India’s rise started in the late 80s when it started moving away from a closed economy. Faced with dire economic conditions in the early 90s, the then Finance Minister Manmohan Singh had no choice but to liberalize the Indian economy, under the conditions laid out by the IMF. Since then, and especially in the last decade, the Indian economy has taken off, led by its Information Technology (IT) led Services Sector. Its been growing at an average annual rate of 8-9% the last few years, and expected to grow at an average annual rate of 8.7% the next 5 years. With this economic boom, and being the world’s largest democracy with a population of 1.2 billion, India is rightfully being recognized as an emerging economic superpower.
In the next 40 years, the world’s population will grow by about 2.4 billion people, almost all of them in developing countries. The large bulk of this increase will be between the ages of 15 and 64, the so-called “working age” population. An increase in the working age ratio can raise the rate of economic growth, and hence confer a “demographic dividend.” This is due to the fact that people of working age are on average more productive than those outside this age group. Also, because workers save while dependants do not, an increase in the working age ratio contributes to higher savings rates, increasing the domestic resources available for productive investment. In addition, the fertility rate decline that is the source of the changed age structure may act directly to induce greater female labor supply and increase attention to primary education and health.
For India – a Demographic Dividend or Curse?
There are a couple of important things when it comes India’s young demography:
1) India is in the midst of a major demographic transition. That transition started about 40 years ago and will likely last another 30 years. About a quarter of the projected increase in the global working-population between 2010 and 2040 will occur in India. Fifty four percent of the Indian population (of 1.2 billion) is under the age of 25. Hence, India will be the largest single positive contributor to the global workforce over the next three decades.
2) As for India-China comparisons, the demographic dividend offers the single biggest hope for India to catch up. China is seeing a shift to a mature population structure. Over the coming decades, as the working age population China declines, that of India will rise rapidly.
But will this young demographic be a dividend or a curse for India. The answer lies in its Education System.
India’s Education System:
The state of the public education system in India is abysmal…at all levels. Only 65% of the population is literate. India has 22% of the world’s population, and 46% of the world’s illiterates. Although the enrollment rates in primary education have improved significantly, the quality of education is still very poor, and the drop-out rates are high. The female illiteracy rates are high as well. It is well documented that gender bias and high female illiteracy rates negatively impact economic growth through higher child mortality, increased fertility rates, and greater malnutrition. Gender bias also acts to reduce the current average level of human capital, while limiting the educational gains of the next generation.
Currently there is huge shortage of skilled labor in India. With 10 million people expected to enter the Indian labor force every year in the coming decades, the education system needs an immediate and drastic reform. Failing to do so, there will be huge young unemployed population in India, which will definitely lead to social unrest and a nightmare scenario for the government – the demographic dividend of a young “working-age” population, will turn into a demographic curse and a disaster for India.
The Two Indias:
The Southern India: Most of the economic boom in India has happened in Southern and Western States of India – namely Maharashtra, Gujrat, Andra Pradesh, Kerala and Tamilnadu. Not only are the literacy rates higher in these states, but the fertility rates among women are falling (2 or fewer children per woman) in these states.
The Northern India: The Hindu Heartland, mainly the “BIMARU” states of Bihar, Uttar Pradesh and Madhya Pradesh, have the highest illiteracy rates and high fertility rates (4-5 children per women), and are economically backward. Having said that, from 2001 through 2009, Bihar’s per capita income grew at an average rate of 6.2% per annum (representing a tremendous acceleration from about zero in the previous decade), the impressive economic performance has been attributed, to the good governance and developmental focus of state’s administration. It is also likely that Bihar’s working age ratio has risen from the very low-level of 52.5 percent in 2001 and hence contributed to the growth acceleration. But with the bulk of the demographic transition and growing population expected to be concentrated in these lagging states, it can lead to either an economic boost for these states, or can become a nightmare with social unrest due high numbers of young illiterate people.
Hence, there are two different sides of India – the baby factory of North India, and the jobs / economic-growth factory of South India. This divide between the North and South India is starting to become a big issue for India. The recent surge in the Maoist insurgency in the natural-resource-rich region of North-east India is fundamentally due to uneven development and opportunities in India. There are also strong barriers to the mobility of labor from the norther regions to the southern regions – such as, local labor unions that resist competition from migrants, lack of urban housing in migrant destinations, and most importantly, linguistic and cultural impediments to cross-border labor substitutability. This can further lead to frustrations, and social tensions.
The big challenge for India is to even out the process of development. It is important that India realizes the importance of not just high rate of economic growth, but equitable growth across all states. Having said that, the make or break issue for India is education. India is still around 50 years behind China in terms of removing illiteracy. It is expected that 20 years from now, 20% of the Indian population will still have never attended school. Hence, if the government doesn’t make it a priority to improve the access and quality of its primary, secondary and tertiary education systems, the young demography of India, will turn from a blessing and a boon, to a curse and a huge burden for India.