capital for expenditure on infrastructure, healthcare, basic services, and education.
- Decentralization: The Gram Sabha should be empowered and made effective, especially in tribal areas, and as per FRA, their consent should be mandatory for mining leases.
Inclusive growth is of vital importance to fight inequality in all aspects and promote the holistic development of individuals in the country. Inclusive growth is necessary for the sustainable and holistic development of all sections of society. For the economic, social, and political empowerment of its citizens, the core components of inclusive growth must be tackled.
UNEMPLOYMENT
Unemployment occurs when a person who is actively searching for employment is unable to find work. Unemployment is often used as a measure of the health of the economy. Recently, the NSSO report on unemployment has been released, indicating the overall unemployment rate in India is 6.1%, the highest in 45 years.
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Causes of Unemployment in India
- Economic
- Jobless Economic Growth: India’s GDP has grown about 7-8% over the last decade, but this growth has not translated into more employment opportunities for the labor force.
- Lack of Investment: Inadequacy of capital investment has been a key contributor to not generating enough industry that in turn provides employment to the labor force.
- Shrinking Public Sector: The number of jobs offered by the government and public sectors has reduced considerably.
- Data: Government jobs, which were 19.5 million in 1996-97, were about 17 million in 2016.
- There has been a decline of 89% in direct recruitment in central government ministries and departments from 2013 to 2015.
- Poor Industrialisation: The industrial sector in India still lags behind. Agriculture remains the largest employer in the country.
- Unorganized Sector: Along with the lack of job creation, there is also a lack of quality jobs being created. The majority of the Indian workforce is in the unorganized sector.
- Data: The share of the informal unorganized sector is more than 50%. Given the size of India, dependency on surveys of the unorganized informal sector is inevitable.
- Entrepreneurship: Entrepreneurs face several challenges, which act as impediments to growth, leading to a reduction of jobs.
- Manufacturing Sector: The size of the manufacturing workforce in India declined by 1 million from 2012 to 2018. Micro and small firms faced severe setbacks, while sectors like education, professional businesses, and allied services recorded acceleration in employment growth.
- Decline of Small Scale and Cottage Industries: Independent India’s preference for large-scale industry and the new industrial policy of the 1990s resulted in the decline of small-scale industries.
- Slow Growth: Inadequate growth of infrastructure and low investments in the manufacturing sector restrict the employment potential of the secondary sector.
- High Rate of Taxes: The government imposes taxes on income, wealth, excise, and customs at a high rate. Therefore, manufacturers employ fewer workers, and even citizens struggle to start private businesses due to heavy taxes.
- Failure in Utilization of Natural Resources: Natural resources are not properly utilized.
- Smallest Loans Bypassed: Despite 95% of MUDRA loans being in the smallest “Shishu” category, these loans are often bypassed.
- Social
- Rush for Government Jobs: Many educated youths pursue government jobs due to job security and profile. This leads to many remaining unemployed as students prepare for government positions.
- Inappropriate Educational System: The Indian education system produces graduates, but it does not make them fit for employment in industry, trade, etc.
- Joint Family System: It encourages disguised unemployment. In large families with businesses, many family members may not work and rely on joint family income.
- Population Growth: Rapid population growth is a major factor for increasing unemployment in India.
- Data: Between 2006-2016, India’s population increased by 136 million, with unemployment at a five-year high in 2015-2016.
- Mobility of Labour: Labour mobility is very low in India due to family loyalty and other factors like diversity in language, religion, and customs. Low mobility contributes to higher unemployment.
- Illiteracy: Illiteracy is one of the main causes of unemployment. Many illiterate laborers remain unemployed for half of the year.
- Low Women Participation: Low participation of women in the labor force has also led to an increase in unemployment throughout India.
- Causes:
- Mechanization of Agriculture
- Female dropout due to increase in family incomes
- Cultural norms and patriarchy
- Data: During the October-December quarter of 2020, the unemployment rate for females was 13.1%, compared to 9.5% for males.
- Among women willing to seek work in urban areas, 92.1% do not get any work, and in rural areas, this stands at 54.8%.
- COVID-19 impact: The COVID-19-driven economic collapse and job loss were significant this year.
- Agricultural
- Backwardness in agriculture: The outdated nature of farming leads to unemployment as agriculture cannot provide sufficient employment opportunities for the rural population.
- Small holding: Most agricultural land holdings are small (1-2 acres), limiting the ability to employ others.
- Low Agri-Productivity: Low productivity in agriculture, combined with limited alternative opportunities, makes transitioning from primary to secondary and tertiary sectors challenging for agricultural workers.
- Seasonal nature of agriculture: Agricultural laborers do not have consistent work throughout the year.
- Legal
- No Urban Level Work Guarantee: There is no national-level Legal Work Guarantee Scheme for urban areas similar to MGNREGA, which provides at least 100 days of guaranteed wage employment for unskilled labor in rural areas.
- Example: For 2021-22, MGNREGA created 331.87 crore person-days, benefiting nearly 7 crore rural households.
- Limited role of ULBs: Due to limited financial and human capacity, even basic functions are challenging for many urban local bodies without adequate state support.
- Data: Urban contribution to GDP is over 60%, with an expected contribution of 75% of GDP by 2030.
- Rigidity in Labour Laws: The multiplicity of labor laws and their rigidity make compliance extremely difficult. This also acts as an impediment to industrial development and employment creation.
- Inadequate planning: The government has failed to formulate efficient and adequate plans to reduce unemployment.
- Work of trade unions: Trade union strikes and factory closures result in unemployment due to labor disputes.
- No Urban Level Work Guarantee: There is no national-level Legal Work Guarantee Scheme for urban areas similar to MGNREGA, which provides at least 100 days of guaranteed wage employment for unskilled labor in rural areas.
- Structural
- Poor skilling of youth: According to the Periodic Labour Force Survey 2018, joblessness was primarily due to a lack of training, with only 7% of surveyed people receiving any formal or informal training.
- Other Data: According to the India Skills Report (ISR), fewer than half of Indian graduates are employable. In 2021, only 45.9% of graduates were considered employable, down from 46.21% in 2020 and 47.38% in 2019.
- Inappropriate Jobs: Several lakhs of people are working in jobs that do not match their qualifications, status, or wages.
- Unemployment in Profession: Many professionals, including doctors, lawyers, and engineers, remain unemployed due to a lack of financial resources to start their careers.
- Boost in Labour Supply: The labour supply in India is increasing due to the expanding working-age population.
- Rising Job Aspirations: Labour supply is also changing with increasing enrollment of young adults in education and their rising job aspirations.
- Structural Change in the Economy: The decline of industries like coal mining, due to a lack of competitiveness, has left many workers unemployed.
- Use of Inappropriate Technology: Development plans have focused more on capital-intensive rather than labour-intensive technology, leading to fewer jobs.
- Automation: Many jobs in manufacturing are automated, and the skills required are high-level, which many Indians lack.
- Data: About 9 million people are employed in low-skilled services and BPO roles. According to Nasscom, 30%, or approximately 3 million of these roles, will be lost by 2022.
- Great Resignation: This concept predicts a large number of people will leave their jobs after the COVID pandemic ends and life normalizes. Companies need to address this trend to retain talent.
Implications
- Social
- Poverty: Unemployment contributes to poverty.
- Increase in Crime: Prolonged unemployment may lead young people to engage in illegal activities for income, contributing to crime.
- Health Problems: Unemployment is highly stressful and can lead to health issues like headaches, high blood pressure, diabetes, and heart disease.
- Negative Familial Effects: Unemployed individuals may experience less family and marital satisfaction, leading to family challenges.
- Social Division: Unemployment causes division between families with both parents in the workforce and those without any employed parents.
- Fall in Standard of Living: Unemployment reduces the living standards of youth and families, especially those who invested heavily in education.
- Trickledown Effect: Unemployment impacts the upbringing of children dependent on unemployed parents.
- Backwardness: Unemployment contributes to youth stagnation and underdevelopment.
- Economic
- Affect on Economic Growth: Unemployment causes GDP to fall due to an imbalance between supply and demand.
- Example: A 1% increase in unemployment reduces GDP by 2%.
- Increase in Socio-Economic Cost: The unemployed workforce becomes dependent on the remaining employed population, increasing socio-economic costs for the state.
- Waste of Energy: Unemployment leads to wasted potential and energy among people who are not gainfully employed.
- Fall in Family Income: Unemployment of any family member reduces the family’s income.
- For example: CMIE report states that due to job losses, around 97% of Indian households have seen a dip in their income since the start of the second wave.
- Loss of human resources: Unemployment often leads individuals to addiction or even suicide, resulting in losses to the country’s human resources.
- Affect on Economic Growth: Unemployment causes GDP to fall due to an imbalance between supply and demand.
- Political
- Youth antisocial transformation: Unemployed individuals can be easily influenced by antisocial elements, which may cause them to lose faith in the democratic values of the country.
- Affect on democratic values: When a section of society is left behind, it disrupts the balance of democratic values within the system.
Government Measures
- Employment Generation Schemes
- Integrated Rural Development Programme (IRDP): Launched in 1980 to create full employment opportunities in rural areas.
- MNREGA: Initiated in 2005 to provide social security by guaranteeing a minimum of 100 days of paid work per year for families whose adult members choose unskilled, labor-intensive work.
