Demographic Dividend or Deferred Dreams? The Crisis of Labour Absorption in India

At the heart of almost every growth model — from the classic AK framework to contemporary endogenous growth theory — lies a simple assumption: human capital formation leads to higher economic growth. Education, skills, and innovation, it is argued, are engines of productivity and prosperity (Romer, 1990; Lucas, 1988). India, with its vast demographic dividend — a median age of 29 and a labour force projected to cross 600 million — was expected to turn this theoretical promise into an economic reality (Bloom et al., 2011). Yet today, the country faces a grave contradiction: an expanding pool of educated, qualified individuals, but a labour market that stubbornly refuses to absorb them.

The problem is not merely about the education system’s shortcomings. It is the labour market’s chronic incapacity to generate enough secure, dignified, and well-paid jobs for those entering it. And while public discourse remains obsessed with university syllabi and examination reforms, the fundamental crisis — the economy’s inability to absorb its own educated youth — continues to escape serious scrutiny.

According to the Economic Survey 2025, over 53% of graduates and 36% of postgraduates in India remain underemployed or jobless (Sengupta, 2025). Even among those employed, a substantial number work in positions far below their educational qualifications. Unemployment among educated youth is double the national average (World Bank, 2024). It is not uncommon to read about PhD holders applying for peon or clerk jobs, or engineering graduates driving taxis. This is not anecdotal. It is structural.

The deeper issue is that the economy is simply not producing enough employment — formal, salaried jobs with decent wages and security. The much-publicized ‘demographic dividend’ has, in reality, become a demographic burden. Labour absorption has failed to keep pace with the supply of educated youth. And when the market doesn't demand your degree, no amount of education reform can meaningfully solve the crisis.

From a theoretical perspective, this outcome challenges the optimistic assumptions of growth models that treat human capital formation as sufficient for development. In India’s case, human capital has expanded without corresponding labour demand. As endogenous growth theorists like Romer (1990) and Lucas (1988) argued, it is innovation and absorptive capacity — not merely education — that drive productivity. India has invested heavily in the former but neglected the latter.

Even more striking is the cultural and social inequality this situation produces. A dangerous message is being sent to the next generation: that formal education, diligence, and discipline are no longer reliable pathways to social mobility. When a hardworking young woman completes a PhD in sociology after years of financial and emotional sacrifice, only to be jobless and waiting another decade for a government vacancy while a 21-year-old social media influencer or viral dancer amasses wealth, visibility, and lifestyle privileges, it destabilizes societal trust. It signals that meritocracy is a myth, and that luck, spectacle, or social capital determine economic outcomes more than education or skill.

This is not a harmless cultural trend; it’s a serious socio-economic indicator. When TikTok influencers and YouTube entertainers command disproportionate fame and fortune, while PhDs and scholars queue up for contract teaching jobs and government clerical exams, it undermines the legitimacy of both the labour market and the higher education system. Families invest years of savings and hope in their children’s education believing in a promise of upward mobility. When the promise consistently breaks, cynicism replaces aspiration. And this erosion of trust has severe consequences for the social contract itself.

The core structural issue remains that India's job creation strategy has been narrowly focused, favouring capital-intensive large corporates, automation-heavy services, and digital marketplaces that displace informal livelihoods, without generating proportionate new employment. Even public sector hiring — historically the absorber of educated youth — has drastically shrunk. University recruitment, civil services, public research bodies, and cultural institutions now advertise vacancies irregularly, with waiting periods stretching five to ten years. The recent report from The Statesman (2025) highlights a worrying 30% decline in PhD enrolments at national institutions like IITs, signalling the slow collapse of India's already fragile research ecosystem.

While much is said about improving curricula and vocationalizing higher education, it misses the larger point: even skilled and educated youth struggle to find jobs because the labour market does not demand them. Without a simultaneous strategy to diversify industries, expand the public sector, and regulate platform capitalism’s monopolistic tendencies, supply-side fixes like education reform will have limited impact.

