B S Raghavan

India's age profile its biggest blessing

B. S. Raghavan | Updated on March 09, 2011 Published on March 09, 2011

There used to be sporadic exercises undertaken by economists seeking to determine the real impact of the demographic structure of a country, especially relating to the quantum of its work-force, on output and productivity and, hence, on its GDP.

At one time, it was their age structure that was seen as having made tigers of East Asian nations and laggards of many of the countries in Africa.

There have been similar studies on the leverage India's prospective “demographic dividend” will have on its economic growth, but none more lucid or illuminating than the Working Paper to come out of the IMF stable in February.

Its authors, Shekhar Iyer and Ashoka Mody, deserve to be complimented, particularly for assembling and analysing data and trends in the age structure of the population of different States, and their correlations with overall growth. So far as I know, this is the first time such an effort has been made.

The common perception, even among those with an intimate knowledge of the salient aspects of India's economic performance, is that the launching of economic reforms in 1991 was exclusively responsible for the spectacular phenomenon of growth catapulting it to the status of a would-be economic power.

It would seem from the evidence gathered by the authors of the paper that a substantial proportion of the ‘growth acceleration', as they call it, was attributable to changes in the country's age structure, brought about by a continuing decline in infant mortality and fertility rates.

Actually, it was the ongoing demographic transformation that should take the credit for 40 to 50 per cent of per capita income growth in India from as early as the 1970s onwards.

Stronger prospects

Between now and 2040, India will account for an estimated 25 per cent of the projected increase in the global working age population aged 15–64 years and experience a rise in its ratio to the total population from 64 per cent to 69 per cent, resulting in an addition of just over 300 million working-age adults. India would thus emerge as the largest single contributor to the global workforce over the next three decades.

The Economist, in a write-up in its issue of August 21-27, 2010, sees it as a blessing: “As recently as the early 1990s, India was as rich [as China], in terms of national income per head. China then hurtled so far ahead that it seemed India could never catch up.

But India's long-term prospects now look stronger. While China is about to see its working age population shrink, India is enjoying the sort of bulge in manpower which brought sustained booms elsewhere in Asia. It is no longer inconceivable that its growth could outpace China's for a considerable time.”

The IMF paper is confident that the demographic dividend could add about two percentage points per annum to India's per capita GDP growth over the next two decades.

An important conclusion of the study is that the benefits to be derived from the demographic dividend, being inherent in the nature and character of the working age population itself, are not conditional on any given policy framework or social environment.

Coming to the States, the paper notes that the largest expansions in the working age ratio to date have occurred in the Southern and Western States, that have led India in terms of recent economic growth. However, the bulk of the remaining demographic transition will be concentrated in lagging States, which will have the effect of wiping out the difference in income and growth among rich and poor States in the next couple of decades.

It will not be correct to assume, though, that the benefits will accrue automatically. A younger age structure will, no doubt, be conducive to innovation and creativity and higher savings rates, increasing the domestic resources available for productive investment. But it also presumes the availability of the required social infrastructure and avenues for skills development.

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Published on March 09, 2011
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