Brokerage house Kotak Securities has cautioned that India‘s demographic dividend story may go awry if not enough jobs are created to absorb the country‘s growing pool of graduates and post graduates.
Brokerage house Kotak Securities has cautioned that India's demographic dividend story could go awry if not enough jobs are created to absorb the country's growing pool of graduates and post graduates.
According to a report by Kotak Securities, India now trains 15 lakh engineers annually, which is more than China and the US put together.
"This may lead to meaningful underemployment and/or stagnating wages, stoking frustration among the overqualified," says the Kotak note. It estimates that India requires around 10 lakh graduates a year, compared to the 24 lakh pouring into the labour market annually.
The International Labour Organisation estimates that by 2020, India will have 11.6 crore workers in the age group of 20 to 24 years, compared to China with 9.4 crore workers in the same bracket. Also, the average age in India by the year 2020 will be 29 years compared to 40 years in USA, 46 years in Japan and 47 years in Europe.
A segment that could soon feel the pressure of over supply of engineers will be the IT sector, resulting in muted wage hikes.
"We expect moderation in engineers’ wage revisions to mid-to-high-single digits from low-to-mid teens historically. We expect this change to be driven by (1) change in business mix of IT companies as they now require employees of different (analytics, BPO, etc.) or lower (infrastructure management) skills (2) Twofold increase in supply of engineers in the past four years. Surplus of engineers could pressure compensation across the entire value chain," says the Kotak report.
And India’s famed consumption story too is at risk as tepid wage hikes could lead to a cutback in spending. The theory of a resilient consumption story was based on rising income levels of households, assuming jobs being continuously created in a fast growing economy.
"A slowdown in pay growth can impact meaningfully the number of households that move up the pyramid and also the consumption wallet that they can spend. We also note that education loans have spiraled 10 times over the past seven years; EMIs on those loans can now form a meaningful component of a fresher’s salary," says the Kotak note.