Investing in India’s Demographic Dividend

By Camille Danvers & Guru Amrit Khalsa

Students at Jaya engineering college in Tamilnadu, India. Source: Subhashish Panigrahi, used under a creative commons license.

This is the fourth post in a series analyzing India’s newly released Union Budget from CSIS Wadhwani Chair experts on cogitASIA. This post discusses India’s education investment. Part I on economics is here. Part II on defense is here. Part III on infrastructure is here.

Over the last several years, the Indian government has been vocal about the desire to increase access to education and skills training programs for India’s youth, and has increased the allocation of funds for these sectors. However, current spending is not enough to meet the demands of India’s rapidly expanding workforce. India’s burgeoning youth population offers it an extraordinary demographic advantage over most countries, but it must be bolstered by further financial commitments from the government and private sector.

This year, the Union Budget allocated an estimated $12.1 billion for the Ministry of Human Resources (responsible for education programming), which represents slightly less than the 4% of total annual budget expenditures of $309 billion for 2013-14. Throughout the year, money for skills training will come from a number of different funds including National Rural Livelihood Mission and the National Urban Livelihood Mission, but in order to effectively pursue their task of training young Indians the government should have a more organized plan and definitive allocation of funds.

The government’s education goals are admirable. Programs such as Sarva Shiksha Abhiyaan (SSA) and Rashtriya Madhyamik Shiksha Abhiyan (RMSA) increase access to and quality of primary and secondary education respectively. The creation of the National Skills Development Corporation (NSDC) in 2008 was a major indication of the commitment of the Indian Government to training young people. This year, a new scheme encourages young people to enter skills training programs by offering a $184 reward once students have completed the program and passed their certificate test. The government’s goal – to train 50 million people during the 12th plan period – is ambitious, but will likely not keep pace with India’s rapidly increasing workforce, which is projected to grow by 13 million every year.

Despite these efforts, India spends less on education as a percentage of GDP than all other BRIC nations and according to Crisil Ltd, India, “[the government] needs to cover a considerable distance to reach its own stated targets for education expenditure at 6% of GDP.”

Despite India’s substantial and rapid economic progress over the past two decades, today only 10% of its children attend college; what some have dubbed India’s education crisis. With roughly half of the current population under the age of 25, the government must step up to meet the demands of its youthful population in a more meaningful way.

Government budgets, by their very nature, must balance competing priorities and constituencies.  Attempts to ameliorate the lack of capacity in education have come before, but currently there are 340 million workers with “virtually no schooling.” A shortage of educated or skilled Indians could lead to serious consequences for India’s economic growth, and for the prospect of pulling millions of Indians further out of poverty.

Members of the business community in India and the U.S. recognize this hard truth. For instance, Boeing has launched a University Relations program in India to promote aerospace engineering careers, providing scholarships and sponsoring design competitions for aerospace engineering.

Arvind Goel of Tata AutoComp Systems Ltd, has stated, “An education policy consistent with the country’s changing needs [is required]. The key is to grow and to create skills in the country.” The need to boost skill development and educational capacity in India provides a unique opportunity for private sector partnerships between U.S. and Indian universities and colleges. Tata Autocomp is doing just that – putting its workers through earn-and-learn schemes that gain them an industry-recognized certificate, with some support from the government.

While India’s progress on education capacity building remains notable, additional budgetary expenditures must match its leadership’s rhetoric if India is to capitalize on the promise of its burgeoning youth population.

Ms. Camille Danvers and Ms. Guru Amrit Khalsa are Research Interns with the Wadhwani Chair in U.S.-India Policy Studies at CSIS. Follow the Wadhwani Chair on twitter @CSISIndiaChair.

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