Sunday, December 12, 2010

India and Its Population

One sometimes forgets that there are two giants in Asia. China is the focus of more attention than India because it is more active, more energetic, and casts a bigger shadow over the world. However, India is just as interesting a story and will become a bigger player on the world’s stage as time goes on. The interaction of these giants, one thrashing about, the other lumbering about, will be interesting for years to come. This will be the first of multiple reports on India and its economic and political future. The focus here will be on issues related to its population.

India is unusual for a country in its stage of development in that its population continues to grow at a healthy rate. The chart below, taken from UN data and projections, indicates that India will surpass China in population by around 2030.

Nicholas Eberstadt (Foreign Affairs, November/December, 2010) points out that this continued growth is due to an uneven distribution of wealth and development within the country.
“But India has striking regional disparities in population profiles. India is bisected by a great north-south fertility divide: in much of the north, including parts of the Ganges river belt and some of the country's westernmost districts, fertility levels remain quite high, at four, five, or more children per woman; in much of the Indian south, however, fertility levels are at, or already below, the replacement level. In effect, this means that two very different Indias are being born today -- a youthful, rapidly growing northern India whose future population structure will be akin to that of a traditional Third World society and a southern India whose population growth will be slowing or ceasing, where manpower growth will be coming to an end, and where pronounced population aging will be taking hold.”
This demographic peculiarity could have major ramifications as India attempts to continue its high growth rate over the coming decades.
“India's engines of economic growth are mainly its sub-replacement-fertility areas, which include much of the south and practically all its major urban centers: Bangalore, Chennai, Kolkata, and Mumbai. But its demographics mean that the country's future workers will increasingly come from the high-fertility areas of the north. This reveals a fundamental mismatch: India's continued economic growth requires workers who are relatively well educated, but India's mostly rural high-fertility areas are producing a rising generation with woefully low levels of schooling.”

“India, it is true, can boast of a cadre of millions of highly trained engineers, scientists, researchers, and professionals. But in a country of well over a billion people, these specialists compose only a tiny fraction of its overall manpower. In the country as a whole, educational levels are still remarkably limited, and remedial efforts will take generations to achieve substantial improvement. Currently, about a third of India's working-age population has no education at all; 20 years from now, a sixth of the country's work force may still be totally unschooled. These educational shortfalls place material constraints on the prospects for sustaining rapid rates of economic growth.”
A recent article in “The Economist” also considered population issues in the context of continuing economic growth. The current and projected dependency ratio (ratio of working age population to nonworking age population) is provided in the chart below. As usual, one cannot avoid China-India comparisons.

The author views an increase in working age population as a driver for growth. It certainly has been for Asian countries in the past. The surge in workers is truly enormous, accounting for almost a third of new workers worldwide

The canonical path to prosperity for Asian nations has been to move rural poor into low wage manufacturing jobs and use the cash flow from exports to build the physical and intellectual infrastructure to move to a more mature and diverse economy. It is not clear that India is moving in that direction. Being a democracy, the country cannot impose an economic plan to provide definite goals. It also does not have the ability to focus on educational achievement in a way that a country like China has.
“The workforce may be young and growing, but 40% are illiterate and another 40% failed to complete school. The Boston Consulting Group sees a shortfall of 200,000 engineers, 400,000 other graduates and 150,000 vocationally trained workers in the coming years. Meanwhile, there are 62m surplus workers in agriculture, most of them barely skilled.”

“India’s best universities—the Indian Institutes of Technology—are world class, but there are only 16 of them. Many universities turn out graduates who are good at exams but unaccustomed to thinking about real-world problems. Employers train them for months, at great expense. Then they are ruthlessly poached by rivals.”

“Public schools are a mess. Supplies disappear. Teachers do not turn up, and even the worst are unsackable: as civil servants, their jobs are constitutionally protected. India’s adult literacy rate is only 66%; China’s is 93%. Nearly half of children under five are malnourished, which makes it hard for their brains to develop properly. A government scheme to deliver cheap grain to the poor is a national disgrace: two-thirds of the grain is stolen or adulterated.”

“The shortage of skills is wonderful for those who have them. Their wages are surging. The technologically minded young are getting cocky, their elders grumble. They expect stimulation as well as pay. ‘They are willing to walk away from a bad or boring job,’ marvels Chaitanya Kalbag of Business Today, a magazine that recently published a cover story on ‘Brats at Work’.”

“The lack of skilled workers makes it harder to bring infrastructure up to the mark. Builders, electricians and plumbers are scarce. Cock-ups on building sites, such as lifts being installed upside down, are plentiful. The run-up to the Commonwealth games in Delhi, which begin on October 3rd, has been a reminder that India does some things very badly.”
The only thing we know for sure is that India’s population will continue to grow. The only things that seem to limit birthrates are education and wealth. It appears that India has a ways to go before it delivers these to its entire population.

Comparison with China at this point is unavoidable. China is the only other country that has attempted to lift so many people out of poverty. It is not clear yet that they will succeed. While the country has grown rapidly, it is still a poor county on a per-capita basis, and it is struggling to control the side-effects of rapid industrialization. India has not even begun to act on a scale that will affect the poverty that is endemic in many parts of the country. And it is not clear that trying to duplicate China’s path is a viable option.

India will likely follow its own unique plan into the future. Perhaps they have even decided what it is. Parts of the Indian economy have progressed through the low-tech, high-manpower phase, and are trying to compete in the high tech world. Indian companies are now outsourcing the ubiquitous call centers to the Philippines. Is anyone worrying about the teaming masses? Does India have two economies?

India’s growing population will be a benefit if they can figure out a way to educate them all and provide a job for everyone. Otherwise, surplus people could become a burden that would severely limit growth and modernization. A little pessimism might be in order.

A discussion of the state of the Indian economy must follow.

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