Surpassing China and Creating Mass Prosperity

Context

• The United Nations recently projected that India’s population would surpass China’s (1,425.67 million) by 2023. On the one hand, India has more than doubled life expectancy from 31 years in 1947 to 70 years in 2022, but ensuring mass prosperity for such a large population has proven difficult.
• Thus, the article emphasises the importance of human capital-driven productivity in achieving mass prosperity in India.

Relevance

GS Paper 2: population and associated issues, poverty and developmental issues, urbanization, their problems and their remedies

Mains Question

By 2023, India is expected to overtake China as the most populous country (UN report). Discuss the policies and other efforts made by the government in the past to deal with India’s population explosion. Also, describe the challenges posed by population growth and the solutions proposed to address this issue. (250 words)

The demographic situation in India

• Population Growth: By 2022, India’s population will have increased fourfold since its independence in 1947. (34 crore).
  • It accounts for approximately 5% of the global population, which is expected to grow to 150 crores by 2030 and 166 crores by 2050.
• TFR decline in India: The total fertility rate (TFR) is the average number of children a woman will have during her lifetime.
  • In 2021, India’s TFR fell below replacement level fertility (2.1 children per woman), compared to a TFR of 6 in the 1950s.
• Mortality Indicator: Life expectancy at birth increased dramatically from 32 years in 1947 to 70.19 years in 2022.
  • From 133 per 1000 live births in 1951 to 27.6 in 2022, the infant mortality rate (IMR) has decreased.
  • India’s Maternal Mortality Ratio (MMR) has decreased from 2000/lakh live births in 1947 to a stunning 97/lakh live births in 2022.
• Crude Death Rate (CDR): In 2022, India’s CDR was 9.1 per 1000 people, a decrease from more than 200 per thousand population post-independence.

Human capital: Its Meaning and Importance in India

• What exactly is human capital?
  • According to the OECD, human capital is defined as the knowledge, skills, competencies, and other characteristics that are embedded in humans and used to produce commodities, services, or ideas for the market.
  • These characteristics determine the labour force’s productive capacity and earning potential, and they are critical for technological advancement, social innovation, and so on.
  • It differs from physical capital, which refers to non-human assets used in the manufacturing process such as machines, buildings, computers, and so on.
• Its significance for India: o Because the working-age population (15-64 years) outnumbers the non-working age group, India’s demographic dividend has the potential for economic gains (14 and younger, and 65 and older).
  • Additionally, given India’s current median age of 28 years, compared to 38 in China and the United States, 43 in Western Europe, and 48 in Japan, it must capitalise on this demographic boom by investing in human capital.
  • India’s software industry is a prime example of human capital-driven growth, accounting for 8% of GDP while employing only 8% of the workforce.
  • Investing in human capital is bolstered by the fact that India will receive more than $100 billion in remittances from overseas residents in 2021, representing less than 2% of the Indian population.
• With 23% of remittances in 2021, the United States will have surpassed the United Arab Emirates as the single largest source country for India.
• This represents a qualitative shift over the last five years from low-skilled, informal employment in Gulf countries to high-skilled formal jobs in high-income countries.
  • The rich forex remittance in India is fruit from the tree of human capital and formal jobs, and is approximately 25% greater than FDI and 25% less than software exports.

Global pandemic preparedness strategies

• Monetary policy: The major central banks provided significant liquidity to assist in alleviating the severe tightening of financial conditions caused by the COVID-19 pandemic.
  • The US Federal Reserve made large purchases of long-maturity bonds, ballooning its balance sheet from $4.2 trillion in March 2020 to nearly $9 trillion two years later.
  • Furthermore, rich-country borrowing rates have risen by 300% or more, adding to fiscal pressure and inflation, which disproportionately affects the poor.
• Fiscal policy: During the pandemic, advanced economies borrowed heavily, primarily to support consumption rather than production.
  • This spending or reduced taxation aided consumption by people earning significantly more than the median.
  • Furthermore, policies such as prescribing medications with unknown side effects exacerbated Covid-related mortality in these countries.

The Case of India: A Greater Emphasis on Human Capital

• To mitigate the negative impact of COVID-19 on the economy, India implemented a prudent mix of fiscal and monetary policies.
• For example, in 2020, the government announced the Aatma Nirbhar Bharat Package (ANBP), a Rs 20 lakh crore special economic and comprehensive package.
• It aimed to encourage business and attract investments, as well as provide several relief measures such as free food, cash transfers to vulnerable groups, wage increases for MGNREGA workers, and so on.
• Additionally, employment provisions for migrant workers under the Pradhan Mantri Garib Kalyan Rojgar Abhiyaan, collateral-free lending to MSMEs, and regulatory measures such as a moratorium on term loans (including agricultural term loans, retail and crop loans) helped revitalise demand in the economy.
• All of these steps, combined with previous structural reforms (GST, IBC, UPI, DBT, and so on), aided in dealing with the COVID-19 slowdown.

The way forward

• The upcoming budget’s Finance Bill must prioritise productivity by enacting human capital and formal job reforms. It can be advanced by taking the following steps:
  • Education reforms: The National Education Policy 2020 phased implementation path should be reduced from 15 years to five years.
    • Separate licencing requirements for online degrees should be eliminated, and all accredited universities should be permitted to offer online courses.
  • Reform of apprenticeship: India has only 0.5 million apprentices, accounting for 11% of the workforce (China has 20 million, Japan 10 million).
    • Allowing all universities to launch degree apprentice courses can thus help accelerate our apprentice growth to 10 million.
  • Factory reform: The budget should also notify the four labour codes for all central-list industries, as well as appoint a three-member committee to converge them into a single labour code by the next budget.
  • Ease of Doing Business (EoDB) reforms: These can be advanced by designating the PAN number of each enterprise as its Universal Enterprise Number.
    • Manufacturing employment can be increased by repealing the Factories Act, which accounts for 8,000 of the more than 26,000 criminal provisions in employer compliance.
  • Relax employer-related provisions: The budget should also include provisions for the formation of a non-profit corporation (like NPCI in payments).
    • It will run an API-powered National Employer Compliance Grid, allowing the government to rationalise, digitise, and decriminalise employer compliances.
  • Link employer incentives to job creation: The budget should tie all employer subsidies and tax breaks to the creation of high-wage jobs.
  • Employee-related reforms: The gap between gross and net in-hand salary should be narrowed by making provident fund contributions optional for employees while increasing employer PF contributions from the current 12 to 13%.
    • The budget should make an announcement to give employees the option of contributing to health insurance (ESIC or insurance companies) and pensions (EPFO or NPS).

Conclusion

• Because democracy is India’s strength, the country requires more structural transformation led by employment in sectors such as manufacturing and modern services, where productivity, value-added, and average incomes are higher.
• Experience and evidence now strongly suggest that focusing on human capital and formal jobs rather than fiscal or monetary policy increases the likelihood of widespread prosperity in the world’s most populous country.