- Make in India Initiative: Aims to transform India into a global manufacturing hub, enhancing employment opportunities significantly.
- Start-Up India Scheme: Established to create a strong ecosystem for nurturing innovation and startups, thus driving economic growth and generating large-scale employment.
- Stand Up India: Launched in 2016 to support entrepreneurship among women and SC/ST communities.
- Ease of Doing Business Initiative: Simplifies processes like registration, labor law compliance, and inspections to encourage enterprise setup and quality job creation.
- National Career Service: Connects employers, trainers, and the unemployed on a single platform.
- Shram Suvidha Portal: A unified web portal developed by MoL&E to increase transparency and accountability in enforcing labor laws and easing compliance complexities.
- Skill Development Schemes
- Training of Rural Youth for Self-Employment (TRYSEM): Launched to help unemployed rural youth (ages 18-35) acquire skills for self-employment.
- Pradhan Mantri Kaushal Vikas Yojana: A Skill Certification Scheme aimed at providing industry-relevant skill training to help Indian youth secure better livelihoods.
- National Apprenticeship Promotion Scheme: Offers a 25% reimbursement of the prescribed stipend, up to ₹1500 per month per apprentice.
- Social Security Schemes
- Rashtriya Swasthya Bima Yojana: Launched in 2008 to cover out-of-pocket health expenses for unorganized sector workers.
- Atal Pension Yojana: Provides a guaranteed minimum pension starting from ₹1,000 per month for individuals aged 18-40 upon reaching age 60.
- Pradhan Mantri Suraksha Bima Yojana: Offers accident and disability coverage up to ₹2 lakh for an annual premium of ₹12.
- Pradhan Mantri Jeevan Jyoti Bima Yojana: Provides life insurance cover of ₹2 lakh at an annual premium of ₹330.
- Employment Survey
- Quarterly Employment Surveys: Labour Bureau initiated QES (New series) by extending scope and coverage to measure relative changes in employment situation over successive quarters.
- Survey on Pradhan Mantri Mudra Yojana: The Labour Bureau, entrusted by the Ministry of Labour & Employment, conducts surveys to estimate employment generated under the Pradhan Mantri Mudra Yojana (PMMY).
Way Forward
- Boosting Small Scale Industries: With proper support, these enterprises can grow into small and then medium enterprises.
- More Focus on Skill Development: Lack of the desired skill set makes it difficult for employers to fill job positions. Employers’ collaboration with educational bodies will ensure a skilled labor pool in the coming years.
- Bridging the Digital Divide: Special efforts are needed to ensure minimal disruption in continued education and to bridge the digital divide.
- Strengthening Rural Job Schemes: MGNREGA and other rural job schemes should be strengthened and their capacity increased, though only a portion of the workforce may be accommodated.
- Create Stable Demand: The government should focus on creating stable demand. Industries operating at below 70% capacity would see industrial activity pick up with increased demand, leading to more jobs.
- Cut in Taxes to Push Sales: Reducing and rationalizing GST slabs for some commodities, like two-wheelers from 28% to 18%, would help boost sales and create demand.
- Increase in Infrastructure Spending: Infrastructure spending by the Centre should increase, creating jobs and boosting consumption.
- Non-Farm Employment Opportunities: Rural jobs have declined; non-farm employment opportunities in villages should be promoted through private investment or public spending.
- Allocation of Seats: Identifies sectors where the government can expand job opportunities.
- Filling the Vacancy: State and central governments allocate 89% of jobs to Groups C and D, leaving 11% for Groups A and B.
- Recommendations of Standing Committee on Labour (2021 report):
- The Committee recommended that central and state governments:
- Encourage entrepreneurial opportunities.
- Attract investment in traditional manufacturing and develop industrial clusters.
- Strengthen social security measures.
- Maintain a database of workers in the informal sector.
- Promote vocational training.
- To increase women’s participation, it recommended:
- Increasing government procurement from women-led enterprises.
- Training women in new technologies.
- Providing women access to capital.
- Investing in childcare and related infrastructure.
UNIVERSAL BASIC INCOME
UBI is a program for providing all citizens of a geographic area (a country or state) with a given sum of money, regardless of their income, resources, or employment status. The idea behind Universal Basic Income is that every person should have a right to a basic income to cover their needs, just by virtue of being a citizen.
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Components of UBI
- Universality: UBI is universal in nature.
- Periodic: Payments are made at regular intervals (not one-off grants).
- Individual Beneficiary: Each citizen (or adult citizen) is considered the beneficiary, rather than each household.
- Cash Payment: Beneficiaries receive cash directly into their accounts (not food vouchers or service coupons).
- Unconditionality: No preconditions are attached to the cash transferred to the beneficiary.
Current Incidences
- COVID-19: To address the economic inequality, unemployment, and poverty caused by the pandemic, many advocate for UBI as a solution.
- NHRC Informs UNHRC: The National Human Rights Commission informed the United Nations Human Rights Council that implementing UBI is “under examination and active consideration” by the Centre.
- WB’s TMC Manifesto: West Bengal’s Chief Minister released the TMC manifesto for 2021, promising UBI for every family.
- Sikkim’s SDF Manifesto: Sikkim’s ruling party, the Sikkim Democratic Front (SDF), included UBI in its manifesto ahead of the Assembly elections.
Need for UBI During COVID
- COVID Economic Depression: To address economic inequality, unemployment, and poverty created by the pandemic, UBI appears to be the only solution.
- Administrative Inefficiency: Due to restricted physical movement, targeting specific beneficiaries may be inefficient, while UBI’s universal nature circumvents this issue.
- Lack of physical movement: The poor are unable to benefit from schemes due to limited movement; UBI would provide Direct Benefit Transfer (DBT) into their accounts.
- Decentralised approach: UBI is highly decentralised, allowing targeted assistance to individuals based on their needs.
- Trickledown effect: Increased purchasing power would benefit local traders, especially those affected by lockdowns.
Arguments in favour of UBI
- Political
- Social justice: UBI is a test of a just and non-exploitative society.
- Promotes constitutional ideals: UBI supports ideals of:
- Equality: UBI aims to reduce poverty quickly, promoting equality across all sections.
- Liberty: It promotes individual freedom as it is anti-paternalistic and offers flexibility in labor markets.
- Dignity: UBI upholds personal dignity by allowing individuals to make their own spending decisions based on their circumstances, freeing them from reliance on state-determined priorities.
- Agent, not subject: The current welfare system assumes the poor cannot make economic decisions. Unconditional cash transfers treat them as active agents rather than passive subjects.
- Society
- Poverty and vulnerability reduction: UBI would significantly reduce poverty and vulnerability in one swift action.
- Choice: UBI provides citizens the freedom to spend based on their perceived welfare needs, following the “One Size Does Not Fit All” approach.
- Better targeting of the poor: UBI ensures zero exclusion error (no poor left out). Any inclusion error (wealthy accessing benefits) could be mitigated by campaigns like “Give It Up.”
- Promotes human capital development: UBI enhances bargaining power, allowing individuals to focus on skill upgrades and human capital development.
- Insurance against shocks: UBI provides a financial safety net against adverse events, such as health issues or income shocks.
- Psychological benefits: UBI alleviates mental stress related to meeting basic needs.
- Women empowerment: UBI, with individuals as beneficiaries rather than households, empowers women, increasing their agency within households.
- Economic
- Banking efficiency: UBI increases transaction volume, boosting profitability for banks and Banking Correspondents (BCs).
- Financial inclusion: Direct income transfers via UBI increase demand for financial services.
- More productivity: Under certain circumstances, UBI could promote greater productivity. For instance, agricultural laborers who own a small piece of land or used to work on others’ farms for meager wages can now work on their own land.
- Boost economy: UBI will increase the purchasing power of the poor, boosting aggregate demand in the economy.
- Administrative
- Promotes efficiency in government spending: Since each individual receives a basic income, UBI reduces wastage in government transfers, which could also help reduce corruption.
- Reduce misallocation of funds: Poorer areas often receive less than required due to low administrative ability, leaving genuine beneficiaries underserved.
- Administrative efficiency: Implementing UBI instead of multiple government schemes would reduce the administrative burden on the state.
Arguments Against UBI
- Political
- Difficult to wind up once started: If UBI fails, it may be difficult to terminate due to political reasons.
- Inequality: Critics argue that giving income to the wealthy undermines the ideal of an equal society and state welfare for the poor.
- Misuse for elections: There is concern that politicians may misuse UBI as a means to win votes.
- Social
- Wasteful spending: Households might spend additional income on non-essential goods like alcohol and tobacco.
- Moral hazard (reduction in labor supply): A guaranteed income might discourage people from working. Mahatma Gandhi considered “wealth without work” one of the major sins.
- Cash-induced gender disparity: In patriarchal societies, men may control UBI spending, which is less likely with in-kind transfers.
- Not reciprocal with ‘society’: Society is based on a two-way relationship between individuals and society. UBI is unconditional and does not account for an individual’s contribution to society.
- Affect on calorie intake: Experiences in Tamil Nadu and Chhattisgarh show that in-kind transfers are more effective than cash in increasing calorie intake.
- Economy
- UBI cannot replace all schemes: Simply depositing money into accounts cannot substitute the care needed by vulnerable groups like pregnant women, children, and the elderly.
