'Creating skilled manpower, jobs biggest challenge for India'

India is among the few countries with a favourable structural growth story, but its biggest challenge will be to create enough skilled manpower and jobs that will spur a "virtuous cycle" of higher growth, says a Macquarie report.

According to the global financial services firm, India will add around 100 million people to its working-age population between now and 2025 and will account for 20 per cent of the world's working-age population.

During this time, North America will see an addition of 14 million, while for China it would be a decline of 29 million.

"In a world of anaemic demand, India promises strong demand growth," Macquarie said, but cautioned that the biggest challenge is to create an adequately skilled working-age population, boost productivity and provide employment opportunities.

"We believe an enabling policy environment, structural reforms, and rising productivity levels are key to ensure India's transition towards higher sustainable growth," the report said.

The three pillars of education, productivity and employment are critical to reap the benefits of demographic dividend in India, it added.

"The Indian government has embarked on the right path with initiatives like Skill India, Ease of Doing Business, Smart Cities and Industrial Corridors to facilitate demographic dividends to flow through," Macquarie said.

According to the report, only 7 per cent of India's population has vocational education, as compared to 70 per cent for North America. Moreover, lack of female participation has skewed the dependents per employed person to 1.7, almost double of China.

The report further said that India's growth story is largely a story of strong domestic demand.

"Over the next decade, we estimate total discretionary spend of Indian households will increase from USD 174 billion in 2005 to USD 340 billion in 2015 and further to USD 504 billion in 2025," Macquarie said.

This increase in discretionary spend over the next decade will be largely driven by the middle-class and rich households.

According to Macquarie, urbanisation will rise sharply over the coming years as workers move from farms to non-farm employment sectors, mainly manufacturing and services.
"The urban population will increase from 418 million in 2015 to 509 million by 2025 – to match 36 per cent of India's total population," the report said.