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From Primary Education to R&D: Lack of Investment in Human Capital Holding Back India from Becoming Global Power

Making India Great

Making India Great

The author says that for India to achieve its full potential as a global power, it must engage in the type of smart but difficult statecraft, which is necessary to pull it out of developing country status.

Unlike many of India’s challenges, the failure to invest in human capital is not a product of the liberal–Hindutva ideological divide, says Dr Aparna Pande in her new book, Making India Great. Pande, who is the director of the 'Initiative on the Future of India and South Asia' at Hudson Institute in Washington DC and the author of books like From Chanakya to Modi and Pakistan’s Foreign Policy: Escaping India, propounds in her latest book that India's failure in utilising its human capital is a 'function of petty political division, legacies of big government, lack of foresight, and the type of simple mismanagement that is common to developing countries'.

The author says that for India to achieve its full potential as a global power, it must not only figure out a way to navigate its ideological divide; it must also engage in the type of smart but difficult statecraft, which is necessary to pull it out of developing country status. In the book, Making India Great, Pande writes:

India’s population is rapidly growing and 53 percent of the population is under the age of twenty-five. India has one of the fastest-growing working-age populations in the world, with over 66 percent of its population between fifteen and sixty-four. By 2030, over 80 percent of its population will be of working age. Having a large working-age citizenry could be what some call a ‘demographic dividend’ if all young people can be put to work for a higher national output. To reap that divided, India needs more than just numbers; it needs to invest in making its populace more productive.

Without serious development of human capital, India’s youth bulge will only translate into more unskilled workers who are underequipped to participate in the modern economy. The ‘demographic sweet spot’ – the abundance of young, working-age people with a potential to enhance productivity – will not last for long. Unless they are trained and put to work, too many unmarried and unemployed young people could become a strain in society. In the short run, countries benefit from younger populations as they are more productive, boost savings, and provide the additional revenues governments need to finance expensive development programmes. India’s demographic dividend is expected to peak by the early 2040s, after which it would have to cope with the challenge of an ageing population. India would then have to keep up economic growth with fewer and fewer workers.

This transformation is already happening in some parts of India. The country’s size and regional divergence has led to the creation of two Indias. The states of peninsular India (Kerala, Karnataka, Tamil Nadu, Telangana, and Andhra Pradesh) and to a lesser extent the state of West Bengal, economist Arvind Subramanian points out, are closer to East Asian countries, with sharp rises and declines in the working-age populations. The hinterland states (Madhya Pradesh, Rajasthan, Uttar Pradesh and Bihar), with a younger and rising working-age population, will only plateau by the middle of the twenty-first century. Peninsular India also has higher literacy rates and performs better on most social indicators than the Indian hinterland. This means that, on the one hand, India may be able to benefit from the demographic dividend for a longer period but, on the other, the government will need to adopt different policies for the two diverse regions. Half of India may soon face problems associated with ageing, as greater attention will be needed for elderly citizens, and tax revenue will plateau. The other half will need greater investments in education, health, and skill development, otherwise the country cannot count on the demographic advantage in expanding prosperity.

To bring the bulging young population into the fold, and utilize their full potential it is not only important to invest in their education, but also to enable them to acquire new skill sets, says the author. She also points out that while India has invested in higher education (especially in information technology) not enough attention has been given to something as basic as primary education. In the book Pande writes:

In order for the nation to unlock the potential of its massive population, it needs to make meaningful contributions towards foundational education. Indian primary schools are plagued with overcrowded classrooms, absent teachers and unsanitary conditions, and often lead parents to decide it is not worth their child going to school. According to a report by the National Council for Teacher Education, an autonomous organization set up by the Government of India in 1961, 40 percent of government-run primary schools have over thirty students per classroom, and 60 per cent lacked electricity. Twenty-one per cent of teachers were not even professionally trained. Private schools in India have better learning outcomes than government schools at a much lower unit cost. Private sector education has more freedom to innovate and design effective curriculum than public sector education. They also have a strong profit incentive to provide quality education, lest they lose their students to government schools. There is certainly inequality in private schools, which are only available to those who can pay, but government vouchers and incentive programmes can help make these institutions affordable for the masses.

India’s research space also has suffered from underdevelopment. The country’s firms lag behind the rest of the world in future-seeking investments and are considerably less innovative than even peers in developing countries. The government has failed to create a culture of innovation and an economic climate which prioritizes research. In most countries, research and development (R&D) investment comes from a combination of the government, the private sector and universities. In India, however, the government is not just the primary source but also the primary user of R&D resources.

India’s spending on R&D as a percentage of GDP is well below what other countries spend – the US (2.8 per cent of GDP), China (2.1 per cent), and South Korea (4.2 per cent). All these countries witnessed an increase in R&D as they became richer. India has yet to do that. India’s research sector falls badly behind many of its peers. Only twenty-six Indian companies are in the top 2500 global R&D spenders compared to 301 Chinese companies. And while Chinese firms are in each of the top ten R&D sectors, there are no Indian firms in five of the top ten sectors. India spends 0.6 per cent of GDP on R&D and has only one active researcher per thousand workers. In comparison, Israel spends 4.27 per cent of its GDP on research and has over twenty-three researchers per thousand workers.

The author also points out that India’s relatively poorer human capital has resulted in it lagging behind other leading countries in start-ups. "Ninety per cent of Indian start-ups fail within the first five years, the main reason being lack of innovation. In a survey, 77 per cent of venture capitalists stated that Indian start-ups lacked ‘new technologies or unique business models in addition to lack of skilled workforce and funding, inadequate formal mentoring and poor business ethics’." she writes in the book. Making India great also points out why the Indian workforce is in desperate need for skill development. In the book Pande writes:

... India’s lack of skills infrastructure is a massive problem for a country with a rapidly growing population. Every year, 12 million Indians enter the labour market, but the Indian economy created only 3.8 million jobs between 2014 and 2017. This means the market is unable to absorb more than one-fourth of the 12 million new workers looking for jobs on an annual basis. Only 6.8 per cent of India’s entire labour force has received any vocational training, compared to 59 per cent in China. Further, according to surveys, 95 per cent of Indian engineers ‘are not fit to take up software development jobs’. With such a low skilled population, India is an undesirable location for more high-skilled jobs, even with a growing young labour force.

(The excerpts have been published with permission from HarperCollins, India.)

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