Deciphering the demographic dividend

 7/17/2016  722

Demographic change in India is opening up new economic opportunities. As in many countries, declining infant and child mortality helped to spark lower fertility, effectively resulting in a temporary baby boom. As this cohort moves into working ages, India finds itself with a potentially higher share of workers as compared with dependents. If working-age people can be productively employed, India’s economic growth stands to accelerate.

Theoretical and empirical literature on the effect of demographics on labour supply, savings, and economic growth underpins this effort to understand and forecast economic growth in India. Policy choices can potentiate India’s realization of economic benefits stemming from demographic change. Failure to take advantage of the opportunities inherent in demographic change can lead to economic stagnation.

Global population grew at roughly 2% per annum from 1960-2000, a level that is unsustainable in the long term, as it translates into population doubling every 35 years. India’s population is currently growing at a rate of 1.4% per year, far surpassing China’s rate of 0.7%. The differential between India and China will result in India surpassing China with respect to population size in less than 20 years. While a cause for concern, global population growth has not met Malthus’ pessimistic predictions of human misery and mass mortality. During the past few decades, rapid population growth has been accompanied by an unparalleled decline in mortality rates and by an increase in income per capita, both globally and in India.

India has several opportunities to increase its chances of success, the first being to make wider and deeper investments in health. Insofar as investing in health can help stimulate development, India has considerable potential to promote higher income through programmatic and financial commitments to health. India has taken a significant step in this direction by establishing the Public Health Foundation of India and the National Rural Health Mission, which seek to fill India’s pressing need for a wide range of further investments in the promotion and protection of health, including the training and wide deployment of medical and public health professionals who focus on disease prevention, treatment, and care.
India’s second great demographic opportunity involves the acceleration of fertility decline. In general, there are three main approaches to promoting fertility decline, and India has scope for improvement with respect all three.

  1. The first is the expansion of family planning services in a way that is respectful of people’s reproductive rights. Currently, approximately 13% of Indian women (10% in urban areas and nearly 15% in rural areas) report unmet need for contraception, meaning that many currently married women who desire to postpone or forego childbearing are not using contraception. Overall, 56% of married women in India (64% in urban areas and 53% in rural areas) report that they use contraception (either modern or traditional methods), with female sterilization by far the most common method. (Government of India, 2005-2006) Satisfying India’s unmet need for contraception will help it achieve its stated goal of bringing TFR down from its current level of 2.7 to the long-run replacement fertility level of 2.1.
  2. A second proven approach to lowering fertility involves efforts to promote infant and child survival. Vaccines against childhood disease are one potent way to realize an improvement in child survival, which leads to more than proportionate fertility reductions. Such an approach might include expanding coverage of established and inexpensive vaccinations such as those against diphtheria, tetanus, pertussis, polio, and measles; or it might include introducing a new schedule of more expensive vaccinations against rotavirus, pneumococcal disease, and Haemophilus influenzae type b (Hib), thereby addressing several leading causes of child death in India. Childhood vaccines also have the virtue of promoting better school attendance, better cognitive function, and better adult health, all of which tend to make vaccinated children more productive, and therefore higher-earning, adults. India stands to benefit greatly from initiatives to increase vaccination coverage; its coverage rates are currently well below world averages. DTP3 vaccination rates are a common indicator of national immunization coverage; the coverage rate for India was 66% in 2008, nearly 20 percentage points lower than for the rest of the world (WHO 2010).
  3.  Third, girls’ education can serve as both an indicator of development and an instrument for promoting fertility decline. Educated mothers tend to have fewer children, as education raises the cost of having children by improving the work opportunities that most women are forced to forgo by having children. Education also empowers women to express their views on lifestyle and fertility decisions. Having fewer children allows families to invest more in the health and education of each child, thereby raising the productive capacity of future generations. The effects of education, and girls’ education in particular, are extremely powerful.

Education also has a major role to play in India’s ability to capitalize on the demographic dividend: education, especially secondary and tertiary education, will equip India’s youth with the skills they need to be productive in a fast-moving and unforgiving global economy in which knowledge and skill rule. Although India has made progress since the early 1990s, there is considerable scope for continued progress in this area, mainly at the secondary and tertiary levels. At the same time, policymakers must ensure that they are not misled by statistics, as enrolment in school does not guarantee attendance. Furthermore, attendance does not guarantee that a student is receiving an education of sufficiently high quality to substantially augment their knowledge, skills, and productivity.

Indian policymakers will also need to recognize that realization of the demographic dividend depends on an economy’s capacity to absorb workers into productive employment. This capacity is strengthened by:
• good governance (effective avenues for citizen input, well-functioning institutions, respect for the rule of law, low level of corruption, respect for property rights, sanctity of contracts);
• efficient infrastructure (reliable roads, railways, telecommunications, water supply, sanitation, and agricultural needs);
• prudent fiscal and macroeconomic management (policies that keep inflation reasonable, promote inclusive economic growth, avoid severe trade imbalances);
• well-developed and competitive financial markets (institutions that facilitate mobilization of savings, safeguards to ensure that banks and other financial institutions serve the public interest) and labour markets (a negotiated balance of power between employers and workers); and above all,
• investments in education and training (strength in all levels of schooling for females and males of all income levels and castes, job training for workers to keep up with new types of services and industries).

While these are all excellent policies independently of demographics, the stakes are much greater when a large cohort is poised to enter the working ages. Given its high levels of internal heterogeneity, India needs to consider a combination of these approaches and policies to catalyze and speed its demographic transition, and to capture a demographic dividend. For example, some Indian states are in a much better position than others to benefit from demographic change. In some of the poorest states, such as Bihar and Uttar Pradesh, a large portion of the young population is extremely poorly educated and cannot engage productively in the type of work that would provide them a good income and that would help propel India forward economically. For that reason, even as these states experience falling fertility rates and consequently a rising share of working-age people, they are not poised to capture a demographic dividend.

In conclusion, demographics matter to the pace and process of economic growth and development – in India and elsewhere. While many factors influence economic growth, few are more important and reliable than demography. India’s changing demographics are creating a strong impulse for economic growth, and policymakers have several options for making this potential demographic dividend a reality.


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