- Limited financial inclusion: Nearly a third of adults in India do not have bank accounts, which could challenge UBI implementation and stress the banking system.
- For example: Reports indicate that less than 60% of Jan Dhan Accounts are linked with Aadhaar, which can lead to inconsistencies in individual identification.
- Fiscal burden: Due to India’s large population, UBI may impose a significant fiscal burden. Furthermore, once implemented, it may be challenging for the government to withdraw UBI in case of failure.
- Inflation: The fiscal burden from UBI may prompt the government to increase taxes, leading to inflation and reducing people’s purchasing power.
- Agriculture: The agricultural crisis is unlikely to be resolved solely by income transfers; addressing pricing, procurement, and structural issues is essential.
- Exposure to market risks: Unlike food subsidies that are protected from market fluctuations, UBI’s cash transfers may lose purchasing power due to market changes.
- Labour market concern: UBI may distort labor markets as regular income could discourage workers from seeking employment.
- Demand for high wages: Workers may refuse labor-intensive jobs or demand higher wages, increasing the production cost of agricultural goods.
Challenges in Implementation of UBI
- Lack of financial inclusion: Inadequate financial service infrastructure could hinder access to UBI benefits.
- May become just an add-on: Financing UBI as a “guaranteed minimum income” could lead it to become an additional expense rather than a replacement for existing subsidies.
- Lack of political will: High costs can limit government support for UBI.
- For example: A UBI covering 75% of the population, pegged at ₹7,620 per person (based on the Tendulkar Committee poverty line), would cost 4.9% of the GDP.
- Difficulty in reducing existing subsidies: Reducing subsidies to balance the UBI deficit could face resistance from society and opposition parties.
- Regional differences: Countries where UBI has been trialed typically do not have the levels of income disparity seen in India.
- For example: Sikkim’s fiscal and debt position is stronger than that of many other states.
Case Studies
- Namibia
- Outlay: Namibia ran a basic income pilot program between 2008 and 2009. Each resident of Otjivero-Omitara received 100 Namibian dollars ($6.75) monthly. The program was funded by international donors.
- Outcome: Child malnutrition decreased, school enrollment increased, and social crimes like theft significantly dropped.
- India’s Pilot Project, Madhya Pradesh
- Outlay: In 2011, SEWA, funded by UNICEF, conducted a UBI pilot in eight villages in Madhya Pradesh for 18 months.
- Most villagers preferred cash transfers over subsidies (for rice, wheat, kerosene, and sugar) due to their experience with UBI.
- Outcome: Many villagers used the cash to improve housing infrastructure, building roofs, walls, and toilets.
- This meant a reduced number of diseases emanating from dirty surroundings, indirectly reducing expenses on healthcare. Improved nutrition was also noted, particularly among Scheduled Castes (SCs) and Scheduled Tribes (STs).
- Outlay: In 2011, SEWA, funded by UNICEF, conducted a UBI pilot in eight villages in Madhya Pradesh for 18 months.
Way Forward
- UBI as a concept is not new to India: Previous Experiences & Ideas
- National Old Age Pension Scheme: Provides cash transfers to people below the poverty line, serving as a form of old-age income support.
- Indira Gandhi National Widow Pension Scheme (IGNWPS)
- Indira Gandhi National Disability Pension Scheme (IGNDPS)
- Rythu Bandhu Scheme: Offers financial assistance of ₹4,000 per acre per season to all land-owning farmers in Telangana.
- DBT Scheme: Programs like PAHAL (modified DBTL for LPG subsidy) support poor households, enabling them to buy essentials.
- PM-KISAN Scheme: Provides ₹6,000 annually as DBT to farmers.
- Other Schemes: PMMVY, PMSMA, etc.
- Gradualism: The Economic Survey proposes gradual implementation with three targets.
- Quasi-universality: Targeting the bottom 75% of the population, with costs accounting for 4.9% of GDP.
- Targeting only women: UBI for women, who face worse prospects in employment, education, health, or financial inclusion, could reduce the fiscal cost by half.
- Certain vulnerable sections: UBI targeting specific groups like widows, pregnant mothers, the elderly, and the disabled.
- JAM Trinity Utilization: Ensures effective fund transfer to individuals directly into their accounts due to:
- PM Jan Dhan Yojana’s universal bank access, with over a billion Aadhaar cards distributed.
- Indexing to Counter Inflation: The Economic Survey suggests indexing UBI to inflation for revisions.
- Behavioral Change: Government should sensitize people to reduce wasteful expenditure of basic income.
- International Experience: Countries like Kenya, Brazil, Finland, and Switzerland have started controlled UBI pilots. India could benefit from their research.
Conclusion
- For: UBI represents a social safety net to ensure a dignified life, gaining importance in a global economy facing uncertainties from globalization, technological change, and automation. UBI could address unemployment, income inequality, and poverty, especially post-COVID-19.
- Against: History shows that sustained economic growth is the best way to alleviate poverty. Instead of permanent UBI doles, creating conditions for growth may more effectively lift people out of poverty.
UNIVERSAL BASIC INCOME VS UNIVERSAL BASIC INSURANCE
Universal basic insurance offers a safeguard for people against poverty and threats to their livelihoods and well-being. It can strengthen social security until the Indian economy matures enough to support adequate voluntary insurance.
Need for Security Nets
- Critical survival line: Income shocks can cause people on the basic living wage line to fall drastically toward this line.
- Poverty trap: A significant income fall below the “Critical Survival Line” can lead a household into a poverty trap.
Different Kinds of Social Security These social security nets can be of three types:
- Passive safety net: Provides minimal salary necessary for subsistence, preventing people from falling below a certain threshold, targeting economically disadvantaged groups.
- Active safety net: A trampoline-like net that helps people bounce back to basic living wages, requiring a larger budget.
- Proactive safety net: Functions as a launchpad, enabling individuals not only to recover but also to rise above basic living wages. It’s ideal but requires substantial institutional support and financial resources.
Various Spectrum of Indian Social Security Programmes
- Health Security
- Ayushman Bharat: A health scheme for the unorganized sector with over 490 million beneficiaries.
- ESIC & CGHS: The Central government runs the Employees State Insurance Corporation (ESIC) and Central Government Health Scheme (CGHS), serving 130 million and 4 million beneficiaries, respectively.
- State Government Health Insurance: Covers around 200 million people through state-run health insurance schemes.
- Food Security
- NFSA: Over 800 million beneficiaries receive subsidized food grains under the National Food Security Act (NFSA).
- Mid-Day Meal Scheme: Provides free lunch to approximately 120 million children.
- State-run Programs: Around 50 million people benefit from additional free meal programs run by some states.
- Income Security
- Organized Sector: Includes three types of provident funds—(1) General Provident Fund (GPF), (2) Employees’ Provident Fund (EPF), and (3) Public Provident Fund (PPF).
- New Subscribers: Approximately 53 million individuals are subscribed to the New Pension Scheme.
- Unorganized Sector: The Pradhan Mantri Kisan Maan-Dhan Yojana (PM-KMY) and PM-KISAN scheme, covering about 120 million farmers.
- Atal Pension Yojana: APY benefits 40 million people.
- Pradhan Mantri Shram Yogi Maandhan Yojana: About five million beneficiaries, with an additional 50,000 under the National Pension Scheme for Traders and Self-Employed Persons (NPS-Traders) scheme.
- MGNREGA: The largest unorganised sector income security program, under the Mahatma Gandhi National Rural Employment Guarantee Act, supports about 60 million beneficiaries.
Universal Basic Insurance over Universal Basic Income
- Lower Penetration: Insurance penetration in India (around 4% of GDP) lags behind Taiwan (17%), Japan (9%), and China (6%).
- For example: Despite provisions, approximately 400 million Indians lack health insurance.
- Accessibility of Data: Though largely informal, data for the informal sector is now available (e.g., GSTIN for businesses, e-Shram for unorganised workers).
- For example: Karnataka’s social registry portal, ‘Kutumba,’ serves as an example of social security data.
- Identification Issue: Implementing universal basic income faces fiscal and identification challenges.
- For example: Out of 500 million workers in India, about 100 million lack income security coverage.
- Health Expenditure: The health system’s underutilized public infrastructure and unregulated private sector pose barriers to access.
- For example: Nearly 25% of hospitalized individuals are pushed below the poverty line due to out-of-pocket healthcare costs.
Way Forward
- Overhaul Concerns: While concerns exist, UBI’s benefits—better implementation, reduced corruption, and improved well-being—can help it thrive in India.
- Piecemeal Approach: Introduce UBI gradually to address practical challenges.
- Proper Evaluation: Policymakers should evaluate UBI’s pros and cons with accurate data before implementation.
- Welfare State: India’s welfare state responsibilities are reflected in the Directive Principles, giving social security laws their power and purpose.
- State duty: Although the Indian Constitution has not yet declared Social Security a fundamental right, it mandates that the State work to advance citizens’ welfare by preserving and defending, to the best of its ability, a social order in which social, economic, and political justice underpin all governmental institutions.
Conclusion
Due to huge fiscal implications (around 4.5% of GDP), the proposal of universal basic income runs the risk of implementation failure. Hence, until the Indian economy grows to have adequate voluntary insurance, social security can be boosted through the schemes of universal basic insurance.
