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Millennium Post

Why India must reap demographic dividend

What is India’s paramount task and its promise to the Next Generation? Ensure that India reaps the Demographic Dividend. The alternative is social and economic chaos, such as in the middle-eastern countries that have young, unemployed populations.

The direct and fastest way to address that is to invest in ‘vocational’ education to make this human resource employable and to ensure inclusive growth. Only inclusive growth can be sustainable.

If we could divert some of the money spent on subsidies where there is no multiplier and huge leakage, or find some other means to support it, an intensive push towards vocational training would be great.

The idea is to take the underemployed, in both rural and urban areas, and train them to be job-ready or to start small businesses for themselves. Training programmes like learning to be a mechanic, plumber, carpenter, beautician, health club trainer, driver, housekeeper, gardener, secretarial course, medical support staff or even a nurse would certainly help young people to become more skilled. Such vocational training is something that can be taught in three-six months and enables a person to get a job or start a small business. Connect the output of these vocational programmes to an employment agency to place the certified people in jobs. Maybe involve corporates and make it a joint sector program – they would have interest in absorbing these job-ready people into their workforce.

You get the idea – something that can help create a future for them and transform their lives, enabling them to seek employment in towns where the demand for such services will burgeon. While we want job creation in manufacturing, it is good to unleash the entrepreneurial and self-help / self-improvement instincts.

This is to ensure India reaps a demographic dividend and the youngsters stay off the streets. Education, especially of this vocational type, and infrastructure development, have the highest multiplier of all.

Inflation must come down for the poor and to reduce cost of capital for small business and entrepreneurial activity. This needs a massive supply side response – massive development in infrastructure and removal of all bottlenecks that prevent it from happening. But where to get the capital from?

The answer is from China at four to five percent per annum in dollar terms. China has a huge capital deployment problem. A large part of the capital it deploys domestically returns less than the cost of capital. The capital it puts in US treasuries is going to get eroded over time. China recognises this and is investing in better assets overseas.

Therefore it is of paramount importance to normalise Indo-Chinese relations. Both countries need each other and can complement each other – one’s weakness is the other’s strength.

Also, we need massive infrastructure overhaul – especially via private-public partnership. But we can also try different models, that gives some scope for the government to build and privatise it, so that the private sector operates it. Vice-versa can also be worthwhile.

Further, India needs to unlock its unproductive assets, such as gold – lend against it with end-use monitoring so that it can’t be used to buy more gold. Make the banks write the cheque for productive end-use. Moreover, lend against property. Curtail the flow of capital into gold and property – they are attractive because they are repositories for unaccounted wealth.

Government policy should make it less lucrative to be corrupt, or have unaccounted wealth.

How can this be achieved? Property transfers need to be registered at near market prices with stamp duty paid. POA sales must be de-recognised retrospectively and legitimised by paying transfer fee at the then prevailing market prices.

Develop gold synthetic ETFs developed by financial sector/Reserve Bank of India cashable against gold. That should be the only way to buy gold in India. Control financial sector through PAN and cheque payments.

Increase capacity of the Banking sector by at least 33 per cent over next 10 years and reduce role of NBFCs from 40 percent currently to around 15 per cent.

Ensure there isn’t unbearable leakage in subsidies provided, especially to the poor – Aadhaar should help. Other answer is to directly pay the poor through mobile payments rather than relying on PDS to distribute food. It may be more efficient to pay cash rather than subsidise poor or farmers. UPA’s cash direct policy is likely to cause less leakage of resources aimed at the poor and needy.

Emerging economies have two characteristics that need to be combatted: a) Absence of deep pools of local long-term capital (that aid infrastructure development); and, b) Flight of capital overseas, both accounted and the unaccounted variety.

This can be addressed through pension reform and better policy respectively, as outlined above. If the above measures take hold, they will set in motion a virtuous cycle of more capital creation and less leakage of precious capital, thus driving the engine of growth robustly once again. (IPA)
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