India is poised to become the world’s next great powerhouse. That transition will be driven by a generation of women creating economic growth and social change. Aalok Sathe details the demographic shift on the sub-continent and what it might mean for investors
Rightly, gender equality is never far away from today’s headlines. Historically, the roles assigned to genders have underpinned societies and as these change so do societies. In an age before contraception, the human fertility rate was very high along with infant mortality; woman spent much of their time producing and caring for their children. Following the advent of available contraception, women in the West were able to control pregnancy and plan families, giving them time to build careers and access the work place. This change, and the demographic and social shifts that come with it, is now coming to India.
Parallel to this has been education and democratic change. However, women’s access to the workforce remains limited.
Suffrage in India
Women in India gained their right to vote in 1947, but their fight began in 1917 when the Women’s Indian Association (WIA) was set up. The organisation looked to gain votes for women that were on an equal basis to men, something endorsed by one of the main political groups, the Indian National Congress.
In 1919, the Montagu-Chelmsford Reforms were introduced by the British Colonial government as a way of introducing self-governing institutions within India. These formed the basis of the Government of India Act 1919 that eventually gave power to grant women’s suffrage. In India, Madras was the first state to grant votes to a small proportion of its women population (coming from wealthy and educated backgrounds) and many other regions followed that lead. In the Punjab, the Sikh community granted women the right to vote, irrespective of their educational or wealth background, following the Gurdwara Act of 1925.
Despite these large pockets of change in India, the Government of India Act 1935 saw the British Raj set up a segregated system for women, provoking significant opposition. The Indian National Congress had promised universal suffrage when it came to power in 1931 and this was implemented following independence in 1947.
What is the current situation in India and around the world?
Despite history showing us that women have fought and won rights for themselves, there are still large proportions of global societies defined by gender roles in their daily life. There are significant parts of Asia where women assume the housewife role and men the breadwinners. India falls into this category with less than 30% of its female population being engaged in the labour force.
The relationship between women’s engagement in the labour market and the broader economy is complex. It is clear from observing developing economies across the world that women’s participation rates throughout history have varied compared to men’s. Currently, this level is below 30% in the Middle East, North Africa and South Asia, whereas the participation rate for men is above 75%. This difference is driven by a wide range of economic and social variables that include falling fertility rates, social norms, economic growth and increasing levels of education. Looking around the world, the gender participation gap is most pronounced in South Asia.
Growth in gross domestic product for any country is primarily driven by two factors: an expanding workforce and rising productivity. In the US, 65% of GDP growth in the 1960-1970 “baby-boom” era came from workforce expansion. Today, nearly 80% comes from productivity increases. In the last 50 years, women have gone from holding 37% of American jobs to nearly 50%. That’s almost 40 million more women working as the gender labour force participation rates (LFPR) converge. The US economy would be 25% smaller today without that change.
It is well known that India will not only be the most populated nation on Earth within five years, but also the country with the largest growing working age population. A country where 600 million people, almost half the population, will be under 25 years old. Some of the statistics are staggering: for example, 1 million Indians enter the job market every month. As a result, economists talk about India’s youth bracket “3E Problem”: uneducated, unemployed or unemployable. While the logistics of finding jobs for so many is a challenge, the rewards from increasing GDP by employing these young people, and especially young women, is clear.
However, despite strong economic growth and rising wages over the past two decades, women’s engagement with the labour force has fallen. Addressing this is a high priority, not only because of the diverse benefits that increased economic autonomy brings to women but also because growth is likely to be stronger when more working age citizens of either gender are employed.
Three key factors are driving the economic engagement of women in India, on both a household and macro level. These are:
- Rising educational enrolment of young women
- Lack of employment opportunities
- The effect of household income on participation
Rising level of education
Over the last decade, there has been an increase in the number of girls being educated and so a rising proportion going on to enrol in secondary schools. In many ways, this has been brought about by government efforts to support more girls so that they can attain the right level of schooling. With India’s economy growing at one of the fastest rates in the world, household incomes are rising rapidly. This growth in prosperity is enabling many girls to stay in education for longer as domestic duties are being taken care of by servants. Over time, this rise in education has the following effects:
- Encouraging more women into the labour force
- Causing a delay in fertility
- Increasing women’s bargaining power within the household
With all three of the effects described above, India is heading towards better living standards and further economic growth, something already being seen within certain pockets of Indian society.
The current drop in women’s LFPR is a temporary shift as the country goes through significant structural changes. One factor here is women seeking higher education, not at only at domestic institutions, but also abroad in some of the most prestigious establishments across the world.
Lack of job creation for women
Unfortunately, given the nature of India’s economic growth, the country has not generated enough jobs that can be readily assumed by women. Several surveys have indicated that a large proportion of women have listed their occupation as domestic duties. Interestingly, a large proportion of these women reported their willingness to accept work if it was made available to them at their household premises. When it came to the topic of working part-time, 74% and 70% of women in rural and urban areas respectively suggested they were willing to assume this level of work on a regular basis.
