The wages of a K-shaped economy: India’s demographic dividend may be slipping away

While India now produces 5 million graduates every year, salaried employment is only a fraction of that at 1.7 million annually. “This has also contributed to a slowdown in graduate earnings,” the report notes.

Meanwhile, 13 million Indians join the working-age population every year. As aspirations rise, many acquire college degrees of sadly variable quality to compete for too few jobs. The report says that 15- to 29-year-olds account for about a third of India’s working-age population, of which about 263 million are not in education.

The report notes that in almost eight decades since Independence, while India has made substantial progress educating its population, “unregulated growth of institutions at the cost of quality of training, lack of institutional resources, and outdated curriculums [erode] the screening/signalling and human capital enhancing roles of education.”

The collision of high hopes with harsh realities of the K-shaped economy should worry anyone tracking the country. “There is a broader story of wage stagnation in India,” Amit Basole, one of the report’s authors said.

To read the report in the aftermath of worker protests in Noida is doubly unsettling. It is time we retired the myth of a demographic dividend from our national narrative. Instead, we are well on our way to demographic disappointment.

Macro trends and microeconomics have never merged quite so tragically. With hundreds of millions precariously employed on close to subsistence wages, India will never reach the so-called Lewis turning point, when surplus rural labour is absorbed by the industrial sector.

In a world of ever-weaker unions, in a country where the flimsy architecture of democracy rests on extreme inequality, it was possibly the only hope we had of equitable wages for blue-collar workers and gig workers.

Having covered the world’s most dynamic factory cluster in Guangdong over a decade ago for the Financial Times, I was lucky to witness that turning point first hand.

Factory owners said they were creating incentives for employees to bring in friends and relatives for job interviews. In a delightful demonstration of this role reversal, I once watched in amazement as labour contractors with job flyers in their hands ran after a potential employee who was speeding through a job fair in a cycle rickshaw, graciously accepting only a few.

A far-sighted Communist party secretary who led the province had then mandated double-digit minimum wage increases annually for several years after a spate of suicides in 2010 at a Foxconn plant making Apple products.

From level-headed reports of the Noida protests, it is apparent that in one factory after another, employees have been treated abysmally, if not actively oppressed by foul-mouthed supervisors. Absurdly, while many workers face rent increases twice a year, salary increments that keep pace with inflation appear to be the exception, not the rule.

Incredibly, at a major automobile multinational in Haryana, wages stagnated for a decade. Skilled workers in garment factories in Noida earn as little as ₹13,940 per month, as per a report in The Hindu. Contractors and supervisors threaten workers with bathroom-break limits and medical attention is scarce in many units. In Uttar Pradesh, as reported, the last government-mandated wage revision was more than a decade ago.

The response of state governments to the Haryana and Noida protests has broadly been to side with employers. Disproportionate, if not outlandish, criminal charges were made against protesting workers while respected union leaders, who might otherwise help defuse tensions, have allegedly been placed under house arrest. What is one to make of the claim by government officials that the protests were provoked by two social media handles, supposedly based in Pakistan?

This is a continuation of what the lead character says in Aravind Adiga’s novel The White Tiger: “A handful of men in this country have trained the remaining 99.9 percent… to exist in perpetual servitude.”

We have seen this sad docudrama before during the protests that turned violent at Maruti Suzuki’s Manesar plant in 2012. A manager died in a fire that broke out, but even so the state government’s heavy-handed case against the workers beggared belief. “If more than 200 people had a common intent to murder, as claimed, would they have stopped at one man?” asked lawyer Vrinda Grover.

The star witnesses for the government’s case were a few contractors whose statements absurdly identified the alleged rioters in alphabetical order, as if a roll call had preceded the events.

State governments must work more sympathetically with unions to head off such flashpoints. India’s precariat—contract labour in factories and those in the gig economy—will only rise.

More than 300,000 textile workers lost their jobs in Indonesia last year, for instance, in large part because of stiff Chinese competition. Even China, the poster child of successful industrialization, now has 200 million in ‘flexible work.’

More trouble lies ahead for India. The decline in fertilizer production in March was a staggering 24.6% compared to last year because of supply chain disruptions since the third Gulf War began. Besides a scarcity of cooking gas, food prices look set to increase, pointing to more labour protests. More empathy from employers would help.

The author is a former Financial Times foreign correspondent.