SKILL DEVELOPMENT
India’s formally skilled workforce is just 2%. A lack of vocational or professional skills makes it difficult for youth to adapt to changing demands and marketplace technologies. High unemployment levels are partly due to a lack of skills and training.
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Need for Skill Development
- Industry
- Demand for skilled manpower: A Skill Development Council (NSDC) study indicates that India will need around 12 crore skilled workers by 2022 across 24 key sectors.
- Technological advancement: With blue-collar jobs decreasing, higher skills are needed for market relevance.
- Multiple skill requirements: Workers now need multiple skills to remain relevant in the market.
- Individual
- Outdated skills: Much of the workforce is hampered by outdated skills, making market-relevant skills essential in today’s competitive job market.
- Inappropriate Jobs: Several lakhs of people are working in jobs not suitable to their qualifications, status, or wages. Better skill development is needed to reduce this mismatch.
- Better Job Opportunities: Improved skills will lead to better job opportunities, enhancing individual well-being.
- Strategic
- Channelization of Energy: Better skill sets channel youth energy in the right direction, maximizing human resource use.
- Demographic Dividend: With India’s demographic dividend, employability-focused skills are necessary.
- Eroding Trust in China: Major economies are watching China with suspicion, seeking alternative partners.
- Meeting Global Demand: As the youngest country, India can supply human resources to an aging global population if its youth are properly skilled.
- Economy
- Diversification of Economy: Moving from agro-based to manufacturing and service sectors requires diverse skills.
- Skill Shortage in India: OECD data shows a severe skill shortage in India.
- Ensuring Minimum Wages: Aligning wages with skill levels under the National Skill Qualification Framework (NSQF) is essential for recognizing higher skills.
- Backwardness in Agriculture: New farming techniques require skill development to adopt new technologies.
- Small Landholdings: With small holdings (1-2 acres), there’s a need for productivity-increasing skills, as adopted by Israeli methods.
- Society
- High Illiteracy: To employ the illiterate labor force, basic skill training is needed.
- Poverty Reduction: Basic skills enable people to earn a livelihood, reducing poverty.
- COVID-19 Dynamics: Remote work norms create a need for skill training to adopt work-from-home culture.
Issues Involved in Skill Development
- Individual
- Lack of Entrepreneurship Skills: Only 24% of PMKVY trainees started businesses, with just 10,000 applying for MUDRA loans.
- Low Skill Development: Skill development remains insufficient for better employment opportunities.
- Lack of Industry Incentives: Skilled graduates are still viewed with suspicion, limiting their opportunities.
- Institution
- Low Industry Interface: Many training institutes lack industry connections, leading to poor placement records and low salaries for trained individuals.
- Double Burden on NSDC: The NSDC manages financing processes while also implementing skilling programs, straining its resources.
- Absence of Job Linkages: Despite improvements, the lack of job linkages with training exacerbates unemployment.
- For example: Out of 30.67 lakh trained candidates, only 2.9 lakh received placement offers as of June 2017.
- Red Tape: Bureaucratic hurdles hinder interactions between industry and skilling institutions, hampering the skilling process.
- Huge Target: Skilling 400 million young Indians by 2022 is an ambitious and challenging goal.
- Lack of Infrastructure: Training institutes face infrastructure challenges.
- Poor Quality of Trainers: Many trainers are not adequately skilled to produce industry-ready graduates.
- Recognition of Prior Learning: Limited prioritization of relevant skills hinders skill inclusion.
- Industry
- Lack of Industry-Relevant Education: Skilling programs alone are insufficient; the education system lacks strong employability integration.
- Insufficient Training Capacity: Training often fails to ensure jobs, leading to low employability rates.
- Rapidly Changing Technology: Employees need continual skill upgrades to remain relevant in a dynamic job market.
- Employers’ Unwillingness: Joblessness reflects a lack of recruitment interest among industrialists and SMEs.
- Training Still Mainly in Tradition: Technological advances require training in modern skills, not just conventional ones.
- Society
- Lack of Acceptability of Vocational Training: Social biases against vocational courses hinder progress.
- Low Student Mobilization: Traditional mindsets, migration reluctance, and low entry-level salaries affect student engagement.
- Digital Divide: Limited technology access in rural areas restricts skill development opportunities.
- Gender Disparities: Social constraints create a gender gap in skill development and inclusion.
Government Initiatives
- National Policy for Skill Development and Entrepreneurship 2015: A comprehensive blueprint for growing skill development and entrepreneurship in India.
- National Skill Development Mission: The mission aims to consolidate skill initiatives across India, standardizing procedures and outcomes.
- Pradhan Mantri Kaushal Vikas Yojana (PMKVY): Launched in 2015 to provide free skill training opportunities for Indian youth.
- Pradhan Mantri Kaushal Vikas Yojana 3.0: Launched in 2021, this initiative aims to empower India’s youth with employable skills through over 300 available skill courses.
- Recognition of Prior Learning: Launched in 2015 to acknowledge skills already acquired by individuals; a key component of PMKVY.
- Industrial Training Centres (ITIs): Established in 1950 to expand and modernize India’s Long-Term Training ecosystem.
- Seekhoaur Kamao: Focused on upgrading the skills of minority youth in various modern/traditional areas based on qualification, market potential, and trends to improve employment or self-employment prospects.
- National Apprentice Promotion Scheme (NAPS): Encourages apprenticeship training, targeting an increase from 2.3 lakh to 50 lakh apprentices by 2020.
- National Career Service Project: Launched in 2015 to offer free online career skills training through its project for registered job seekers.
- Skill Management and Accreditation of Training Centers (SMART): Provides a single-window IT application for accreditation, grading, affiliation, and continuous monitoring of Training Centers (TC) in the skill ecosystem.
- Skills Acquisition and Knowledge Awareness for Livelihood (SANKALP): A centrally sponsored scheme in collaboration with the World Bank, focusing on district-level skilling through convergence and coordination.
- Scheme for Higher Education Youth in Apprenticeship and Skills (SHREYAS): Provides industry apprenticeship opportunities for graduates, collaborating with NAPS.
- Atma Nirbhar Skilled Employee Employer Mapping (ASEEM): Launched in 2020, this portal connects skilled individuals with sustainable livelihood opportunities.
- Skills Strengthening for Industrial Value Enhancement (STRIVE): A World Bank-supported project launched in 2016 to improve ITIs’ performance, enhancing the relevance and efficiency of skill training.
Way Forward
- Periodic Upgradation of Skills: Regular updates are needed for skilled trade workers like electricians, plumbers, and agricultural machine operators.
- Practical Approach: Instructors should use case studies and present real-world problems to enhance skill learning.
- Evaluation of Training Institutes: NSDC should develop techniques to evaluate and encourage training institutes to improve performance.
- Employment Opportunities: Secure sustainable livelihood options for trainees post-training by providing employment opportunities.
- Complementary to Mainstream Education: Skill training should support mainstream education, not replace it.
- Reduce bureaucratic red tape: To ensure proper industry and skilling center linkage for efficient skilling.
- Industry-relevant training: The curriculum should align with industry demand, emphasizing practical training over theoretical work.
- Inclusive skilling: Skilling programs should cover women, marginalized communities, tribals, and disabled people to enhance employability.
- Training policy: A need exists for an inclusive training policy that considers all social strata and local customs.
- Accessibility: Expand training institutes in remote areas and build gender-specific infrastructure, especially in ITIs, to support women and marginalized communities.
- Finance issue: Relieve NSDC from financing duties, allowing it to focus on core skilling competencies.
- Multi-skilling is essential: The dynamic economy demands multi-skilled individuals as requirements change rapidly.
- Standardisation of skills: Nationwide standards should align with international benchmarks.
- Simplification of laws: Codifying and simplifying labor laws will ease skill development implementation.
By 2022, India will have the world’s largest working-age population. The Global Skills Report highlights that, if properly skilled, this demographic could drive economic growth. The new National Education Policy (NEP) aims for 50% vocational education enrollment by 2025.
STARTUPS AND ENTREPRENEURSHIP
India has recently seen a rapid increase in startups and support, earning it the title “the poster child of emerging markets.”
Recent Developments
- Unicorns in India: The number of unicorns recently hit 100.
- A unicorn is a startup with at least ₹7,500 crore in turnover. The total valuation is approximately USD 330 billion (₹25 lakh crore).
- India’s unicorn growth rate surpasses that of the U.S., U.K., and other countries.
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Features of Unicorns
- Disruptive Innovation: Most unicorns have disrupted their fields; for example, Uber transformed commuting.
- Technology-Driven: Business models are led by the latest technological innovations.
- Consumer-Focused: They aim to simplify consumers’ lives as part of their daily routine.
- Affordability: Keeping services affordable is a key feature of these startups.
- Privately Owned: Most unicorns are private, gaining larger valuations with investments from established companies.
- Software-Based: About 87% of unicorn products are software, 7% are hardware, and the remaining 6% cover other products & services.
Benefits from Startups in India
- Individual
- Employment Generation: Entrepreneurship opens up more job opportunities.
- For Example: The Startup India program reports 12 jobs created per startup.
- New Ideas Make Life Simpler: With a variety of new ideas, life becomes easier.
- Employment Generation: Entrepreneurship opens up more job opportunities.
- Industry
- Healthy Competition: An increase in entrepreneurs leads to more competition, breaking monopolies.
- For example: No single company can monopolize, with Flipkart vs. Amazon and Swiggy vs. Zomato.
