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Friday, 03 Dec 2021
easynomics
A newsletter that demystifies complex economic jargon and explains how it impacts your everyday life
By Vivek Kaul

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Why Indians are having fewer babies and what it means for us

I grew up in a public sector colony in Ranchi in what was then Bihar. A typical family in the neighbourhood had a working husband and a wife, who was usually a homemaker, and two kids with an age gap of about two to four years.

I found it very surprising that my classmates in school had elder brothers or sisters who were already married or working, simply because my experience was limited to the way things were in the colony I lived in.

But my lived experience was all wrong. Families with two children weren’t exactly the norm in India in the 1970s and the 1980s. Take a look at the following graph, which plots India’s total fertility rate or simply babies per woman.

     

The total fertility rate in 1971 was 5.2. This meant that, on average, 100 women had 520 children during their childbearing years. By 1988, this had fallen to four.

This shows that through the 1970s and 1980s, hum do hamare char-paanch (we two and ours four or five) was the norm. But things have changed since then.

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Why are we talking about this now?

On 24 November, the findings of the National Family Health Survey 5 (NFHS 5) for the period 2019-2021 were released. According to the survey, babies per woman has now fallen to just two. What this means is that the parameter is now below the replacement rate of 2.1.

What is the replacement rate? Vaclav Smil explains in the book Numbers Don’t Lie: “The replacement level of fertility is that which maintains a population at a stable level. It is about 2.1, with the additional fraction needed to make up for girls who will not survive into fertile age.” This means that in theory, if on an average 100 women have 210 children during their childbearing years and this trend continues over the decades, the population will eventually stabilize and continue to remain stable.

How did this happen?

1) As poverty comes down, so does the need for families to have more children. This is a point that Hans Rosling, Ola Rosling and Anna Rosling Rönnlund make very forcefully in Factfulness: “Parents in extreme poverty need many children… [Not just] for child labour but also to have extra children in case some children die… Once parents see children survive [and] once the children are no longer needed for child labour… both the men and the women instead start dreaming of having fewer, well-educated children.”

This phenomenon is now playing out in India. Poverty has come down over the decades, notwithstanding the recent spurge post the spread of the covid-pandemic.

2) Also, as more women get educated, more children survive. As the Roslings write: “The data shows that half the increase in child survival in the world happens because the mothers can read and write.” This leads to “educated mothers [deciding] to have fewer children and more children survive. More energy and time is invested in each child’s education. It’s a virtuous cycle of change.”

Of course, more Indian women have become literate, and the infant mortality rate or the number of infant deaths for 1,000 live births of children under one year of age, has come down over the decades.

Nonetheless, according to the NFHS 5, close to 71% are literate, which means around 29% of women are still illiterate.

Let’s look specifically at the state of Bihar. The babies per woman are at 3, higher than the all-India number. The female literacy rate is at 55%, much lower than the pan-India number.

In contrast, in Kerala, where more than 97% of women are literate, 100 women have 180 babies, leading to babies per woman of 1.8. This trend can be seen across states, with states with higher female literacy having fewer babies per woman.

3) There is another important factor here at work: as human beings, we are also likely to do things that others around us do. As Vaclav Smil writes in Growth – From Microorganisms to Megacities: “Fewer and fewer children… changes the perception of the ideal family size.” Following others makes it easier to justify those decisions to the people around, given that decision-making is essentially a social thing.

The Chinese experience

Let’s look at the following chart, which plots the babies per woman for China and India between 1960 and 2019.

(The total fertility rate data for India shared earlier has been sourced from the Centre for Monitoring Indian Economy (CMIE) database. The data in the above chart is slightly different from the CMIE data, but the difference is not material).

What does the above chart tell us?

1) The fall in the babies per woman or the total fertility rate has been very gradual in India.

2) The popular wisdom is that China’s one-child policy is responsible for the faster fall in babies per woman, which it is, but not entirely. When China implemented its one-child policy in 1979, babies per woman was at 2.7, down from the peak of 6.4 in 1965 and 1966. The point is that babies per woman were already falling before the policy came into effect.

As Mauro F. Guillén writes in 2030: How Today’s Biggest Trends Will Collide and Reshape the Future of Everything: “Back in 1965, the fertility rate in urban China was about six children per woman. By 1979, when the one-child policy came into effect, it had already declined all the way down to about 1.3 children per woman...Meanwhile, in rural China, fertility hovered around seven children per woman in the mid-1960s, a number that decreased to about three by 1979.”

So, why did the Chinese politicians still go ahead and introduce the one-child policy? As Guillén writes: “The policymakers were unaware of the reality that fertility in China had been dropping precipitously since the 1960s, with most of the decrease driven by the same factors as in other parts of the world: urbanization, women’s education and labour force participation, and the growing preference for giving children greater opportunities in life as opposed to having a large number of them.”

In that sense, other factors played as much of a role in reducing the total fertility rate as the one-child policy did.

3) China reached the replacement level of 2.1 babies in 1991, which was very fast. As Smil writes in Numbers Don’t Lie: “The shift from high to low fertility took about two centuries in Denmark and about 170 years in Sweden. In contrast, South Korean fertility fell from more than six total fertility rate to below the replacement level in just 30 years.”

The interesting thing is that neither China nor South Korea saw the fastest fall in babies per woman. As Smil writes: “The unlikely record holder is Iran. In 1979… Iran’s fertility averaged 6.5, but by the year 2000, it was down to the replacement level.” In 2019, it was at a replacement level of 2.1, rising from a low of 1.8 in 2007.