This is precisely what growth theories — from Solow’s neoclassical model to Romer’s endogenous growth theory — often miss in developing economies: that skills without labour absorption mechanisms merely create surplus educated labour, intensifying inequality and social unrest (Galor & Zeira, 1993). India’s policy establishment continues to treat education and employment as parallel issues when, in reality, one is meaningless without the other.

A healthy economy demands not just a pipeline of graduates but a multi-layered labour market capable of offering secure, dignified employment across skill levels. In countries that have successfully converted their demographic dividends — like South Korea or Singapore — governments intervened strategically, creating public employment schemes, incentivising industries to hire, and regulating precarious work structures. India, by contrast, relies heavily on informal gig work and contract employment without legal safeguards, pushing many of its educated youth into underpaid, unstable livelihoods.

The result is a widening inequality not just of income but of dignity, aspiration, and recognition. A hyper-visible social media celebrity economy glamorises spectacle and trivial entertainment, while young scholars struggle invisibly, unable to convert years of effort into economic security. This mismatch between effort and reward corrodes the moral legitimacy of both the state and market.

The urgent question, then, is not how to fix education alone, but how to fix labour market absorption. What policies will generate large-scale, salaried, middle-income jobs for India’s educated young? How can public sector employment be revived, or new employment guarantees for degree holders be imagined? What kinds of industries and public works programs can be created to employ social science, humanities, and policy graduates meaningfully? How can labour regulations curb exploitation in gig and contract work sectors? And how can taxation and fiscal policy be restructured to invest in employment-driven infrastructure rather than merely enabling capital-intensive growth?

Unless these hard questions are confronted, the demographic dividend will become India’s greatest missed opportunity. Every year of inaction compounds not just unemployment numbers, but societal despair and distrust in education as a means to social mobility. The real tragedy is not the failing education system — it is the absence of a labour market that can make good on the promises education makes.

That is the crisis India urgently needs to address.

Rate Cuts, Rising Markets, and the Forgotten Majority?

It’s a peculiar paradox of our times that while India’s economy posts glowing numbers on paper, most of its citizens feel no tangible change in their daily lives. The Reserve Bank of India, in its latest monetary policy move, cut the repo rate by 50 basis points. The business media called it decisive. The stock markets cheered, with indices scaling new peaks. Economists dissected it in familiar language — credit transmission, liquidity easing, and growth impulses. And yet, outside the controlled air of boardrooms and television studios, it’s hard to find anyone genuinely relieved.

But amidst all this, one fundamental question remains buried under the flood of economic jargon and stock market records: for whom is this economy working? Who benefits when rates fall and capital becomes cheaper? And why does it feel, for most ordinary Indians, that these economic ‘victories’ never arrive at their doorstep? The dissonance between macroeconomic celebration and ground-level stagnation is not a glitch in the system — it is the system.

The popular narrative claims that lower interest rates make credit cheaper, boost investment, and stimulate economic activity. But in a country where a vast majority of middle- and lower-income citizens can’t access formal credit at all, this is little more than an academic platitude. The reality on the ground is that banks remain reluctant to lend to small borrowers. Most people in the informal sector or lower-middle class find themselves locked out of institutional finance. They are left at the mercy of NBFCs, microfinance firms, or informal moneylenders who charge predatory interest rates far beyond what monetary policy can influence. The supposed benefits of rate cuts never reach them.

The reasons are systemic: lack of collateral, absence of formal income proof, and an entrenched bias in lending towards organised, corporatised businesses. Indian banks have long been skewed in favour of large corporates, business houses, and politically connected entities. Even when they default, banks find it difficult to recover. But a poor borrower or a small business owner without paperwork isn’t even offered a seat at the table. It’s no surprise, then, that monetary policy in India often feels like a performance staged for the benefit of a financial elite who can leverage low rates, while the rest remain invisible in policy discussions.

