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10 Jul

Size does not matter.

Somewhere around mid-April 2023, India surpassed China as the most populous country in the world.

As laymen, we might be alarmed by this statistical fact. We might think that an increasing population means a strain on resources. We might fear that our cities will get more crowded, worsening the rush in trains, buses and higher traffic on the roads. Students might worry that the already competitive nature of entrance exams will worsen if more students are vying for those limited seats. We might worry about the number of jobs available for the increasing population.

Or, we might be deluded by WhatsApp forwards into thinking that our population increase is a thing of national pride and that this mere population makes us the most powerful country in the world, ready for world domination.

But being alarmed or delusional is unhelpful.

Today, let me try to unpack some of the implications of a rising population.

Does a rising population fuel economic growth?

Every economy in the world has gone through different stages of growth enabled by its natural resources, industry, trade, and human resource. And the growth trajectories of most economies follow a path illustrated by the pyramid here, from bottom to top.

How an economy grows, moving from the bottom of the pyramid to the top, is determined by the policy choices within the economy and the human resource, i.e., the productive population of that economy.

For instance, in India, our policies prioritized the primary stage — agriculture, mining and fishery — for the first decade, post-independence. Manufacturing was a priority, but it was a government-led endeavour for a long time.

China, on the other hand, doubled down on manufacturing.

These policy choices naturally impact how the population gets utilized. If farming is incentivized, a larger chunk of the population will practise agriculture and other allied activities. If factories and manufacturing are incentivized, a major part of the population will be employed in factories.

However, at no point will the entire population of an economy be useful in its economic transition.

A large population, by itself, doesn’t fuel economic growth.

And if we want to feel proud of being the most populous country, we have to factor in something called The Demographic Dividend.

A demographic dividend is when an economy enjoys accelerated economic growth that stems from the decline in fertility and mortality rates. The way this happens is:

Fewer children die at childbirth or in the early stage of their childhood because of immunization against diseases. Consequently, families need to provide for them for longer time periods.

At the same time, when individuals are educated and take up jobs, it reduces the time available for child care, thereby disincentivizing birthing more children.

With advancements in healthcare technology, life expectancy increases, and mortality rates go down. Consequently, the economy experiences low birth rates in conjunction with low death rates. As a result, it receives an economic dividend, or benefits from the increase in productivity of its working population.

As fewer births are registered, the number of young dependents (0 – 15 years) grows smaller relative to the working population (15 – 64 years). With fewer people to support and more people in the labour force, an economy’s resources are freed up and invested in other areas to accelerate a country's economic development and the future prosperity of its populace.

So, how a nation's population is comprised of — both in terms of its age distribution and skill distribution — matters much more than simply the size of its population. And because people's economic contribution varies at different stages of life, changes in an economy's age structure can have significant effects on its economic performance.

Economies with a high proportion of children are likely to devote a high proportion of resources to their care, which tends to depress the pace of economic growth. In contrast, if most of an economy's population falls within the working age, the added productivity of this group can produce a “demographic dividend” of economic growth, assuming that policies to take advantage of this are in place.

In fact, the combined effect of this large working population and health, family, labour, financial, and human capital policies can create a virtuous cycle of wealth creation.

And if a large proportion of an economy's population consists of the elderly, the effects can be similar to those of a very young population. A large share of resources is needed by a relatively less productive segment of the population, which again, can inhibit economic growth.

You must now be thinking,

“Oh! if an economy can ensure a constant supply of citizens in the productive age, then they can hack economic growth.”

Technically, yes. But there are some caveats to ensuring such a supply.

Firstly, the productive age group (15 – 64) that contributes to the economy’s growth has to be skilled enough to find employment. Secondly, job opportunities that can employ people must exist or be created.

In an economy where there is high unemployment or underemployment, the prospect of growth dampens regardless of the population’s age structure.

Therefore, education, skills, and job prospects, more than the population density and age structure, help establish a relationship between economic growth and an economy’s population.

Lack of access to good education and misaligned job opportunities could result in the economy being stuck at either the primary or secondary stage of growth, as highlighted in this New York Times report on India:

“That “demographic dividend” could instead become something like a disaster. In recent years, India has squeaked past China to claim the title of fastest-growing major economy. But it has never expanded fast enough to produce sufficient formal employment for everyone. The country needs about nine million new jobs every year just to keep pace; the annual shortfall helps relegate many to India’s old standby, agricultural work.

Most people in India lack the means to be “unemployed” – in the workforce but without a job. Underemployment is the more discreet danger. Wages have been stagnant for eight years, according to an analysis by Jean Drèze, an economist at Delhi University. Economic growth without an equivalent increase in jobs makes India’s massively unequal society even more so, raising the potential for unrest.”

So you see, it is not as easy as equating a large working population with higher economic growth.

Additionally, India faces a few more issues that impact our chances of reaping the benefits of the demographic dividend.

Women’s labour force participation rate (LFPR) in India, especially in the formal job market, is as poor as a mere 8.8% as opposed to men’s labour force participation at 66%, as per the latest data available from the Centre for Monitoring Indian Economy (CMIE).

Of all the Indians aged 15 years and above, only 39.5% are even asking for a job. This is worrisome because if a large proportion of the labour force does not participate in the productive workforce, it adversely impacts how much growth can be achieved over a period of time.

Moreover, due to urbanization, better health and living facilities, and an equal rise in living costs, changing lifestyles, birth rates decline within an economy. It simply becomes unfeasible to produce more children and, if birthed, to support them well.

In fact, birth rates are already declining in southern India, where women have more education and family planning programs have proved successful. There, young families rarely produce more than two children. In some of India’s regions, the population is still growing too fast for their economies, producing many more able-bodied young people than there are jobs to absorb them.

So, in the Indian context, the Demographic Dividend is conditional on three factors:

  • The gender disparity in labour force participation
  • The usefulness and skill of this labour force
  • The rates at which jobs are created in different regions to accommodate the population growth in those regions

These factors are important to consider when making changes at the policy level or building infrastructure because simply boasting of a large population will not take us closer to economic growth. To sustain economic growth, a combination of policy choices, infrastructural developments, and job creation must be factored into the discussion.

Moreover, even if you say we have made correct policy choices thus far, a question that requires more deliberation is — if the productive age group (15-64 years) amounts to real-world use.

The thing is, a demographic dividend is cyclical and doesn't recur for a long time after it has passed.

In every economy’s transition, there is a limited time period within which these changes occur. Based on the experiences of other more developed countries, this window of opportunity typically lasts for about 30 – 40 years in an economy’s transition.

This is because, as both fertility and mortality rates drop, you face a situation in 30-40 years where all the productive population is now in the dependent bucket (aged 64 and above), and you do not have enough kids who have grown on to become productive adults. The result is a large percentage of the population now is comprised of old people.

Of both factors, fertility rates can be manipulated, but death rates can’t be.But this is easier said than done, and you can read about how countries like China and South Korea who were ahead of India in this cycle and now have a huge elderly population to support while also not having many kids to replenish their working population.

This makes it crucial for the Indian economy, touted to reap demographic dividends in the coming decades, to pay extra attention to its policy choices concerning education and job creation.

The size of the Indian population simply won’t cut it. The population will have to be useful in order to create economic growth and raise the next generation of kids with a much higher standard of living.

In tomorrow’s piece, I will tell you more about how and in what capacity I see myself contributing to this growth story.

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