India hasn't really had a big demographic dividend: Gita Gopinath flags key bottlenecks

Gita Gopinath, former Deputy Managing Director of the International Monetary Fund, on Wednesday discussed the crucial reforms needed for India to reach its full potential on the global economic stage. She said one big hurdle for India to become a major industrial power is land acquisition, which she described as very complicated.

When asked about other bottlenecks, the eminent economist highlighted two key issues: labour policy and skilling. She suggested that India has not fully capitalised on its demographic advantage, citing labour force participation as a significant area for improvement.

"India hasn't really had a big demographic dividend. Even though the population is big, the workforce is big, it's still only about 30% of the contribution to growth," she said while speaking at the Economic Times India Economic Conclave 2025.

Gopinath pointed out that India's economic growth since 1980 has been driven largely by capital accumulation and productivity growth, with labour contributing only a fraction of that growth. "When it comes to labour in India, we've long talked about the demographic dividend. But if you look at India's growth since 1980, 40 years plus, only about 30% of that growth has come from India's labour force. Most of it has come from capital accumulation, productivity growth."

Gopinath, who is currently serving as a professor of Economics at Harvard University, highlighted the recent labour reforms as a step in the right direction. "Thankfully, recently they've gone ahead to implement the labour codes and that's really good. I mean raising the number of worker employees you can have from 100 to 300 before you have to hit the constraints is helpful," she said. However, she pointed out that for India to truly scale, the focus needs to shift towards thousands of workers, not just hundreds.

The former IMF chief economist also addressed the need for better skilling to align India's workforce with the demands of a rapidly growing economy. "There is evidence that if you can increase one more year of formal schooling for a person in India, you end up with their incomes going up by 6 to 7%. So these are very substantial improvements. Both of those are needed," she added.

Gopinath also praised Gujarat's innovative approach to education. "I was recently reading about the model that's there in Gujarat in trying to improve schooling. It’s called the education command and control system, which is basically tracking teachers and students and also their performance using AI and machine learning to figure out their performance. That certainly is one way to be able to raise education levels in India."