Demographic Dividend

Meaning and implications: India

What is demographic dividend ?

The demographic dividend is a rise in the rate of economic growth due to a rising share of working age people as a proportion of the overall population A demographic dividend does not mean people, but productive people This usually occurs late in the demographic transition when the fertility rate falls and the youth dependency rate declines.

How Does DD Come About ?

Three Stages

STAGE 1
High fertility rate; declining mortality rate Very broad young age group; below 15 years High dependency ratio

STAGE 2
Fertility starts declining at a fast pace However, higher growth rate in the working age population continue Developing countries of today

STAGE 3
Old age population increases and becomes higher Levels sustained due to low mortality rates

Demographic Change and Economic Growth

contribution of the second stage of the age structure transition depends on the ability of countries to take full advantage of this stage in providing gainful employment to the workforce
Increased Saving Rate: low dependency rate and increased life expectancy Decline in fertility rate: women enter into the labour market during this stage results in increased economic activity People invest more on their own health when children are fewer in number, leading to better productivity and economic benefits Increased public spending in productive activities due to reduction in public spending towards health and education: decline in the number of children

Even though the world has just discovered it, the India growth story is not new It has been going on for 25 years

What is the India story?

VIDEO

Indian Perspective
Increase: just over 1 billion to 1.4 billion

Indias Population

Working age (15 to 59 years)

Proportion: increase from 57.7% to 64.3%: 308 million

Workforce levels

It is estimated that by about 2025 India will have 25% of the worlds total workforce Numbers of the aged will begin to increase dramatically, consequently the window of opportunity is between now and 2025

Beyond 2025

India 2011 (U.S. Census bureau)

Population growth is slowing

(%)
2.5 2.0 1.5 2.2

2.1 1.8 1.5

1.0

1.0
0.5 0 1901-1950 1951-1980 1981-1990 1991-2000 2001-2010

Sources: 1900-1990: Angus Maddison (1995), Monitoring the World Economy, 1990-2000:Census of India (2001)

Rising GDP growth

(%) 10 8.0 8 6.0 6 3.5

Average annual GDP growth

4 2
0 1.0

1900-1950

1950-1980

1980-2002

2002-2006

Literacy is rising
(%) 100 80 80 60 40 17 20 0 1950 1990 2000 2010 (proj) 52 65

Source: Census of India (2001)

Middle class is exploding

(m) 8% 400 368 300 22% 32%

200

220

100

65
0 1980 2000 2010 (proj)

Source: The Consuming Class, National Council of Applied Economic Research, 2002

Poverty is declining
(%) 50 46 40 30 26 20 16 10 0 1980 2000 2010 (proj)

1% of the people have been crossing poverty line each year for 25 years
Equals ~ 200m

Per capita income

($000) 40

On a ppp basis
37,000

30

20

16,800
5,800 2,100 3,050

10

0
2000 2005 2020 2040 2066

India is now the 4th largest economy

It will overtake Japan between 2012 and 2014 to become the 3rd largest

India has a vibrant private space

100 Indian Companies have market cap of US$ 1bn 1,000 Indian Companies have received foreign institutional investment 125 Fortune 500 companies have R&D bases in India 390 Fortune 500 companies have outsourced software development to India 2% bad loans in Indian banks (v~20% in China)

80% credit goes to private sector (v~10% in China)

Looking forward
7%-8% economic growth Democracy will not permit more than 8% 1.5% population growth

The India vs. China Debate

Indias demographic advantage means that its high growth will continue longer term while China will slow

The Economist

(August 2127, 2010)

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 Indias 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 Chinas for a considerable time.

Population Pyramids: India vs China

Developing Countries: Tracking The Bulge

Demographic Dividend : India

Opportunity
Increase in the GDP More per capita income Reduction in Poverty Public Private Partnerships Strong economy to face external fluctuations

Challenge
Huge infrastructure required to support the bulge Creation of more and more jobs Education and skill imparting institutions

Factors Affecting the realization

Ecosystem (Ensure High Growth & Labour Transitions) Labour Law and Regulation (Protect Employee & Enable Employment)

DD Realized

Employability (Enable Quality, Skills & Vocational Training for entire Workforce

Matching Institutions (Build Institutions that match Demand and Supply)

Labour Law and Regulation

A good regulatory and legal regime should govern the labour and employment markets in India
Laws should be harmonious with each other and easy to implement to ensure low cost transactions in the labor market

Two pronged effort is required for this:

for markets to work properly employees need to be protected against exploitation and poor working conditions

The legal framework should not be biased against the normal employment generating businesses. This would generate greater employment

Employment Ecosystem A conducive ecosystem ensures that the that growth is sustained and spread across the country, thereby generating employment opportunities for all A good employment ecosystem that would facilitate, if not accelerate four transitions:
Rural to urban migration Farm to non-farm switching Movement from unorganized to organized sector Transfer from subsistence self employment to quality wage employment

Government Schemes
The Mahatma Gandhi National Rural Employment Guarantee Act The Jawaharlal Nehru National Urban Renewal Mission
Aims at enhancing the livelihood security of people in rural areas Guarantees hundred days of wage-employment in a financial year to a rural household

Sub-Mission for Urban Infrastructure and Governance Sub-Mission for Basic Services to the Urban Poor

Bharat Nirman programme

It is a programme to build rural infrastructure Employs a large part of rural population

Employability
New entrants in the job market need to be employable for the new opportunities that growth will throw up Availability of Good and accessible educational and vocational training system Initiatives in the past
Increase in number & quality of Industrial Training Institutions (ITIs) Skills Development Initiative of CII

Employability
New entrants in the job market need to be employable for the new opportunities that growth will throw up Availability of Good and accessible educational and vocational training system Initiatives in the past
Increase in number of Industrial Training Institutions (ITIs)

Skills Development Initiative of CII

Education System
Is reasonably good for the top 20%
Highly competitive business and engineering institutions

Is abysmal for the rest

1 in 4 teachers is absent in government primary schools 54% of children in urban India in private school

Indias Three Mismatches

THE GEOGRAPHIC MISMATCH:

Much of Indias demographic dividend will occur in states with backward labor market ecosystems.
Between 2010 and 2020, the states of UP, Bihar and MP will account for 40% of the increase in 15-59 year olds but only 10% of the increase in income.

During the same period, Maharashtra, Gujarat, TN and Andhra will account for 45% of the increase in GDP but less than 20% of the addition to the total workforce.

Indias Three Mismatches THE SKILLS / EDUCATION MISMATCH: About 89% of the 15-59 year olds have had no vocational training. Of the 11% who received vocational training, only 1.3% received formal vocational training. The current training capacity is a fraction of the 12.8 million new entrants into the workforce every year.

Indias Three Mismatches

THE SECTORAL MISMATCH: Most employment opportunities will arise in sectors where people have little experience. The largest component of labour force growth is in rural areas but the most growth in employment is in areas that require greater human capital. Wage inflation projection till 2026 flag skill shortages.

References Sources of growth in Indian Economy by Bosworth, Collins and Arvind at Indian Policy Forum, New Delhi Fostering Inclusive Growth via Demographic Dividend by Fabrice Lehmann, December, 2009 Indias Development by Raghuram G. Rajan, University of Chicago Imagining India, Nandan Nilekani http://nrega.nic.in/netnrega/home.aspx http://imaginingindia.com/explore-and-discuss-thebook/explore-the-chapters/ideas-that-havearrived/indias-demographic-dividend/ http://www.youtube.com/watch?v=qiOFnkYf7zc http://www.youtube.com/watch?v=-rqlKyJ3xbM