India’s extraordinary recent economic performance has generated significant
optimism about the country’s outlook, including projections of rapid and sustained output
growth going forward. Most of these projections rely on two key assumptions:
continued economic reform and the utilization of India’s demographic dividend – the
huge increase in working-age population to occur over the next 20 years. To date, India’s
economic rise has been concentrated in high-skill and capital-intensive service and
manufacturing sectors, and has not generated strong employment growth, especially for
low-skilled workers. Going forward, to achieve the increase in labor input and popular
support for reform necessary for high growth, India will have to better develop and utilize
its most valuable input – a vast, young, and growing workforce. Growth potential will be
greater the better educated is this population and the faster these workers transition from
the agriculture sector to jobs in other sectors. In this paper, we review India’s growth and
employment performance, describe India’s demographic dividend, and examine the
factors that have hindered India’s shift away from the agriculture sector.