- New Innovations: Startups focus on new technologies and agile innovation, free from corporate bureaucracy, to bring ideas to market.
- Culture of Entrepreneurship: Success stories motivate youth to start ventures, shifting them from job seekers to job providers.
- Healthy Competition: An increase in entrepreneurs leads to more competition, breaking monopolies.
- Economy
- Creation of Wealth: Entrepreneurs attract investors, sharing wealth with society and creating a national economic benefit.
- Economic Growth: Startups significantly contribute to economic growth. Supporting them can generate domestic revenue and attract consumer capital.
- Source for FDI: Foreign investments act as easy capital for startups.
- For example: Registered startups raised $63 billion across over 5,400 funding deals.
- Economic Shift: Startups reduce reliance on service and agriculture sectors, balancing the economy.
- For example: 3,600 startups are in health, and nearly 1,700 in agriculture.
Opportunities for Startup and Entrepreneurship in India
- Scope of the Indian Market: As one of the fastest-growing economies, India offers abundant opportunities for startups.
- Favorable Demography: With half the population under 25, India has a young workforce.
- Large Customer Base: A sizable population can absorb innovative products and services.
- Technological Change: Recent tech advancements reduce digital product costs and expand market access.
- For example: “Digital Saksharta Abhiyaan” was launched to promote digital literacy and help people become more knowledgeable about the digital world.
- Active Government Support: The Government of India launched the flagship initiative “Startup India” in 2016, aiming to create an ecosystem supportive of startup growth and to encourage an entrepreneurial revolution.
- Improved Digital Infrastructure: India enhanced its digital connectivity, removing market access barriers and creating a favorable ecosystem for startups.
- For example: State-led innovations (NPCI) have overhauled the digital payments ecosystem, supported by Aadhaar, Jan Dhan, UPI, and India Stack.
- High Scope in Rural Areas: With most of India’s population in rural areas, many startups focus on improving rural living.
- For example: FIA Global, with a network of 26,000 banking agents, uses AI to deliver financial services in rural areas, reaching over 34 million customers.
- Corporate Support in Open Innovation: Indian companies increasingly collaborate with startups, offering corporate-specific resources to foster mutual growth.
- Developing Society: As a developing nation, India’s startup founders often have strong intrinsic motivations driven by passion, curiosity, and a desire to solve societal problems.
Challenges
- Society
- Digital Divide: With nearly 70% of India’s population in rural areas, startups face challenges in catering to low-income, rural customers, hindering pan-India scalability.
- Low Willingness to Pay: Indian customers are price-sensitive, often preferring discounts or cheaper, lower-quality alternatives.
- Disconnection Between Founders and Consumers: Most founders are from urban backgrounds, while customers are from low-income, rural backgrounds, causing an understanding gap.
- Limited Scalability of Regional Startups: Small startups often struggle to scale across India, staying confined to certain regions.
- Government
- Lack of Adequate Incentives: Over-regulation hinders startups, with inadequate incentives provided.
- For example: India ranks 77th out of 190 in the WB’s Ease of Doing Business index and 137th in Starting a Business, with business closure equally difficult.
- Unfriendly Tax Policy: Startups face burdensome tax policies, including mandatory tax filings even with no revenue.
- For example: The “Angel Tax,” introduced in 2012 to curb money laundering, also discourages investment in startups.
- Corruption and Red-Tapism: Bureaucratic red tape and corruption complicate the setup process.
- Lack of Adequate Incentives: Over-regulation hinders startups, with inadequate incentives provided.
- Entrepreneurs
- Issues of Funding: Running a startup requires significant working capital. Many startups, especially at early stages, are bootstrapped, using founders’ savings or funds from friends and family.
- Market Access Barriers: Indian markets are tough to penetrate, dominated by large firms adept at handling bureaucratic regulations.
- Lack of Supporting Infrastructure: Limited access to incubators, S&T parks, and business development centers increases failure risk.
- Founders Lack Business Knowledge: Many Indian founders have technical backgrounds but lack business acumen.
- Skill Mismatch: Finding talent with the right skills to meet customer expectations is challenging.
- Lack of Team Spirit: 23% of startups fail because team members don’t work well together.
- Debt Traps: Founders rely on future fundraising (debt or equity) to meet liabilities, leading to a “debt trap.”
- Lack of Business Innovation: Indian startups lag in innovative business models.
- Behavioral Changes: Changing consumer behavior is costly, impacting startups positively and negatively.
- Economy
- Hiring Challenge: Job-seekers view startups as risky due to high failure rates.
- Flawed Valuations: Many tech startups rely on assumptions of growth rather than actual cash flows.
- Lack of Resources: Working capital is crucial, but raising funds and finding investors is challenging.
- Poor Skills and High Training Costs: Many applicants lack skills, raising training costs.
- Entrepreneurial Drain: Successful startups often move to markets like the USA with higher-paying customers.
- Structural
- Replicating Silicon Valley: Indian startups emulate Silicon Valley models, which may not fit India’s market.
- Lack of Mentorship: The Indian startup ecosystem lacks proper guidance and mentorship.
- Untimely Payment Collections: Non-digital payments complicate timely collections.
- Bias Toward Foreign Products: Consumers favor foreign brands, limiting acceptance for Indian startups.
Government Measures
- Cultural Boost Initiatives
- Make in India: Promotion of indigenous goods and services under the initiative.
- Start-Up India Programme: A flagship initiative to build a strong ecosystem for nurturing innovation and startups, aiming for sustainable economic growth and large-scale employment.
- Start-up India Digital Platform: The world’s largest virtual incubator with over 300,000 registered startups and aspiring entrepreneurs.
- Start-up Grand Challenge: Connects Indian and Korean startups to work together on global challenges.
- Mentorship and Incubation Initiatives
- Atal Innovation Mission: Promotes entrepreneurship through Self-Employment and Talent Utilization (SETU) by mentoring innovators to become successful entrepreneurs.
- SAMRIDH Scheme: Provides funding and skill support to help startups grow successfully.
- Incubator Set Up by PPP: Government policy for setting up incubators across India in public-private partnerships.
- NewGen IEDC Initiative: Launched by the National Science and Technology Entrepreneurship Development Board under the Department of Science and Technology to foster innovation and entrepreneurship among youth.
- Project Chunauti: Part of the Next Generation Incubation Scheme (NGIS), it provides guidance and support to selected startups.
- National Initiative for Developing and Harnessing Innovations (NIDHI): An umbrella program to nurture knowledge-based and technology-driven ideas into successful startups.
- Funding Support
- Startup India Seed Fund Scheme: Provides financial assistance for proof of concept, prototype development, product trials, market entry, and commercialization.
- Pradhan Mantri Mudra Yojana: MUDRA Bank facilitates development and refinancing for micro-units, with a ₹200 billion refinance fund.
- Credit Guarantee Fund: Offers collateral-free credit to micro and small enterprises, covering both new and existing businesses.
- Fund of Funds for Start-ups (FFS): ₹10,000 crore corpus fund under SIDBI to support startups.
- Government e-Marketplace: Local startups can participate in government tenders through the GeM portal.
- Multiplier Grants Scheme (MGS): Encourages R&D collaboration between industry and academia for product and package development.
- Policy and Regulatory Support
- National Startup Advisory Council: Suggests measures to foster innovation among citizens and students, promoting innovation across all economic sectors.
- E-Biz Portal: India’s first government-to-business portal, integrating 14 regulatory permissions for faster clearances and improved ease of doing business.
- Startup India Action Plan: Builds a strong ecosystem for nurturing innovation and startups, promoting economic growth and employment opportunities.
- Tax Sops: Includes exemptions on capital gains tax, removal of angel tax, and tax exemptions for three years, plus exemption in investment above fair market value.
- International Collaboration
- Prarambh: A Startup India International Summit organized by DPIIT, involving BIMSTEC nations to enhance multilateral cooperation in the startup ecosystem.
- SCO Startup Forum: A foundation for multilateral cooperation among SCO Member States aimed at improving startup ecosystems collectively.
Way Forward
- Easy Availability of Funds: The government should ensure easier loan access and tax-friendly norms to reduce financial pressure on startups.
- Remove Inefficiencies: Implementing startup policies and reducing bureaucracy can ease business operations.
- More Field-Based Research: To bridge the gap between founders and customers, especially in rural areas, on-site field research and exposure are necessary.
- Bridging the Digital Divide: Addressing infrastructure gaps, especially in rural areas, and promoting digital literacy are essential.
- Integration with School Curriculum: The National Education Policy 2020 aims to promote entrepreneurship through vocational education and coding.
- Startups in High-End Technology: The Draft Space Policy allows Indian entities to design, develop, and realize satellites and communication systems.
- Promoting Agri-Startups: Given that most of India’s workforce is in agriculture, promoting agri-startups and clearing roadblocks is crucial.
With an increasing population and labor force participation, startups are seen as a primary solution for employment creation. With government support and the youth’s entrepreneurial spirit, India can shift from a job-seeking to a job-providing economy.
INSURANCE COVERAGE
Insurance refers to a contract or policy by which an individual or any firm or entity receives protection from financial loss or from any other kind of damage.
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Importance
- Economy
- Reduces Fiscal Burden: Helps reduce the burden of social security budgets, diverting expenditure to more productive areas.