This brings us to the deeper crisis haunting the Indian economy — weak consumption. Consumption demand, which drives nearly 60% of India’s GDP, remains worryingly subdued. Real wages are stagnant, job growth is anemic, and inflation has cooled not because supply is abundant, but because people lack the purchasing power to spend. Low inflation in this context isn’t a victory. It’s a symptom of economic distress.

Small businesses, once the backbone of India’s employment generation, are now struggling to survive in an increasingly monopolised market. The rise of corporate behemoths and online giants offering steep, unsustainable discounts has squeezed the margins of local traders, manufacturers, and service providers. In sector after sector — retail, logistics, consumer goods — large players with deep pockets are capturing market share at the expense of unorganised vendors and SMEs. The entry of conglomerates into every imaginable sector is systematically dismantling the competitive ecosystem. This is not the ‘creative destruction’ Schumpeter once theorised as essential to capitalist renewal. It is unchecked market concentration — what political economists today call monopoly capitalism.

Meanwhile, policy institutions celebrate record GST collections. At first glance, this might appear as evidence of a buoyant economy. But it demands a closer look. GST, by design, is an indirect tax. Unlike income tax, it is levied uniformly on consumption, regardless of a buyer’s income. This makes it a regressive tax structure, disproportionately impacting lower-income groups. When GST collections hit record highs amidst low wage growth and weak job creation, it should raise alarms, not applause. It signals increased financial extraction from citizens without a commensurate rise in incomes or public welfare benefits.

This taxation burden, coupled with stagnant real incomes, leaves most households with little discretionary spending power. The so-called ‘formalisation’ of the economy has, in practice, transferred tax burdens downward while concentrating profits upward. The historical function of taxation, as theorised in classical political economy by figures like Adam Smith and later Karl Marx, was to balance state revenue needs with public welfare obligations. In contemporary India, however, taxation increasingly appears as a mechanism of resource transfer from citizens to corporate capital via state policy.

Adding to this fragile economic edifice is the quiet but relentless march of artificial intelligence and automation. While India’s demographic dividend was once touted as its greatest economic asset, the country now finds itself unprepared for a labour market upheaval. Automation threatens routine jobs not just in IT and BPO services, but across retail, logistics, financial services, and even blue-collar sectors. With no serious national policy conversation about labour displacement, reskilling, or a universal social safety net, the implications are ominous. The dystopian future scenario that political theorists like David Harvey and Guy Standing have warned of — where precarious labour becomes the norm, and permanent employment a relic — may well be India’s emerging reality.

And yet, amidst this grim scenario, stock markets continue to soar. It’s a phenomenon neither unique to India nor difficult to explain. Global capital liquidity, speculative trading, and wealth concentration have decoupled financial markets from real economies worldwide. In India, a tiny fraction of citizens actively participate in equity markets. For them, capital gains provide a personal economic buffer. But for the vast majority, market rallies are an alien event — numbers on a television screen bearing no relation to their lived economic realities.

Monetary policy alone, in such a fractured economic landscape, is powerless to address structural inequality. As Keynes taught nearly a century ago, during periods of weak demand and income disparity, fiscal policy must intervene decisively. India, however, has exhibited a persistent reluctance in this regard. Despite surging GST collections, government social spending on health, education, employment, and food security remains anaemic relative to needs. Instead, fiscal conservatism is passed off as prudence, and economic management reduced to deficit figures rather than real indicators of public welfare.

The problem isn’t one of fiscal capacity — it’s one of ideological orientation. The Indian state today increasingly functions as a market-enabling entity rather than a welfare-guaranteeing institution. This inversion of the classical postcolonial social contract — where the state was meant to ensure equity while facilitating growth — marks a significant political shift. Citizens are no longer treated as beneficiaries of public policy, but as passive consumers within an economic system optimised for capital accumulation.

