Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Opinion / Online-views/  Making India’s demography its destiny
BackBack

Making India’s demography its destiny

A changing global demography over the long term could work in India's favour in terms of attracting investments

The difference between 2010 and 2050 is that while India’s demographics improve, most of the rest of the world turns grey. Under the circumstances, investment is likely to flow to India and it can easily be the growth story of that time. Photo: Priyanka Parashar/MintPremium
The difference between 2010 and 2050 is that while India’s demographics improve, most of the rest of the world turns grey. Under the circumstances, investment is likely to flow to India and it can easily be the growth story of that time. Photo: Priyanka Parashar/Mint

Much has been talked of the virtues of the demographic dividend. The reason is simple: if an economy has more people working and fewer people dependent on them, it would not only lead to higher output and a higher standard of living, but also permit savings for development. The economy should, therefore, grow more rapidly. Provided, of course, that people are put to work.

Since 1965, when India’s total dependency ratio peaked, the country has been receiving a demographic dividend. The total dependency ratio is the proportion of the dependent population to the working population. One way of computing it is to take the number of people below 15 years and those above 65 years as a percentage of the population between 15 and 65 years of age. The United Nation’s Population Division has the data from 1950 to 2010, as well as projections till 2100.

India’s total dependency ratio fell from a high of 81.2% in 1965 to 75.2% by 1980. It fell further to 70.6% in 1990. The decline then accelerated, with the ratio falling to 62.8% by 2000 and 54.4% by 2010. The fall since 1990 coincided with liberalization and a rise in the growth rate of the Indian economy, although whether the spurt in growth had much to do with demographics is debatable, considering that the labour force participation rate hasn’t seen any dramatic change.

Nevertheless, the demographic dividend is often cited as one of the reasons for high growth in East Asia. According to the UN tables, China’s dependency ratio declined from 68% in 1980 to 36% by 2010, a drop of 32 percentage points. In contrast, the decline in India’s dependency ratio over the same period was a much lower 20.8 percentage points.

Japan’s dependency ratio fell from 67.6% in 1950 to 45.3% in 1970—this was a period of very rapid growth in Japan. Similarly, South Korea’s dependency ratio fell from 83.3% in 1970 to 40.6% in 1995, a period in which the country notched up very high growth rates.

Taking the UN’s population projections under medium fertility conditions, India’s dependency ratio is expected to decline from 54.4% in 2010 to 49% by 2020 and further to 46.9% by 2030. In other words, the rate of decline in the dependency ratio in the future is much lower than the decline between 1990 and 2010. Could it then be that much of the demographic dividend for India is already in the past? Not at all, if we consider how much of the labour force is stuck in disguised unemployment or low productivity jobs. India can get much more growth out of the opportunity its demographics provides.

There is, however, one thing that is in India’s favour in the future. In 2010, India’s dependency ratio, at 54.4%, was higher than the world average of 52.2%. China’s was at 36%, Korea’s 37.6%. Even the developed world had low dependency ratios—the US was at 49%, Western Europe at 52% and Japan at 56.9%. The chart gives the details.

Now consider what happens by 2050 under the UN projections, under conditions of medium fertility. India’s dependency ratio falls to 47.6%. But China’s ratio moves up sharply to 63%, Korea’s to 88.2%. And consider what happens to the developed world—the US will have a dependency ratio of 65.6%, Western Europe 76.7% and Japan at 96.4%. For the world as a whole, the dependency ratio will be 58.5%. India will be one of the handful of countries with a dependency ratio below 50%. So the difference between 2010 and 2050 is that while India’s demographics improve, most of the rest of the world turns grey. Under the circumstances, investment is likely to flow to India and it can easily be the growth story of that time.

But there are several caveats to that upbeat story. Although China’s dependency ratio starts to move up from 2010 onwards, under the assumption of medium fertility, it will continue to be lower than India’s till 2025. According to the projections, in 2025, India’s dependency ratio will be 47.9% while China’s will be 44.6%. More importantly, there are many factors that are needed for development apart from demographics. Bangladesh, for instance, has seen its dependency ratio come down from 84.5 in 1990 to 56.9 in 2010, a fall much steeper than India’s. Yet Bangladesh’s growth rate, although respectable, hasn’t been anything like the East Asian growth rates. To take two other examples, both Egypt and Iran have seen their dependency ratios fall steeply in the 2000-2010 decade, yet none of them is seen as the next big development story. And Pakistan’s dependency ratio will be even lower than India’s in 2050.

It’s unlikely that the dependency ratio will proceed according to the projections made. Longer working lives, immigration, political changes and advances in technology could all make the predictions go haywire. Demography is not destiny. But there’s no doubt India has a unique opportunity, an opportunity Prime Minister Narendra Modi has done well to underline.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 09 Oct 2014, 11:56 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App