- Mobilization of Saving: Assists in mobilizing public savings into financial assets.
- Financial Inclusion: Expands financial services in rural areas; IRDA Regulations require minimum business in socially weaker sections.
- Circular Flow of Capital: Insurance turns savings into investments.
- Boost Risk-Taking Ability: A well-developed insurance sector boosts risk-taking in the economy.
- Unleash Entrepreneurship: Enables entrepreneurs to take bold and big-ticket decisions.
- Promote Long-Term Development: Insurance companies’ assets represent long-term capital, supporting investments in infrastructure.
- Economic Growth: Premiums collected fund industrial development, accelerating economic growth.
- Social
- Promotes Socio-Economic Development: Insurance companies invest part of premiums in social and economic infrastructure.
- Protects Society’s Wealth: Life insurance protects against human loss, while general insurance protects property against fire, theft, accidents, and natural disasters, stabilizing business conditions.
- Maintains standard of living: Insurance rescues many people in society who are rendered destitute through misfortune. They are able to maintain their standard of living due to returns.
- Social security benefits: Provides for old age, sickness, and disability, preventing insured individuals from burdening state insurance plans.
- Spreading of risk: Insurance spreads risk from the insured to the insurer. A large number of people pay premiums to the insurer, who compensates when a loss occurs.
- Individual
- Act as a stabilizer: Helps stabilize risks from health and unforeseen circumstances.
- Support to family members: Provides support in case of loss of life or health.
- Protect emotional health: Alleviates financial worries in the event of accidents or disabilities, securing the future for dependents.
Challenges
- Sector Specific
- Low insurance penetration: Insurance penetration (premium to GDP ratio) and density (premium to population ratio) stood at 4.2% and USD 78 (FY21), low by global standards.
- Public Sector Dominated: Though competitive, the market is largely held by public-sector insurers.
- Capital-intensive industry: Private insurers face profitability challenges due to low returns, high commission rates, and marketing costs.
- Nascent Non-life Insurance: Life insurance dominates at 74.7%, with non-life insurance at 25.3%.
- Capital-starved insurers: Insurers, especially public-sector, lack sufficient capital.
- Rural-Urban Divide: Low insurance penetration and density in rural areas, with private insurers gravitating towards urban populations.
- Lack of required skill set: Insurance agents need better skills and networks.
- Individual
- Poor Distribution: Limited reach outside major cities due to low viability.
- Low Awareness: Many believe health insurance isn’t a worthy investment.
- Perception by influencers: Negative portrayals by media and influencers create consumer skepticism.
- Rural folks: Often disinterested or underserved despite schemes and IRDAI norms.
- Hesitation in buying non-life insurance: Due to fear of discovery of ‘asset value’ which could result in IT/GST raids & ransom demands.
- Difficulty in claim settlement: Standardized medical treatment costs are difficult to ascertain (unlike car damage). This problem, further aggravated by delays in claim settlement, discourages renewal of health policies.
- Complex rules and regulations: Vague and incomprehensible rules of insurance companies often delay claim settlement procedures.
- Low income level of individuals: Lower income levels discourage investment in insurance premiums.
- Product Specific
- Costly products: Lack of innovative, custom, and tailor-made policies for MSMEs, resulting in underinsurance.
- Sales-centric focus: Insurers focus on growing sales, leading to pricing distortions.
- Fewer product innovations: Essential risk-mitigation products are available, but gaps leave large risks uninsured.
- Lack of need-based products: Gap between need and offerings due to profit margins.
Government Initiatives
- Institutional Related
- Life Insurance Corporation of India: Nationalized by the government in 1956, fully government-owned, to take over private life insurance companies.
- Twin objectives of nationalization of LIC:
- To spread the message of life insurance for social security.
- To mobilize people’s savings (premiums) for nation-building.
- Twin objectives of nationalization of LIC:
- Malhotra Committee (1999): Recommended creating IRDA as an autonomous body to regulate and develop the insurance industry.
- Saral Jeevan Bima: Guidelines from IRDA to increase insurance penetration.
- Standardization: Specifies terms and conditions to simplify term insurance policies.
- Inclusive: No restrictions based on gender, residence, occupation, or education.
- Securing Interests of Insurers: No liability if policyholder dies within 45 days, except in accidents.
- FDI Rules: Budget-2019 allows 100% FDI for insurance intermediaries.
- More investment: Increases competition, improves consumer services, and boosts economic growth.
- FDI Cap: Insurance sector capped at 49% under the automatic route for companies.
- NOTE: The proposed change is only applicable to insurance intermediaries while the cap on foreign ownership in insurance companies will remain at 49%.
- Insurance (Amendment) Bill, 2021: The Rajya Sabha has passed the Bill that increases the maximum foreign investment allowed in an insurance company from 49% to 74%.
- Life Insurance Corporation of India: Nationalized by the government in 1956, fully government-owned, to take over private life insurance companies.
- Government Schemes
- Life insurance: Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), Pradhan Mantri Suraksha Bima Yojana (PMSBY), Pradhan Mantri Jan Dhan Yojana (PMJDY) provide life insurance cover to the policyholders, ensuring financial stability for socially and economically backward sections.
- Agriculture insurance: Pradhan Mantri Fasal Bima Yojana (PMFBY) and Restructured Weather Based Crop Insurance Scheme (RWBCIS) provide financial help to farmers in the event of crop loss, stabilizing farmers’ income.
- Old age security: Varistha Pension Bima Yojana, Pradhan Mantri Vaya Vandana Yojana (PMVVY) provide financial security to policyholders in old age.
- Health Insurance: Ayushman Bharat, Aam Aadmi Bima Yojana (AABY), and Rashtriya Swasthya Bima Yojana provide health insurance to a large population in India, offering protection during health emergencies and disability.
Way Forward
- Promote Awareness: Increase public awareness about insurance benefits through videos, social media, ads, and campaigns.
- Rural Centric Approach: Insurance companies must show long-term commitment to rural sectors and design products suited for rural people.
- Insurance Index: Establish an Insurance Index in India to measure insurance penetration as a marker of financial and social progress.
- Help in developing the insurance industry: Generate durable funds for long-term assets.
- Increase competition in the sector: This will help lower the cost of insurance products.
- Technological Intervention: Leverage the Internet, AI, ML, and other technologies for single-window service, cross-selling, and customer retention.
- Evolving Multiple Channels of Distribution: Link insurance with allied finance products like housing loans, mutual fund investments, and credit cards.
- Huge Untapped Market: Align insurance systems with other programs to target diverse demographic and macroeconomic sections.
- Better regulation: Ensure regulatory policies focus more on insurance targets than profitability.
With increasing liberalization in the insurance sector, addressing existing issues is urgent. The private sector needs encouragement to reach rural areas, insuring the uninsured. Capital infusion is needed for public-sector insurance companies to maintain India’s financial health.
CORPORATE SOCIAL RESPONSIBILITY
“Corporate Social Responsibility” in general can be referred to as a corporate initiative to assess and take responsibility for the company’s effects on the environment and impact on social welfare.
Data (Indian Institute of Corporate Affairs)
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Legal Provisions
- Companies Act, 2013: In India, the concept of CSR is governed by clause 135 of the Companies Act, 2013.
- Applicability: The CSR provisions are applicable to companies with an annual turnover of ₹1,000 crore and more, or a net worth of ₹500 crore and more, or a net profit of ₹5 crore and more.
- Expenditure: The Act encourages companies to spend 2% of their average net profit in the previous three years on CSR activities.
- Ambit: The provisions are not only applicable to Indian companies, but also to the foreign company’s branch in India and the project office of the foreign company.
- Indicative activities: Which can be undertaken by a company under CSR, have been specified under Schedule VII of the Act.
- To eliminate hunger, poverty, and malnutrition
- Promote education
- Improve maternal and child health
- Ensuring environmental sustainability
- Measures for the benefit of the Armed Forces
- Promote sports activities
- Protection of National Heritage
- Contribution to Prime Minister’s National Relief fund
- Developmental activities in slum areas
- Construction of toilets in schools
Recent developments
- Covid relief: In 2020, the MCA allowed companies to spend CSR funds on Covid-19 relief, including preventive healthcare and sanitation and on research and development of Covid drugs, vaccines, and medical devices.
- Outreach programmes: The ambit was expanded further this year to include awareness or public outreach programmes on Covid-19 vaccination and setting up of makeshift hospitals and temporary Covid care facilities.
- Clarification on CM relief fund: The Ministry of Commerce and Industry has clarified that contributions to the CM’s Relief Fund or the State relief fund will not qualify as CSR expenditure, while any donation to the PM CARES Fund will.
- Amendment to the CSR Rules: The Corporate Affairs Ministry has amended the rules for CSR expenditure to allow companies to undertake multi-year projects, and also require that all CSR implementing agencies be registered with the government.
- Impact assessment: Under Rule 8, any corporation with a CSR obligation of Rs 10 crore or more for 3 preceding financial years would be required to hire an independent agency.
- Transparency: Under Rule 9, the Board of Directors of the Company shall mandatorily disclose the composition of the CSR Committee.
- Action plan: Under Rule 5, the CSR Committee shall formulate and recommend to the Board, an annual action plan in pursuance of its CSR policy.
- Fines and Imprisonment: Provision for penalty in the form of fine between Rs 50,000 – Rs 25,00,000. Additionally, every officer in default may also be imprisoned for a term of up to 3 years.
