August 09, 2020
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India, By Its People

Our huge population is not an economic albatross. Today, India's growth story is increasingly the story of its young population.

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India, By Its People
India, By Its People
Imagining India: Ideas for the New Century
By Nandan Nilekani
Allen Lane (an Imprint of Penguin Books) Pages 544

In Delhi this Monday morning, it is chaos. Despite its pristine new metro and expanding highways, the city can barely contain the morning hubbub, the swarm of people all trying to get somewhere. By the time I reach Kaushiak Basu’s home—set a little apart from the highway, on a quiet street that is empty except for a single, lazy cow who stops in front of the car, in no hurry to move—I am very late, a little grimy, but exhilarated.

Kaushik and I chat about how the crowds in the city look completely different compared to, say, two decades ago. Then, you would see people lounging near tea-shops, reading the morning paper late into the afternoon, puffing languorously at their beedis and generally shooting the breeze. But as India has changed—bursting forth as one of the world’s fastest-growing countries—so has the scene on the street. And as Kaushik points out, it is this new restlessness, the hum and thrum of its people, that is the sound of India’s economic engine today.

Kaushik is the author of a number of books on India and teaches economics at Cornell, and his take on India’s growth—of a country driven by human capital—is now well-accepted. India’s position as the world’s go-to destination for talent is hardly surprising; we may have been short on various things at various times, but we have always had plenty of people. The crowded tumult of our cities is something I experience every day as I navigate my way to our Bangalore office through a dense crowd that overflows from the footpaths and on to the road—of software engineers waiting at bus stops, groups of women in colourful saris, on their way to their jobs at the garment factories that line the road, men in construction hats heading towards the semi-completed highway. And then there are the people milling around the cars, hawking magazines and pirated versions of the latest best-sellers. Looking around, I think that if people are the engine of India’s growth, our economy has only just begun to rev up.

But to the demographic experts of the nineteenth and twentieth centuries, India’s population made the country quite simply a disaster of epic proportions. Paul Ehlrich’s visit to Delhi in 1966 forms the opening of his book The Population Bomb, and his shock as he describes India’s crowds is palpable: "People eating, people washing, people sleeping... people visiting, arguing and screaming... people clinging to buses... people, people, people."

But in the last two decades, this depressing vision of India’s population as an ‘overwhelming burden’ has been turned on its head. With growth, our human capital has emerged as a vibrant source of workers and consumers not just for India, but also for the global economy. But this change in our attitudes has not come easily. Since Independence, India struggled for decades with policies that tried to put the lid on its surging population. It is only recently that the country has been able to look its billion in the eye and consider its advantages.

Different demographic destinies
A common grouse we have in India is how slow we are—to reform, adapt and change, especially compared to our neighbour China. But my belief is that while democracies may be slow, they are also more cautious than autocracies, and this makes them less prone to committing truly egregious errors. Standing and ruminating over voter considerations after all is much more preferable to dashing straight into a gorge.

For instance, during the Malthusian hysteria of the 1960s, both India and China were pushed—at times shoved—by international organisations to control their population growth. What stood in its way were India’s voters: they did not like the idea of family planning and no amount of pretty slogans were going to make them change their minds. After the government that had brought in the cutting implements for nasbandi got tossed out of power, no Indian government would touch forcible family planning with a beanpole.

By the end of the 1970s, the Chinese government was also bitten by the population panic bug and began to emphasise population control to promote ‘social harmony’ and optimum growth. The government first launched the ‘Later, Longer, Fewer’ campaign, and then the one-child policy, which Deng Xiaoping implemented in 1981.
Under the wisdom of the 1970s and 1980s, the family planning programme in China was an enormous success. The argument in their defence is familiar dictator PR-speak—that it was ‘coercion for a good cause’. [1] In 1983 Indira Gandhi and China’s family planning minister, Qian Xinzhong, were jointly given the United Nations award for "the most outstanding contribution to the awareness of population questions". [2] However, even as these awards were being handed out, the view of population as a pestilence was beginning to shift.

