India: What You Need to Know About the World's Largest Workforce

​The United Nations estimates that India recently overtook China to become the world's most populous nation, with more than 1.43 billion people. This has big implications for the world's workforce.

By 2030, India will be home to 1 billion working-age adults, according to an estimate by consulting firm EY, which means that approximately one-fourth of the world's incremental workforce over the next decade will come from India. That growth bodes well for companies wanting to conduct business in India, HR experts say.

"For any multinational company which is looking for a fairly sustainable labor pool, India is the place to go," said E. Balaji, Chennai-based global CHRO at TVS Supply Chain Solutions.

Already, many of the world's largest companies, including Amazon and Apple, have developed large technology and research centers in India to benefit from the country's vast pool of technology talent. However, from the perspective of India's economy, the situation is challenging because there aren't enough jobs currently to absorb the entire working-age population.

"Because jobs are not growing fast enough, people simply drop out of the labor force after looking for some time," said Santosh Mehrotra, a Delhi-based economist and a visiting professor at the University of Bath in the U.K. "This is a catastrophe."

In other words, a lot needs to happen before India can realize the full potential of its 1 billion-strong workforce.

Very Young Workers

Unlike China, the U.S. and several other wealthy nations where the population is getting older, India's population is very young—with a median age of around 29. In comparison, the median age in China and the U.S. is around 38, and already the aging population is causing worker shortages in some industries. India's population is expected to grow over the next few decades while China's is in decline, according to the United Nations.

For India, this is a chance to benefit from what analysts call a "demographic dividend," which happens when the economy grows at a faster clip since there are more working-age people than dependents, including young children and the elderly. Such a dividend propelled China's rapid economic growth and took South Korea from a poor nation to one of the richest in the world.

Many Aren’t Seeking Work

One big hurdle on India's path to benefit from its working-age population is that many people aren't in the labor force. Only about half of the people who are old enough to work are working or actively looking for work, a measure known as the labor force participation rate. The global average labor force participation rate is 65 percent, while China's is 76 percent, according to World Bank data.

When people aren't looking for work, they don't show up in the unemployment numbers. One reason for India's low labor force participation rate, analysts say, is the unavailability of work. India needs to create around 9 million nonfarm jobs annually through 2030 to achieve its growth potential, estimates consulting firm McKinsey & Company. But analysts say the actual number of new jobs being created is much lower. Around 2.9 million nonfarm jobs were created annually between 2013 and 2019, Mehrotra said.

The government has lately undertaken several steps to address the issue, such as offering incentives to construct new manufacturing plants, which it says has the potential to generate 6 million new nonfarm jobs.

Women Stay Out

Another reason for India's low labor force participation is the lack of working women, who make up half of the country's working-age population, according to the World Fact Book. But only 25 percent of working-age women join the labor force, according to World Bank data. In comparison, women's labor force participation in the U.S. is 67 percent and in China is nearly 71 percent.

The percentage of women in the Indian labor force has been declining since 2005, due primarily to societal norms under which women don't work, especially after having children. But one recent study also found that there are other reasons.

"Women's participation is falling due to the unavailability of steady gainful employment," found a study by faculty at Ashoka University, located in the National Capital Region of India. When jobs decline in the economy overall, women tend to get edged out first, according to the study.

Skilling the Workforce

The number of colleges and universities is growing in India. While millions of students are graduating every year, many of these graduates aren't ready to be hired right away.

Surveys have repeatedly shown that many graduates, even from engineering and other highly sought-after fields, lack the skills needed to land a job. An online test of skills of 375,000 youth by assessment firm Wheebox found that only half were employable. The result: HR experts across industries are struggling to find talent.

Over the past decade, many large employers in India have started training recent graduates. Automaker Maruti Suzuki created an academy in 2012 to train youth in technical skills needed by its group companies as well as its dealers and suppliers. And financial services group ICICI set up a skills academy in 2013, which has trained more than 200,000 youth so far.

"Companies need to make a significant contribution to make (candidates) job-ready," Balaji said.

Predominance of Unorganized Work

Of India's existing workforce of 524 million people, approximately 85 percent are in the "unorganized sector," which is defined as not having any formal work contracts, social security or health benefits that organizations typically provide to employees. Most of this unorganized work is in agriculture and related activities, which produce meager incomes and are subject to varying weather conditions.

"The young certainly are not looking for work in agriculture, unless they have no other choice," Mehrotra said. Rather, he said young people want to work in higher-paying jobs in knowledge or service industries, which in turn, would allow India to reap a demographic dividend.

Some analysts are optimistic that such jobs are on the horizon, thanks to the government's recent focus on building infrastructure and manufacturing.

"Directionally there is movement," Balaji said. "The numbers are so huge that moving the needle is a challenge."

Shefali Anand is a New Delhi-based freelance journalist and former correspondent for The Wall Street Journal.