My generation

Economic Times, 13 March 2014

That India has young demographics is well understood. This has given a fast-growing workforce in the past. But this will not, in itself, yield a comparable growth impulse in the future. However, there is much more to the human capital of a country than a headcount of the workforce. The capability of the Indian workforce is going to improve dramatically in coming years. Strong improvements in human capital will fuel high Indian GDP growth for the coming 40 years.

It is well known that India has young demographics. But the rate of population growth is declining. In the last 30 years, the headcount of the working age population grew by 90%; in the coming 30 years it will only grow by 30%. By this logic, the growth impulse that we got in recent decades from a growing headcount of the workforce will slow down in coming decades. However, a careful analysis shows that there is no such problem in store for the coming 40 years.

Let's think about the quality of the labour force in terms of education, with a series of measures drawn from the CMIE Consumer Pyramids database. As recently as 1990, when economic reforms began, only 60% of the 21 year old women -- the entrant cohort in the labour force -- were literate. With men, there was 70% literacy at age 21. This has improved: with 85% of women and 90% of men at age 21 who are now literate. Each year, the quality of the fresh blood in the labour force is getting better. Pretty soon, 100% of the 21 year olds going into the labour force will be literate.

The change is even more dramatic when we look at passing the 12th standard. In 1990, just 6% of the 21 year old women had graduated high school! Now this is at 16%. For men, this has gone up from 8% in 1990 to 20% today. Forecasts show that within five years, this number will go up to 25% for both men and women. Each year, we are adding a batch of 21 year olds into the labour force which is qualitatively superior to what was coming into the labour force in 1990.

Then there is the issue of female labour market participation. When poor people become middle class, there is often a decline in women's labour market participation. While the middle class abides by middle class morality, the rich and the poor are exempted of it. At first, rising incomes have damaged women's participation, as households have graduated from poor to middle class. But at the same time, GDP growth is propelling millions of households from middle class to rich, and they are coming into the labour force. The daughters of the rich are first class citizens of modern India, and a new force in the economy when compared with previous decades.

Much has been written about the mobile phone revolution, and we are a little inured to it. We think that it happened in the past and it is no longer a force for change. But India's mobile phone revolution is far from finished. Only 25% of women at age 15 and only 20% of women at age 30 have a mobile phone! (The numbers for men are much higher, at 70% at age 15 and 80% at age 30). There is a long way to go in getting all these numbers up to 100%. The mobile revolution is working its magic every day in India, with more men and much more women getting a jump in their capabilities with a mobile phone. In the coming 20 years, we are likely to move up to 100% penetration of smart phones, and that will yield huge gains, particularly for the emancipation of women.

Finally, the most important part of learning is learning by doing. All of us know little when we start off in our labour market careers. Over the years, we gain experience. The trouble is, the young man who was 20 years old in 1970 spent his formative years around Indian socialism. In an environment of being cutoff from the world of ideas and competition, the improvement in knowledge over those crucial 20 years was quite weak.

Things have changed qualitatively. The young man who started off at age 21 in the labour force in 1990 has now become a 45 year old veteran who has faced competition, globalisation, modern technology, global firms, etc. The 45 year old of India today is qualitatively superior to the 45 year old of 1990. Every year in India, a cohort of the old leaves the labour force, and a cohort of the young joins the labour force, and everyone in between adds one more year of experience in modern India. This is yielding big gains in the quality of the labour force.

In the field of computer programming, a well established idea is that a good programmer produces 10 times more than the average programmer. For the coming 40 years, the improvements in the labour force, particularly with women, are going to be a growth fundamental for India. If we merely count the number of workers, the growth of labour will be poor. But there is much more to human capital than headcount.

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