Despite many blaming a lack of job creation, it is important to understand that initiatives such as ‘Skill India’ and ‘Made in India’ are changing this significantly by specifically looking to place women into the nation’s workforce. Unfortunately, this has not translated into a higher female LFPR as it has in other countries because they have struggled to recruit women, place them in jobs and keep them in jobs once placed.
Why isn’t India following the same trajectory as most other countries with a similar level of growth, where female LFPR rises with GDP?
The low level of LFPR within India’s female population is clearly not a result of a lack of government support, nor is it due to a lack of interest from women. Instead, it is increasingly apparent that this relates to social norms dictating ‘appropriate’ behaviour for women and the enforcement of these by parents, partners and parent-in-laws.
The India Development survey showed that a very large fraction of women in India required permission from a leading family member simply to go to the local shop or see the doctor. Given the difficulties that many face just carrying out daily tasks, it is not surprising the chance to enter the workforce is limited. On the ground, research has shown that family pressure and responsibilities are by far the most common reason for why women have not accepted, or have left jobs.
With the real stumbling block being social norms, as opposed to lack of resources or human capital, true change across India is only going to occur through smarter policy responses. It was hoped the Mahatma Gandhi National Rural Employment Guarantee Act, passed in 2005, would bring social security. It aimed to guarantee the “right to work” and it has brought some success in targeting women, mainly through providing employment close to the home.
A secondary issue is that it was the norm until recently for employers to pay women’s wages into the bank account of the family head, who is usually the male. Trials are being conducted across rural parts of India that look to provide women with their own bank accounts into which wages are paid directly. Each of these women would also receive basic financial literacy training so that they are aware of how to use their new accounts.
These trials have shown that recipients reported a 25% rise in earnings and 60% higher bank balances. These individuals have also shown a level of independence and started to make more household purchases with their own money without having to ask permission. Research has so far shown that women offered a basic level of education in business and finance skills are more willing to take out a loan for home improvements. Triallists who were asked to bring a friend along, were even more likely to take out a loan for business purposes.
Education, independence and household bargaining power for women will stimulate activity within a layer of India’s economy that has not been active before. With women being given a level of autonomy through personal finance and education, we can see their bargaining power rising. As a result, they will become consumers themselves, elevating India’s economic growth to the next level. It is clear, however, that unless the social norms around women’s work change growth will be truncated. Policies should centre around the acceptability of female employment throughout India, with a specific focus on rural areas.
Echoes of America
From 1890 to 1980, the US went through periods of low labour force participation within its female population. There was a shift occurring (particularly within white females) that saw activity moving from the home and the family farm to a more centralised marketplace. These changes occurred as educational levels rose, affecting female LFPR decades later.
The increase in the female earnings and LFPR was associated with an increase in national income 16% to 28% above the increase in male earnings. It is important to understand that even in the US, at the very early stages of these structural changes, LFPR initially dropped as women gained new levels of education, mirroring the current situation in India. Additionally though, it is important to realise that India’s growth is supported by technology and media variables that will help to accelerate change and encourage more socially constructive policies.
The service sector skills shortage
Up until now, growth within India has been driven by the services sector as opposed to the agricultural and manufacturing industries. Unfortunately, the services industry within India is dominated by men and so far less woman have been trained to possess the required skills to work within this industry group. These changes will only really take full effect when policy is implemented to give women the skills required to work within the services sector.
These skills will only enter the workforce if society (rural and urban) accept that it is perfectly normal for women to work alongside men. Ultimately, women’s participation within services, and other industries where their involvement has been sparse, will help to propel the Indian economy into unchartered, positive territory.
Additionally, India needs to educate, train and employ its youth, but faces many challenges ahead. Talk of building 1,000 universities and 50,000 colleges over the next ten years to cope with the task is clearly a pipe dream. But as India’s population overtakes China in the coming years, it will need to address the skills deficit to close the GDP gap.
India has gone through a significant period of change over the past three decades. The country has experienced substantial economic growth and a structural shift in the economy supported by the government. This has led to a high rate of urbanisation, higher levels of education and a drop in the national fertility rate. While these changes have been occurring there has been a fall in the economic activity generated by the women in the country.
With the economy growing and household incomes rising, it is argued that many women’s preferences have changed, as their family units are getting wealthier without their economic contribution. While this may be true in older generations, younger women in India are being encouraged to pursue a robust education, often abroad, bringing this knowledge back to India and starting up or running some of the most innovative companies in the world.
Already, Indian women are proving to be world leaders. Notable stars including Indra Nooyi, CEO of Pepsico, the world’s second largest food and beverage company and Chanda Kochhar, CEO of ICICI Bank.
Aalok Sathe is fund manager for Hinde Capital
This article is taken from a chapter in the recent Hindesight Indian Letter