From albatross to advantage
By the late 1970s, the Malthusian scientists had egg on their faces. They had predicted massive population-led catastrophes in India and China by the end of the 1970s. But the years passed, and the moment of mass death failed to arrive. By the 1980s academics had begun to harrumph and shake their heads at the downer theorists and re-examine populations in terms of their impact on economic growth. The Indian economist (and later Nobel laureate) Amartya Sen pointed out that India had not seen a famine since it had become a democracy, even while its population had continued to grow. The economist Julian Simon argued that as population increased, so did the stock of creativity and innovation: "The ultimate resource is human imagination." [3] This idea of population as an asset rather than a burden has especially gained currency with the rise of knowledge-based industries such as IT, telecommunications and biotechnology in the 1970s. In fact the information economy is the culmination of what the Industrial Revolution started—it has placed human capital front and centre as the main driver of productivity and growth.
I do shy away, however, from unbridled optimism—that would be almost as bad as the previous mood of relentless pessimism on population growth. The pressures of India’s vast population are indeed humungous—our natural resources are no bottomless pool. A billion people may offer us a deep base of human capital, but it also signals a potentially massive, detrimental burden on our environment, food production and resources, as millions of people join the middle class, ramp up their consumption, and per capita energy intake grows. We will have to find solutions for these concerns.
Nevertheless, the impact of human capital in India has so far had large payoffs for the economy, especially since the 1991 reforms. Our skilled workers have been the nerve stem of the IT, biotechnology, pharmaceuticals and telecommunications industries in India. Globally as well, human creativity and economic competitiveness are now closely linked, and competition among countries is competition between their human capital. As Tom Friedman notes, these days rather than tell his children to finish their dinner because people are going hungry, "I tell my daughters to finish their homework because people in China and India are starving for their jobs."

For a better idea of what has happened to our attitudes towards population, I spoke to the Harvard demographer David Bloom. I met David for the first time at Davos in 2006, a decade after his paper titled ‘Demographic Transitions and Economic Miracles in Emerging Asia’ made him famous much beyond academic circles—he is now one of those enviable scientists who can have a cocktail party audience hang on to his every word.

David tells me that the key problem with early population theories was that "they were obsessed with overall population growth as an indicator, while ignoring the trends that lurked inside those figures". These trends, David notes, were uncovered when he and fellow demographer Jeffrey Williamson were puzzling over the growth in one particular region—East Asia.
When David and Jeffrey looked inside East Asia’s magic hat, they discovered a remarkable population trend that happened to coincide with its rapid growth. Between 1950 and 2000, the chances that an infant would die in East Asia fell sharply from 181 per 1,000 births to just 34, and this caused fertility to fall from six children to two per woman. "And the children who had unexpectedly survived formed a ‘boom generation’."

This generation created a large number of young, enterprising workers, who themselves had fewer children and therefore few dependents—in fact East Asia’s working-age population at this time grew nearly four times faster than its dependent population. As a result the economies in the region had to spend a lower percentage of their incomes on the social costs of a dependent population. Lower costs meant that this generation could save more—we have seen this in India, where a larger working population has helped push the country’s savings rate as a proportion of GDP to 34 per cent in 2008, and it is set to rise even higher to 40 per cent by 2015. Such savings create additional capital for investment across the economy.

This extra money is especially valuable during boom generations, when the cumulative energy and creativity of a young, unencumbered population frees people not just to spend and save, but also to invent and innovate. Additionally, as the number of children per woman in East Asia fell from six to two, women were able to join the workforce and contribute to GDP growth. This demographically rich generation drove East Asia’s rise as a manufacturing and technology power—including the growth of Singapore in manufacturing and retail, of Hong Kong in finance and of Taiwan in electronics.
In all, Bloom and Williamson discovered, this wave of young workers contributed to as much as one-third of East Asia’s economic rise between 1965 and 1990. "We showed," David tells me, "that particular kinds of population growth could dramatically drive the country’s growth, not impede it as economists used to believe."

David called this effect the ‘demographic dividend’, a phrase that has quickly caught on. And with good reason. When demographers went back and looked at previous periods of sustained economic growth from Europe to the United States to Asia, they found that they coincided time and again with similar patterns of large numbers of young people, and fewer dependents.

The dividends of an autocracy, versus a democracy
Population scientists are universally fond of noting that ‘demographics is destiny’, but in India’s case, it is both demographics and democracy. Today, India’s growth story is increasingly the story of its young population. Our economy is the most dynamic in terms of its human capital—India has one of the youngest populations in the world, with a median age of 23, at a time when the rest of the globe is going grey.
China’s young and unencumbered generation had come three decades earlier than India’s, in the 1970s. It was the generation of the Great Leap, during which China shifted towards capitalism and rapid growth, and experienced massive social upheaval. China’s one-child families also meant more focused investments in children, and this generation saw literacy and college completion rates explode. The one-child policy, however, has created the ‘4, 2, 1’ population structure in China—four grandparents, two parents and one child, resulting in fewer young workers and below-replacement level birth rates since the early 1990s.
These family structures in China have been far more disruptive than we immediately realise. The sociologist Dr Andre Beteille makes an especially astute observation. "Almost none of the Chinese have siblings," he points out, "which means no aunts, uncles or cousins. An incredibly alien notion for the rest of the world is the Chinese reality." The single-child family has also created the uniquely Chinese ‘little emperor’ syndrome—an only child has the undivided attention of the adults in his or her family, which is creating a ‘me generation’ of highly individualistic young.

