(Bloomberg) -- India's robust economic expansion and rising wealth have come at a cost — fewer women are now entering the labor force. That's putting at risk the nation's much-vaunted demographic dividend.
In socially conservative India, well-off families don't send their women out to work, only those that can't make ends meet from just a man's salary do so. Today, just one in five urban Indian females are in the labor force. The bigger picture is this trend will diminish the boost India's economy receives from its vast young population, Oxford Economics said in a report.
India's outlook is impressive: the International Monetary Fund this week forecast an average annual expansion of 9.9 percent over the next five years and that the nation will surpass Germany as the world's fourth largest economy in 2022.
Yet United Nations data show India's overall labor participation rate declined to about 60 percent in 2011 from 68 percent in the 1980s; and more recent surveys from India’s Labor Bureau indicate the situation has remained static.
"In the next couple of decades, India is expected to replace China as the country with the largest working age population in the world," said Priyanka Kishore, lead Asia economist at Oxford Economics. "But in the absence of a substantial pick-up in the participation rates, the country appears ill-placed to take advantage of this demographic boom."
She added that unless the participation rate rose to between 70 percent and 75 percent, India’s labor force is unlikely to boost growth in a significant manner.
The UN forecasts India’s working age population — those between 15 and 64 years — will reach 1.1 billion by 2050.
But unless India's economy grows at more than 10 percent consistently, it will be hard for the economy to absorb all those workers, analysts say.
Between 1991 — when India opened its economy — and 2013, the size of the working-age population increased by 300 million, while the number of employed people increased by just 140 million, a UN study showed. In other words, the economy absorbed less than half the new entrants into the labor market.
In contrast, the number of jobs in China increased by 144 million between 1991 and 2013, while the working-age population grew by 241 million.
Looking at the breakdown of India's labor force, while Oxford Economics finds the decline has been broad-based, involving both males and females, rural and urban workers, it's the falling participation rate for women that is striking. Labor force participation is highest among rural males at more than 80 percent and lowest among urban women at about 20 percent.
"A less optimistic view is that employment opportunities have declined, particularly in urban areas and outside of agriculture in rural areas," said Kishore. "Also, socio-cultural issues may have inhibited female participation in the labor force, as rising household incomes have lessened the need to do so."