While India has done worse than some Asian countries, it’s done reasonably well in the historical context.

So what does it mean for us?

1) Just because the total fertility rate has fallen below the replacement level, it doesn’t mean that the population will start contracting immediately. This is because of the population momentum effect. While the total fertility rate is lower than the replacement level, the number of women who will keep entering the fertile age will grow because of the higher total fertility rate in the past.

So, when will the population start contracting? For this, we can look at the Chinese experience. When babies per woman in China touched the replacement level in 1991, the population was 1.15 billion. In 2020, it was at 1.40 billion. The rate of population growth between 2019 and 2020 had slowed down to 0.3%. Hence, even three decades later, the Chinese population is still growing, despite a total fertility rate of 1.7, which is much lower than the replacement rate. Going by this, the Indian population will keep growing for at least another three decades.

2) I am sure many of you have heard people in general conversation and political rhetoric blame India’s population when it comes to its problems. Of course, a vast population without a similar increase in resources is a problem. Nonetheless, as we shall see, that’s just a part of the story.

In India, the term demographic dividend is loosely bandied around. But the term actually means something. It is a period of a few decades when the population demographics of a country, thanks to a falling total fertility rate, are such that the growth of the working-age population, or those aged between 15-64, happens at a pace faster than the overall population.

As the young enter the workforce, find jobs, earn money and spend it, the economy is expected to grow faster than in the past and pull people out of poverty. But this comes with a corollary – the demographic dividend is a necessary condition for fast economic growth, not a sufficient one.

This is because for the youth to work and earn, they need to be gainfully employed. Further, the youth need to be educated, skilled and healthy enough to take on jobs. As Ruchir Sharma writes in The 10 Rules of Successful Nations: “The “dividend” pays off only if political leaders create the environment necessary to attract investment and generate jobs.”

The fact that there aren’t enough jobs going around to cash in on the Indian demographic dividend can be gauged from the fact that India’s labour force participation rate has been falling over the years. The World Bank defines the rate as the proportion of the population aged 15 and older that is economically active. Hence, this includes people who are employed and people who are unemployed and looking for a job. Take a look at the following graph that plots the Indian labour force participation rate since 1990.

Until 2006, the rate was stable in the range of 57-58%. But, after that, it started to fall. What it means is that many Indians who enter the workforce do not look for jobs anymore. A part of this is because some people are spending more time in schools and colleges. But a major reason remains that those who cannot find jobs stop looking for one and hence, don’t get counted as a part of the workforce.

In fact, according to NFHS 5, only one in four women worked in the past 12 months and were paid in cash. The Centre for Monitoring Indian Economy data shows that women’s labour force participation rate has been in the single-digit for a while now. It was at 9.5% in October. (I had dealt with this issue in some detail in the 15 October edition of the newsletter).

If India wants the fast economic growth of the kind the politicians keep talking about, it needs to create more jobs, particularly for women.

3) One of the most important factors of economic growth is the rate at which the working age population is growing. As Sharma writes: “Consider my database of the fifty-six postwar cases in which a country sustained an average economic growth rate of 6% or more for at least a decade. In three out of every four, from Brazil in the 1960s to Malaysia in the 1990s, the working-age population grew at an average pace of at least 2% a year. In short, if a country’s working-age population growth rate is not above 2%, the country is not likely to enjoy a long economic boom.”

While countries that grew cashed in on their demographic dividend, not every country with a demographic dividend grew quickly. This is a critical distinction that needs to be made.

As Sharma writes: “Scanning the record for nearly 200 countries, going back to 1960, I found 698 cases in which data for both population growth and GDP growth are available for a full decade. In more than 60% of these cases, the country had a working-age population growth rate of more than 2%, but only a quarter of those population booms were accompanied by average GDP growth of 6% or more.”

How does India look on this front? Take a look at the following chart, which plots the annual growth in the working-age population.

For more than four decades through 2009, India’s working-age population constantly grew by more than 2% per year. But, of course, it did not immediately translate into economic growth, given that India was held back by the prevailing economic system. As I said earlier, the demographic dividend is a necessary condition but not a sufficient one.

Growth picked up post the 1991 economic reforms, and it peaked during the period 2003-04 and 2007-08, when the country grew faster than 7%, for five consecutive years, something that hadn’t happened before and hasn’t happened since. Interestingly, these were the last few years when the working-age population was growing at a rate of greater than 2%. This ended in 2009. In 2020, the yearly growth in the working age population was at 1.4%.

So, what does the future hold?

China reached the replacement level of 2.1 in 1991. However, its working-age population continued to grow faster than its overall population up until 2011. Since then, the working-age population has been growing slower than the overall population, and unsurprisingly the country’s economic growth has slowed. Of course, this is not to say that the end of the demographic dividend is the only reason for the same.

India continues to enjoy the demographic dividend even though the best days to benefit from it – the period when the working-age population was growing at faster than 2% – are gone. In 2020, the working-age population grew 1.4%, whereas the overall population grew by 1%. If we go by the Chinese experience, we still have two decades until the demographic dividend runs out. And if we are to cash in on it, we need to create jobs, especially for women. More jobs will mean more prosperity for everyone, including you, dear reader.

PS: In response to the last week’s newsletter, a reader remarked on Twitter that I hadn’t explained why Sholay did so well. The answer to that is very simple. Sholay did well because many people saw it.

     

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Written by Vivek Kaul. Edited by Saikat Chatterjee. Produced by Nirmalya Dutta. Send in your feedback to newsletters@livemint.com.

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