India risks ‘squandering’ demographic dividend, says World Bank

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India and its neighbours are not creating enough jobs to sustain their young populations, the World Bank has warned, putting the region’s demographic dividend at risk even as it enjoys the world’s fastest economic growth.

The bank said it expected the economy of south Asia, which includes Pakistan, Bangladesh and Sri Lanka, to grow faster than any other region over the next two years, at 6 per cent in 2024 and 6.1 per cent in 2025.

India, which last year overtook China to become the world’s most populous country with 1.4bn people, is expected to have grown 7.5 per cent in the fiscal year to March, up from 7 per cent a year earlier.

But the World Bank said the region’s employment ratio, or share of the working-age population in jobs, was falling, a sign that the countries were failing to create enough roles for their young, growing populations.

“It’s a missed opportunity,” Franziska Ohnsorge, the World Bank’s chief economist for south Asia, told the Financial Times. “It’s almost like the demographic dividend is being squandered.”

The employment ratio for south Asia was 59 per cent last year, the bank said, compared with 70 per cent in other emerging markets. It added that south Asia was “the only region where the share of working-age men who are employed fell over the past two decades”.

Ohnsorge said private companies in sectors such as manufacturing and services had not grown enough to absorb workers leaving the agricultural sector.

The lack of jobs for women is another challenge. Female employment ratios in many south Asian countries, including India, are among the lowest in the world, at less than 40 per cent.

“A job is so much more than just an income,” Ohnsorge said. “At a macroeconomic level, job creation is also about social cohesion.”

The issue of joblessness has become particularly fraught in India, which has struggled to create enough work despite its rapid economic growth. The youth unemployment rate was 45.4 per cent in 2023, according to the Centre for Monitoring Indian Economy, a think-tank.

Prime Minister Narendra Modi’s opponents have sought to make joblessness a political issue ahead of the general election starting this month, with the rival Congress party on Sunday accusing the government of seeking to “cover it up”.

Modi’s government argues that it has taken important steps to create jobs, including reforms to promote manufacturing and spending heavily on infrastructure construction to boost growth.

Ohnsorge said without more reforms to boost employment, such as increasing trade and easing access to land for private businesses, south Asian countries will fail to reach their development targets.

Modi has set a target for India to become a developed country by 2047, while Bangladesh has said it wants to hit that milestone by 2041. “In a no-reform scenario, that ship has sailed,” Ohnsorge said.

Bangladesh is expected to be the region’s second-fastest growing economy, at 5.6 per cent in 2024, while Pakistan is expected to grow 1.8 per cent after contracting during an economic crisis last year.

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