India’s population: Boon or bane?

If you are an Indian child of the 1970s and 80s, you would remember the ‘population explosion’ scare of that era. During the days of Prime Minister Indira Gandhi’s government (1966-77 and 1980-84), India’s bulging population was seen a threat to the country’s future so much so that Indira’s son, Sanjay Gandhi, ran an controversial campaign of forced sterilization during the emergency (1975-77).

“India’s large and growing population has long been seen as a problem, perhaps even the most important long-term problem facing the country,” writes Singapore-based economist Sanjeev Sanyal, currently Deutsche Bank’s Global Strategist, in his book, The Indian Renaissance. “This is not surprising given the sustained increase in population in the second half of the 20^th century—from 361 million in 1951 to around 1.1 billion in 2007. Between 1951 and 1991, the country’s population grew at an average rate of over 2 percent per year.”

In the 1970s and 80s, this fast clip of population growth was an alarming problem for India because the country was growing only at the rate of 3.5 percent. This led the government of the day to pursue a policy of population control and family planning.

But come the 1990s and the tone of the government changes. India’s population explosion was no more seen as a problem. It was touted as “the population dividend.”

How did this turnaround happen?

“The Prime Minister had himself announced in parliament that India’s population, criticised for being a curse, is actually a boon,” says noted economist Dr. Amir Ullah Khan, Deputy Director, Strategy, Bill & Melinda Gates Foundation, India. “The 600 million strong workforce does not just provide cheap labour, it also is the largest provider of skilled manpower in the world. It is the youngest population in the world with a mean age of 24 years, in a globe that is ageing pretty fast. The large population, with its striking diversity that is not seen in the stark homogeneity of China, offers the world a variety of skills in terms of languages spoken, technology education and adaptability in disparate environments. With the millions of Indians now going to school and getting skilled, India is the largest provider of engineers (more than half a million annually) and English speaking professionals in the world.”

With middle class population in excess of 300 million, India is the largest market for automobiles, high value foods, mobile phones etc ahead of or just behind China.

“This turn around has happened as education levels have gone up - nearly 98% of children are enrolled in primary schools now,” says Khan. “Also because of the fall in fertility rates, an average Indian family now has less than three children compared to five a couple of decades ago, leading to increased expense on education and health per child.”

The dependency ratio

Demographic accelerations and decelerations have huge impacts on a country’s economic performance, and that’s where the secret lies of understanding why India’s population boom is a boon.

“The dependency ratio (the ratio of the population outside the working age group relative to the population in the working age) is the key,” says Prasenjit K Basu, MD and Head of Asia (regional) Research & Economics at Maybank Kim Eng Holdings, Singapore. “As the dependency ratio falls, a nation’s savings rate typically rises (as long as those of working age are mostly employed!). If the nation’s savings rate rises, so should its investment/GDP ratio, and a rise in the latter boosts productivity and therefore prosperity. This is the virtuous circle that Japan entered in the 1950-90 period (when its dependency ratio was steadily declining), and Korea did from 1965-2010, China from 1978-2013 (the dependency ratio there is going to start rising from next year). And India is in the middle of its demographic dividend phase (the period of declining dependency ratios) which will last from 1990 to 2035.”

A boon turning out to be a bane?

However, not all economists see India’s burgeoning population as a boon.

“The demographic dividend that we talk about is actually turning out to be bane for India, because of lack of skill or employability on part of the Indian labors,” argues Nilanjan Banik, Professor at Institute for Financial Management and Research, Chennai Area, India. “Consider this. In the private sector, approximately 10 to 15 million jobs were created in 2011-12 but not all could not be filled up as 75 per cent of this jobs required skill such as vocational training which are not to be found among the prospective applicants. Be it doctors, engineers, or even MBA graduates, there is a dearth of quality professionals in India. This is precisely why every year corporates like Infosys (service), ITC (manufactured consumer items), Apollo (medical), and L&T (engineering), to name a few, are left with vacant seats, or prefer to recruit people with foreign degrees, rather than employ graduates from India.”

“This year’s Economic Survey puts the jobs question at the forefront and for all the right reasons,” says Dr. Rajesh Chakrabarti, Executive Director, Bharti Institute of Public Policy, and Clinical Associate Professor, Indian School of Business, Mohali, Punjab, India. “It is not clear that India will be able to create the kind of jobs in sufficient numbers to employ its millions.”

“The point is higher number can not be sustained as a boon,” says Dr. Debashis Chakraborty, Assistant Professor, Indian Institute of Foreign Trade, New Delhi. “There needs to be skill-formation for smooth progression and human development aumgmentation has a crucial role there.”

What can be done?

“In this regard, Indian policymakers should take a lesson from the growth performance of the newly industrialised economies in Asia, such as Taiwan, South Korea, Singapore, Hong Kong, which is typically driven by designing curriculum, so that more people can be employed,” says Dr. Banik. “In India, on the other hand, government regulation in higher education is actually hindering supply of quality education.”

“What India needs is rapid skill development to ready its growing population for the marketplace for jobs,” says Dr. Chakraborty. “That is the critical challenge.”

“India now will have to take a call whether we want to be a manufacturing hub (e.g. like China) or service hub (e.g. Singapore)?” he says. “Once we are ourselves clear on that front, appropriate education and training policies can be devised to reap demographic dividend.”

These arguments are in line with a report, ‘State of the Urban Youth, India 2012: Employment, Livelihoods, Skills,’ published by IRIS Knowledge Foundation in collaboration with UN-HABITAT.

The report suggests that unequal access to opportunity and the lack of emphasis on education remains a persistent problem in India. While the country is undergoing a demographic transition, regional disparities in education mean the benefits will not be evenly spread across the country. That, if one may say, is the fine irony of India’s population boon.

India’s population-related trends at a glance

• India is currently the second most populous country in the world, with over 1.21 billion people (2011 census)—this represents more than a sixth of the world’s population.

• Every third person in an Indian city today is a youth.

• India is projected to be the world’s most populous country by 2025, surpassing China. It’s population will reach 1.6 billion by 2050.

• India has more than 50 percent of its population below the age of 25 and more than 65 percent below the age of 35.

• By 2020, India is set to become the world’s youngest country with 64 per cent of its population in the working age group.

• In about seven years, the median individual in India will be 29 years.

• The population in the age-group of 15-34 increased from 353 million in 2001 to 430 million in 2011. Current predictions suggest a steady increase in the youth population to 464 million by 2021 and finally a decline to 458 million by 2026.

• India is set to experience a dynamic transformation as the population burden of the past turns into a demographic dividend, but the benefits will be tempered with social and spatial inequalities—according to a report the ‘State of the Urban Youth, India 2012: Employment, Livelihoods, Skills,’ published by IRIS Knowledge Foundation in collaboration with UN-HABITAT.

• The report says the southern and western States will be the first to experience a growth dividend as they accounted for 63 per cent of all formally trained people. The largest share of youth with formal skills was found in Kerala, followed by Maharashtra, Tamil Nadu, Himachal Pradesh and Gujarat. Among those undergoing training, Maharashtra had the highest share, Bihar the lowest.

[This article was published in Tabla! Singapore in May 2013 and should not be reproduced without the permission of SPH]