It’s not a question of whether growth is happening. The issue is for whom, and at what cost. A nation’s economic health cannot be judged solely by GDP growth rates or stock market indices when a vast majority of its citizens struggle to access credit, secure employment, afford healthcare, and find basic economic security. If economic victories exist only on corporate balance sheets and trading terminals, while streets, towns, and homes reel under unemployment, inequality, and financial exclusion — it’s a crisis of both governance and morality.

The very legitimacy of governance in a democratic society lies in the idea of a social contract. Citizens confer power upon the state in return for security, welfare, and equitable opportunity. But when economic policy becomes a private negotiation between the government, financial markets, and big business — leaving out the middle class, informal sector, and poor — it amounts to a breach of that contract. The great political theorist John Rawls argued that a just society is one in which inequalities are arranged so they benefit the least advantaged. By this measure, India’s economic order increasingly resembles its opposite.

India's economy today is at risk of becoming a two-tiered system: one where capital is cheap, markets are buoyant, and profits concentrated for the top 10%; and another where employment is precarious, consumption remains muted, and access to formal credit or public services is a daily battle for the remaining 90%. What emerges is a regime of extractive modernisation — a phrase fittingly used by sociologists to describe economies where growth is achieved by extracting more from the many to enrich the few.

The argument isn’t against growth, or even market dynamism. It’s against a model that systematically excludes the majority while celebrating indicators that serve only the privileged. A society cannot sustain itself if its policies consistently favour capital over labour, corporations over communities, and tax extraction over welfare distribution.

The time has come to ask whether our obsession with repo rates, fiscal deficits, and Sensex points has blinded us to the more important question: what is the purpose of economic growth? And for whom is it intended? If a nation’s economic institutions cannot ensure dignified employment, financial security, affordable education, and basic public welfare for its citizens, then stock market highs and record GST collections are hollow victories.

In the absence of a radical fiscal push — one that redistributes resources, creates public employment, protects small businesses, ensures universal social security, and regulates corporate monopolies — India’s economy risks entrenching a dangerous inequality trap.

There’s still time to course-correct. But it requires courage: to rethink fiscal priorities, to challenge corporate monopolies, to demand accountability from policymakers, and to reaffirm the principle that in any modern economy, people — not capital markets — must come first.

Does India’s Pension System Truly Care for Its Elderly? A Broken Promise of the Social Contract?

The idea of a government, as conceptualised through the lens of social contract theory, is simple yet profound. Centuries ago, philosophers like Hobbes, Locke, and Rousseau argued that individuals willingly surrendered some of their freedoms and resources to a collective authority, in exchange for protection, welfare, and order. In modern democracies like India, this implicit contract is renewed every election when citizens choose leaders, not just to govern but to care — to ensure that no one, particularly the vulnerable and aged, is left behind.

But when one closely examines the condition of India’s pension system, especially for those in the unorganised sector, it feels less like a social contract and more like an abdication of duty. The critical question that deserves asking is: if the state exists to safeguard the welfare of its people, what does it mean when an elderly citizen is expected to survive on ₹200 or ₹500 a month? Is this welfare, or a cruel statistical checkbox?

Consider the Atal Pension Yojana (APY), often cited as a flagship scheme for informal workers. It promises pensions ranging from ₹1,000 to ₹5,000 per month for subscribers upon reaching 60. On paper, it seems like a noble initiative. But dig deeper and unsettling realities emerge. An 18-year-old joining the scheme would begin by paying a paltry ₹42 a month to secure ₹1,000 at age 60. At an average inflation rate of 5%, this ₹1,000, four decades later, would be worth just about ₹129 in today’s terms — barely enough for a basic meal in a roadside eatery, let alone a month’s sustenance.

It’s an arithmetic betrayal masquerading as policy.

The inadequacy is even starker when one looks at the Indira Gandhi National Old Age Pension Scheme (IGNOAPS), where the central government’s contribution for those aged between 60-79 is ₹200 per month, and ₹500 for those 80 and above. Even with state government top-ups, the final amount seldom crosses ₹1,000 in most states. To call this an old-age pension is a misnomer; it is, at best, a token gesture. A litre of milk, a few tablets of medicine, and a bus ride — and the month’s pension is gone.