Benefits from Corporate Social Responsibility
- To the company
- Enhance reputation: CSR helps in growing the reputation and promote respect of a company which can result in higher sales.
- Increase investment: CSR creates positive sentiment in the minds of investors and the public at large. An ethically-based corporate governance leads to more trust in the organisation and its work culture leading to more investors’ interest.
- Competitive advantage: Businesses that show how they are more socially responsible than their competitors tend to stand out.
- Better Decision Making: Decision making is better as the decisions are in the interest of the public, employees and company’s own long term good.
- Tax benefits: Tax benefit is given on the amount spent as CSR which helps to increase the profit of the company.
- Increase customer base: CSR increases the presence of a company. For instance, when villages are adopted by companies & developmental work is taken, the people come to know about the company which ultimately helps the company increase its customer base.
- Boosts employee morale: CSR practices have a significant impact on employee morale, as it reinforces his confidence on Company’s empathy.
- Enhance ethical conduct: Respect for ethics will force a management to take various economic, social and ethical aspects into consideration while making the decisions.
- To the community/Society
- Protection of Society: CSR spent on education, health and essential infrastructure provide protection to society from dearth of social insecurities.
- Welfare: The community benefits through welfare initiatives taken by companies under CSR.
- Social trust: Plays a value positive role CSR fosters social trust and inspires ethical conduct amongst employees and members of society.
- Increase standard of lives: CSR helps to increase the standard of living of the people & their income which increases demands & leads to growth of the companies indirectly.
- Bridging of socio-economic disparities: Companies mostly take social activities in backward areas will able to bridge the disparity.
- To the environment
- Protection of environment: CSR helps in protecting environment in a better way than even the legal system of the country. CSR spent on the reduction of carbon emissions & curbing global warming is helpful for the sustainability of the environment.
- Sustainable development: Different activities like cleaning, establishing seed banks, schools, solid waste management units, electrification under CSR help in sustainable development.
- Avoid environmental disaster: Through CSR companies regularly focus on their environmental safety policy and their strategy which can avoid and big environmental disaster.
- Consumers become environmental conscious: Many consumers actively seek out companies that support environmental causes. Therefore, CSR foster customers behave in an environmentally consciously manner.
- Greater material recyclability: Companies will act in environmentally sound manner will use better material which can be recycled.
- For example: Amul now use better poly packing for milk which can be recycled.
- To the government
- Increase fiscal space: Reduced pressure on the country’s fiscal resources.
- Aids in achieving welfare obligations: Of the government as investments are made towards education, healthcare etc.
- Management planning: Companies perform activities in a managerial sound manner which can help government to follow the same strategy for greater impact.
Issues related to CSR
- Related to Law
- Nature of the law: More than a dozen amendments in the law since its enactment has hampered its effective implementation. Some anomalies in tax treatment still remain in the law.
- Scope of the law: Many companies are already spending more than asked in law but their contribution isn’t counted under CSR as they’re spending in other areas which is not included in law.
- CSR in monetary value: Companies have been encouraging its employees towards social work which cannot be measured on a monetary scale. Attaching monetary terms would mean companies to reorient their policies to satisfy the monetary norms of the law.
- Lack of flexibility: Companies don’t get the flexibility to carry out welfare programs as the law specifically enumerates the area on which CSR money should be spent.
- Ambiguity in taxation: While CSR spends do not qualify for tax deduction, IT Act provides for exemptions on Allowable Business Expenditure (ABE). It opens doors for litigation to decide whether an expenditure falls under CSR or ABE as private sector is motivated to put expenditure under ABE and avoid tax.
- Lack of enforcement provisions: The categories included under CSR are vaguely worded and lack clarity. Besides, the act does not spell out any enforcement mechanism or penalty for non-compliance with its provisions.
- Regional disparity: There is also a geographic bias under the 2% law, with companies funding projects closer to where they are based. Therefore, more industrialized states are winning over poorer, more remote regions where development aid is acutely needed.
- Data: In FY21, over 80% of the funds for which state-wise break up of spending is available, has gone to ten states including eight of the largest state economies.
- Related to Companies
- Disinterest among the corporates: Many corporates see this as a burden on their manpower and time in a global scenario with tough competition.
- Tool to tax corporate: CSR is criticized as a tool to tax corporates which already face high taxation in the country. This can make India unattractive for business.
- Mandated organization structure: The law mandates CSR committee which may not be in line with the existing structure in many organizations.
- Long Gestation period for projects: Many projects require investments over a longer duration before yielding results, this is a major reason for lower than mandated spending on CSR by companies.
- Related to Implementation
- Non-compliance: A KPMG survey of 100 companies found that 50% of the companies were unable to spend the mandated amount on CSR.
- Cheating: A smaller proportion has gone further to allegedly cheating by giving donations to charitable foundations that then return the fund minus a commission.
- Implementation agency: The difficulty in finding an implementation agency could be one reason that limits the ability of corporates to undertake CSR initiatives.
- Inadequate Absorption of Funds: There is a critical lack of trained and effective organizations that can significantly contribute to the ongoing CSR efforts started by businesses; hence it is necessary to strengthen the capacity of local non-governmental organizations.
- Roll back: Charitable spending was used as a big reputation builder for family-led conglomerates with a long tradition of philanthropy. Now it’s just about legal compliance. Many companies that were giving more than 2% have scaled back their spending.
- Politics: Some companies looking to gain goodwill by backing government-led projects rather than independent initiatives.
- Inequality: One of the challenges for the corporate sector is finding credible charity partners to support. So the bigger charities that are more well-known are being flooded with money, leaving out smaller charities.
- Related to Society
- Skewed pattern of spending: About 40% of CSR spending was incurred on education and healthcare while eradication of hunger received barely 5% of funds, particularly when nearly 40% of Indian children are in the grip of malnutrition.
- Mere eyewash: CSR is often termed as an eyewash as companies tend to invest in CSR only to overcome questions and scrutiny over their core business practices which may not necessarily be ethical.
- Lack of Community Participation: There is a lack of interest of the local community in participating and contributing to CSR activities which is largely attributable to little or no knowledge about CSR.
Arguments in Favour of CSR
- Moral Responsibility: Corporate sector is dependent on wider society for its business. They have a moral responsibility to protect the interest of society and look after the welfare.
- Justification for existence and growth: Establishment of business and acceptance by wider public also require same from businesses.
- Long term interest of the business: Their acceptance by the society will be denied if they ignore social problems. To avoid self-destruction in the long-run, business enterprises assume social responsibility.
- Avoidance of Government Regulations: Good social behavior is an ethical aspect of the business. They are beyond the law. Business entities avoid government regulations as it hampers their freedom.
- Availability of resources with Business: Business organizations have enormous resources which can be partly used for solving social problems. Businesses are the creation of society and must work in the best interest of society, both economically and socially.
- Holding business responsible: Business activity should see if any type of activity is causing harm to society. Businesses should themselves be held responsible for causing harm.
Arguments against CSR
- Business is an economic activity: The prime responsibility of assuming social responsibility should, therefore, be of the Government and not of the business enterprises.
- Lack of skill and competence: Professionally qualified managers may not have the aptitude to solve social problems.
- Violation of profit maximisation objective: The sole motive of the business is profit maximization. Supporting social responsibilities is violating the profit-making objective of the business.
- Transfer of social costs: Social responsibilities like environment protection, pollution control is very costly in nature. If entities opt for it, they always try to shift their burden on ultimate consumers.
- Lack of broad public support: Generally, society does not accept the involvement of business entities in social programs. That is why it gets difficult for the business to solve the problems without the participation of the public.
- Sub-optimal utilisation of resources: If scarce resources are utilised for social goals, this would violate the very purpose of existence of an organization.
Examples of CSR in Indian corporate companies
- Tata Group in India: Is perhaps the most CSR-active company in India. It has undertaken initiatives under the field of education (research, educational institutions, and scholarships), agriculture and environment, sports, healthcare, etc.
- Dabur India Ltd: Water harvesting, water conservation, recharging of tube wells and plantation in Rajasthan. This initiative made available water in 6 villages of Rajasthan round the year. 1200 farmers’ families have been benefited by increased income and crop yields.
- Toyota Kirloskar Motor: Green Me Project was launched by the company. This project introduced activity-based environmental learning curriculum in 35 government schools.
Way Forward
- Promote voluntary undertaking: Measures should be taken to promote voluntary undertaking of CSR initiatives by companies. This can be done by inculcating social and ethical values in youth that join the workforce.
- Facilitating collaboration between NGOs, Agencies: Involved in environmental and social work and corporates this will enable better utilization of CSR funds.
- Assessing impact of CSR initiatives: This should be done over a longer period of 3 to 5 years to gauge the full impact of costs incurred.
- Minimize regional disparity: Encouraging corporates to spend in hitherto neglected areas such as sports, conservation of heritage, etc.
- Sharing of best practices: Enabling exchange and sharing of best practices between corporates through CSR summits.
- Scrutiny of CSR investments: So as to prevent fraudulent transactions in the name of social responsibility.
- Rationalizing Corporate tax: This must be expedited as higher corporate taxes when seen along with CSR compulsions adversely reflect on the business environment in the country.
- Third party assessment of CSR Projects: 5% of CSR mandated companies be identified on a random basis for third-party assessments on a pilot basis.
