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Demographic Dividend and Dwarf Economy

While 94 percent of financial services firms employ fewer than 40 people, nearly 80% of businesses in the commerce industry employ fewer than 40 people as of September 30, 2021.

Demographic Dividend And Dwarf Economy
Photo by Benjamin Wedemeyer

The Economic Survey of 2019 stated that there is a common notion that small firms generate the most employment. The Survey also stated that small firms can generate a higher number of jobs but they also destroy as many jobs. Therefore increase in job creation in small firms co-exist with job destruction, leading to a decrease in overall job creation.

The Survey introduces the concepts of ‘dwarf’, ‘young’ and ‘large’ firms. Firms that employ less than 100 workers are termed small firms. While firms employing 100 or more workers are termed as large firms. The small firms and the ones that exist for over 10 years are known as ‘dwarfs’. Firms employing more than 100 workers and in existence for less than or equal to 10 years are known as ‘young’ firms. 

Small Indian companies and establishments have received enough support from the government and dominate the job market but they have not grown as much. A minimum of 77% of Indian firms and establishments in the key sectors of the Indian economy employ less than 40 workers. Sectors like trade and financial services have a higher population of such firms. This indicates the dwarf nature of the employer’s ecosystem. 

According to the latest data of the union ministry, 94% of employers in financial services employ less than 40 workers. For the accommodation and restaurant sector, it is 89% and it is almost 80% for trade as of September 30, 2021. 

The data analysis of the quarterly employment survey (QES) for the second quarter of the current fiscal year shows a similar picture. If 100 employers are taken as the cutoff, then the number of establishments with less than 100 people is an enormous 91.7%.

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According to QES  second-quarter reports, very few establishments have been found in the three higher size classes of establishments – 100-199 workers with 4.1% share, 200-499 workers with 2.8% share, and more than 500 workers with 1.4% share. 

Even at the sectoral level, all sectors showed that around 50% of their establishments employed only 10 – 39 workers. Among the nine sectors surveyed, only IT/BPOs had a higher share of establishments in the size class of 100 – 100 workers and more than 500 workers with 12.2% and 12.3% share respectively. 

The QES concentrated on nine crucial sectors  – manufacturing, construction, health, accommodation, restaurants, IT/BPO, and financial services. It surveyed around 11,500 companies and establishments during July- September 2021. 

Demographic Dividend And Dwarf Economy

India comprises 62.5% of its share of the population within the age bracket of 15-59 years which is ever-growing and can reach its peak around 2036. These population parameters suggest that there is a presence of demographic dividends in India. The dividend started in 2005-06 and may last till 2055-56. The Economic Survey report 2018-19 revealed that India’s demographic dividend will reach its peak around 2041, when the share of the working-age population, that is within the age bracket of 20-59 years, is predicted to strike 59%. 

Demographic factors have appeared time and again in the economic development debate with the emergence of the concept of the “demographic dividend”. The demographic dividend has historically contributed to 15% of the overall growth of advanced economies. Demographic dividend promotes better economic growth, increased labor force, increased fiscal space, rapid industrialization and urbanization, rise in women workforce, rise in the savings rate, effective policy making, and a huge shift towards middle-class society. 

India with the youngest population in an aging world should reap the benefits of demographic dividend through the creation of more jobs and increasing employment. India should adopt policies that build human capital, finance MSMEs for growth without unshackling them, offer companies flexibility in operation and hiring.

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Written By

Sneha Bhattacharjee is currently enrolled as a postgraduate student at Rabindra Bharati University and specializes in Economics. She is keenly interested in learning and exploring real-world scenarios. With her critical thinking and writing skills, she wants to solve real-world complexes by writing articles and blogs. Apart from academics and work, Sneha enjoys painting but can also be found hiking in the hilly countryside.

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