The government's Pradhan Mantri Shram Yogi Maandhan Yojana (PM-SYM) was launched amidst much fanfare in 2019, promising ₹3,000 per month pensions for unorganised sector workers earning ₹15,000 or less. However, as of early 2025, only around 5 million people have enrolled out of a potential 420 million unorganised workers. Awareness, administrative complexities, irregular incomes, and mistrust in long-term state commitments have stifled its reach.

Beyond numbers and policies, this situation reflects a profound philosophical and societal dilemma. India’s rapid economic transformation has led to urbanisation, migration, and the dissolution of traditional joint families that once served as the primary safety net for the elderly. Today, the average migrant labourer in Delhi or Mumbai may have elderly parents living in a distant village in Bihar or Odisha, with no stable income, no family nearby, and a state pension that can’t cover even a week’s expenses.

If governments were formed so that citizens, especially the weak, frail, and voiceless, could live with dignity, then this is a glaring failure. The social contract isn’t just about roads, railways, or digital India projects; it’s about ensuring that in the twilight of one’s life, basic needs like food, medicine, shelter, and warmth are met.

Welfare states in developed economies have grasped this idea better. In countries like Japan, whose demographic structure is alarmingly skewed towards the elderly, pensions are substantial and indexed to inflation. European nations like Germany and Sweden have generous state pension schemes, supplemented by contributory plans and community care systems. Even in the United States, despite its market orientation, the social security system provides about 40% of pre-retirement income to an average retiree — a safety net not left to the mercy of market returns.

In contrast, India’s old-age pension system lacks both adequacy and coverage. A NITI Aayog discussion paper (2022) acknowledged that less than 10% of India’s elderly have access to any form of regular pension. This figure shrinks further if one excludes government retirees and organised sector workers, who are already a minority. The irony is sharp: those most in need of state support are the least likely to receive it.

Inflation is the unspoken predator here. While government pensions remain static or see negligible increments, the cost of living steadily climbs. Healthcare inflation in India averages 6-7% annually, higher than general retail inflation. An elderly individual suffering from hypertension or diabetes might spend ₹1,500-2,000 monthly on medicines alone — several times what a government pension provides.

Moreover, the assumption that families will care for their elders is increasingly outdated. As India’s workforce migrates internally in search of opportunities, and urban housing costs force the rise of nuclear families, elderly parents often remain alone in rural or semi-urban areas. The state must step in where the family cannot. This is not merely an economic imperative but a moral one, deeply embedded in the social contract the state has with its citizens.

What compounds the issue is the design flaw in the schemes themselves. APY offers fixed pensions, unadjusted for inflation. Its sustainability is questionable in a demographic landscape where longevity is increasing. India’s life expectancy has risen from 63 in 2000 to 70.9 in 2023. A pension amount fixed in 2025 would be grossly inadequate by 2040. Policymakers seem fixated on enrollment numbers rather than the quality or sufficiency of the pension itself.

The debate, then, is not whether India has pension schemes — it does, and plenty of them. The real question is whether these schemes can ensure dignity, security, and a modicum of comfort in old age. The answer, sadly, remains no.

Governance is not just about GDP numbers or infrastructure projects; it’s about the lived realities of the most vulnerable. It is time the state remembers its primary obligation under the social contract: to protect those who can no longer protect themselves. This means not just increasing pension amounts but linking them to inflation, simplifying access, integrating health coverage, and actively promoting awareness, particularly in rural areas where digital literacy is low.

The question we must collectively confront is — if a government cannot care for its elderly, the very citizens who once built the nation with their labour and taxes, what legitimacy does it hold as a welfare state?

India must decide whether it wants to be a nation that reveres its aged as living ancestors or relegates them to poverty-stricken anonymity. The time to rebuild this fractured social contract is now.