- Individual Level: It deals with individuals becoming more responsible in their actions affecting communities, in their immediate circle of family and friends and also beyond. It can include volunteering time, giving money, and standing up for issues that affect the rights of others.
- Injeti Srinivas Major Recommendations:
- Allow investment of CSR funds in Social Benefit Bonds;
- Implementing agencies (NGOs) should be treated as partners and not service providers so that the issue of indirect tax applicable to them (GST) can be addressed;
- CSR expenditure should be made tax-deductible;
- Impact assessment studies for CSR obligation of INR 5 Crore or more;
- CSR activities allowed under current law, such as contributions towards the Prime Minister’s National Relief Fund or any such fund of the Central Government should be discontinued;
- The amount of penalty could be two to three times the amount not spent but there should not be any imprisonment for defaulting on CSR compliance.
DEMOGRAPHIC DIVIDEND
According to the United Nations Population Fund (UNFPA), demographic dividend means, “the economic growth potential that can result from shifts in a population’s age structure, mainly when the share of the working-age population (15 to 64) is larger than the non-working-age share of the population (14 and younger, and 65 and older).”
Data
|
National Level
- 0-14 years: About 30% of India’s population.
- 60-plus age: Still a small proportion (8%) of the country’s population.
- 15-59 years: The working-age group accounts for 62.5% of India’s population.
- Highest proportion: It is estimated that the working-age population will reach the highest proportion of approximately 65% in 2036.
Reason
- Decrease in TFR: This transition happens largely because of a decrease in the total fertility rate after the increase in life expectancy gets stabilized.
- A study on demographic dividend in India by United Nations Population Fund (UNFPA) throws up two interesting facts:
- Window of demographic dividend opportunity: In India is available for five decades from 2005-06 to 2055-56, longer than any other country in the world.
- Available at different times: This demographic dividend window is available at different times in different states because of differential behavior of the population parameters.
Benefit of Demographic Dividend
- Economic
- Increase labour supply: The first benefit of the young population is the increased labour supply, as more people reach the working age.
- Economic growth: Increase in domestic demand brought about by the increasing GDP per capita and the decreasing dependency ratio. This leads to demand-driven economic growth.
- Rapid industrialization and urbanization: Because of the higher number of employment-seeking population, that would force higher economic activities.
- Capital formation: As the number of dependents decreases, individuals save more. This increase in national savings rates increases the stock of capital in developing countries and provides an opportunity to create the country’s capital through investment.
- Skilled workforce: It would be both a challenge and an opportunity for India to provide its workforce with the required skill sets and knowledge to enable them to contribute substantially to its economic growth.
- Integration in global value chain: With a large and cheap workforce, India can easily integrate in the global value chain.
- Social
- Female Human capital: A decrease in fertility rates results in healthier women and fewer economic pressures at home. This provides an opportunity to engage more women in the workforce and enhance human capital.
- Decrease poverty: Due to less dependent population, there will be an increase in family income which decreases poverty.
- Aspiration for more education: Due to a large young population, there will be more competition, which increases the education level of youth.
- Migration: Due to the demographic dividend, there will be an increase in interstate migration, which can help overcome labor shortages in some parts and also facilitate cultural assimilation.
- Political
- Increased fiscal space: The demographic dividend enables the government to divert resources from spending on children to investing in physical and human infrastructure.
- Effective policy making: Fine-tuning the planning and implementation of schemes and programs by factoring in population dynamics is likely to yield greater socio-economic impact and larger benefits for people.
- Vibrant democracy: The young population will enthusiastically participate in democracy, which makes our democracy more vibrant.
Challenges
- Structural
- Jobless growth: There is a mounting concern that future growth could turn out to be jobless due to deindustrialization, de-globalization, the Fourth Industrial Revolution, and technological progress.
- For example: As per the NSSO Periodic Labour Force Survey 2021, India’s labor force participation rate for the age group 15-59 years is around 65.3%, which indicates that about half of the working-age population is jobless.
- Lack of skilled workforce: According to ASSOCHAM, only 20-30% of engineers find a job suited to their skills. Thus, a low human capital base and lack of skills are significant challenges.
- Poor education system: Government initiatives like Skill India did little to improve the situation because of the poor education system in the country.
- Informal economy: The informal nature of the economy in India is another challenge in reaping the benefits of demographic transition.
- For example: Nearly 216 million people are engaged in the agriculture sector, an informal economy where they not only earn less but also have little social security.
- Low availability of capital: Due to the NPA crisis, there is less availability of funds with banks, which affects the economic potential of the young population.
- High unemployment: India is experiencing a high unemployment rate, which is the highest in the last 45 years, and this situation can turn the demographic dividend into a disaster.
- Low investment in India: Due to falling investment, there will be low job creation and low demand in the economy, which can reduce youth engagement.
- For example: According to Projects Today, overall fresh investment announcements in India slumped to the lowest in five years in the first quarter of the financial year 2020-21.
- Jobless growth: There is a mounting concern that future growth could turn out to be jobless due to deindustrialization, de-globalization, the Fourth Industrial Revolution, and technological progress.
- Non-Structural
- Changing technology: Due to rapid changes in technology, there may be structural issues in skill mismatch and obsolete skills, which can erode the advantage of the demographic dividend.
- Low human development: India ranks 131 out of 189 countries in the UNDP’s Human Development Index, which is concerning. Life expectancy at birth in India (68 years) is much lower than in other developing countries.
- Demographic disaster: The magnitude of this benefit depends on the ability of the economy to absorb and productively employ the extra workers.
- Gender Impartity: Growing female literacy is not translating into relevant and marketable skills.
- For example: According to data from the ILO and WB, India’s female LFPR (Labour Force Participation Rate) has fallen from 34.8% in 1990 to 27% in 2013. Without women’s participation, India can’t dream of reaping the demographic dividends.
- Asymmetric demography: The growth in the working-age ratio is likely to be concentrated in some of India’s poorest states, and the demographic dividend (DD) will be fully realized only if India is able to balance the demand-supply of the labor force.
Global Case Studies/Examples
- Japan
- Phase: The country’s demographic-dividend phase lasted from 1964 to 2004.
- Benefit: Japan was among the first major economies to experience rapid growth because of the changing population structure.
- Analysis:
- Of the first 10 years since this phase shows how such a shift in the population structure can propel growth.
- In five of these years, Japan grew in double digits; the growth rate was above 8% in two years and a little less than 6% in one.
- China
- Phase: China entered this stage in 1994 — 16 years after Deng Xiaoping’s economic reforms started in December 1978.
- Benefit: Although its growth accelerated immediately after the reforms, the years of demographic dividend helped sustain this rate for a very long period.
- Analysis:
- In the 16 years of the phase, China saw eight years of double-digit growth.
- In the 18 years since 1994, there have been only two years when China could not cross the 8% growth mark.
- Difference between Indian and Chinese Education Models
| Parameter | China | India |
|---|---|---|
| Initial development years | China focused on providing basic education to everyone rather than providing higher education. | India focused on establishing higher education infrastructure such as IITs. |
| Initiated Action | They focused on moving those educated persons to skill development and the production process directly. | It resulted in the imbalanced structure, which also remained in policy structure of India even today. |
| Difference | Basic education provides inclusion of the society. | It allows only certain sections of society and denies even basic education to the rest. |
Way Forward
- Social
- Improving education infrastructure: Currently, India’s illiteracy rate and low-quality education make the youth not employable. Improving the quality and access to education is vital to harnessing the advantage of the demographic dividend.
- Ensuring universal accessibility to education: Irrespective of rural or urban setting, the public school system must ensure that every child completes high school education and is pushed into appropriate skilling and training in line with market demand.
- Health: Healthcare is vital for human capital to be more efficient and productive.
- Initiatives like Ayushman Bharat and National Health Protection Scheme are some of the steps taken by the government in this context.
- Furthermore, promoting food and nutritional security is also vital for human capital.
- Integrated Child Development Services, food fortifications, are some of the steps taken by the government in this aspect.
- Economic
- Improving Human Capital: Increasing investment in people’s welfare via quality health and education, promoting jobs, and skill development can improve the country’s human capital.
- Creating jobs: India needs to create 10 million jobs per annum to absorb young people into the workforce. Promoting entrepreneurship and supporting businesses’ growth are some of the steps that need to be taken to encourage job creation.
- Promoting the growth of labor-intensive sectors: These include agricultural sector and manufacturing sectors like food processing, textiles, apparel, leather, wood and furniture, handicrafts, etc.
- Governance
- Providing necessary policy support: Reforming the complicated labor laws and land laws and providing supportive schemes to aid the growth of the now struggling sectors is vital to use the full potential of India’s demographic dividend.
- Good governance: Effective avenues for citizen input, well-functioning institutions, respect for the rule of law, low level of corruption, etc., are important aspects of good governance that enable equal opportunity to all.
- Urbanisation: Schemes such as Smart City Mission and AMRUT need to be effectively and carefully implemented.
- Learn from examples: India must learn from countries like Japan, China, Singapore, South Korea, etc., as they too had experienced demographic dividend in the past and were able to utilize it for their growth and development.
The dreams of huge income flow and resultant economic growth due to demographic dividend could be realized only when we inculcate the required skills in the workforce to make it as competent as its counterparts in the developed world.