Family planning has also intensified certain social challenges. Both China and India have a worrying but popular preference for sons—it is a feudal carryover, the consequence of a persistent, patriarchal mindset. A recent court case in India for a missing girl underlined the worst of this attitude. The presiding judge in the case, astonished on hearing the name of the girl, turned to the parents and asked them, "Why did you name your daughter Nirasha (disappointment)?" Their lawyer responded, "Milord, it was their fifth daughter."

Prosperity has not changed this preference completely—even as the status of women has improved and a rising emphasis on old-age security based on financial investments has dimmed the charms of the male child, factors such as ultrasound technology have made sex-selective births easier. Sex-selective abortions have dragged the sex ratio down to 925 girls for every 1,000 boys, and this has fallen below 750 in some north Indian districts. In China the one-child policy has intensified the girl deficit even more—nationally it stands at 855 girls for every 1,000 boys. This alarming ‘disappearance’ of women will lead to an estimated forty million Chinese men aged between 15 and 39 by 2026 who will be ‘bare branches’ [4], unlikely to have families or children of their own. In retrospect, India may have gained some economic and social advantages simply due to its reluctance, or perhaps inability, to fiddle with its demographic curve. This also means that our dividend is now right before us, both as a potential and as an enormous challenge.

Demographics and democracy: India’s destiny
India is coming into its dividend as an unusually young country in an unusually ageing market—a young, fresh-faced nation in a greying world. Globally, more people than ever before are entering retirement. In fact, even by the 1980s, the heads of European countries had begun to worry out loud about Europe’s falling population. "Europe is vanishing... our countries will be empty ," [5] the French president Jacques Chirac had said—the continent was becoming a place of "old people, living in old houses, ruminating about old ideas." [6]

This trend of an ageing, shrinking population now visible across much of the developed world, is coinciding with India’s experience of a demographic dividend that will last until 2050. This opens up interesting new opportunities for the country, as the challenge of maintaining wealth in ageing societies means that developed markets will have to increasingly outsource their labour requirements. In 2020 India is projected to have an additional 47 million workers, almost equal to the total world shortfall. The average Indian will be only 29 years old, compared with the average age of 37 in China and the United States, 45 in Western Europe and 48 in Japan.

An early sign of the immense potential of our human capital has been the growth of India’s IT/BPO sector and the rise of ‘transformational outsourcing’ by multinational firms across industries. The country has seen its global profile rise rapidly on the strength of its human capital—its entrepreneurs, scientists, engineers and management graduates. 

India already has the second largest reservoir of skilled labour in the world. It produces two million English-speaking graduates, 15,000 law graduates and about 9,000 PhDs every year. And the existing pool of 2.1 million engineering graduates increases by nearly 3,00,000 every year.

A talented pool of workers, along with abundant capital and investment, presents us with immense opportunities for creativity and innovation, which can in turn lead to rapid gains in productivity, growth and GDP. This had once enabled Europe to emerge as a centre for manufacturing innovation in the nineteenth century; similarly, at the peak of its dividend between 1970 and 1990, the United States saw the birth of new technology-based industries that determined the direction of the global economy over the past few decades. Such an opportunity—to emerge as the new creative power and a centre for new knowledge and innovation—now lies with India.
India is also emerging as a rapidly growing consumer market for the world economy, with a middle class that is already larger than the population of the United States and two-thirds the size of the European Union. Our demographic dividend is set to trigger a further explosion in middle-class consumers as the boom generation comes of age, and over the next two decades India’s middle class will swell to over 580 million people. At the same time, the lack of dependents will enable a new phase of guilt-free consumption. It is these multiple forces that are expected to drive a growth rate of five per cent for India until 2050 [7]—a trend that, if it happens, will be unique and unprecedented in economic history. 

India’s double-hump: The camel in our demographics 
Demographers such as Tim Dyson and P.N. Mari Bhat have shown that if we peel India’s demographics like an onion, we end up with two very distinct areas within the country—a north that, thanks to its recent high fertility, stays remarkably young over the next two decades, and a south which faces rapid ageing. [8] By 2025 north India’s population will still be very young, with a median age of just 26. But the median age in the south would be about 34—similar to Europe’s in the late 1980s. [9]

This means that India’s demographic dividend is actually a double hump, one of which is already nearly exhausted. The first hump of the dividend came from the south and has been ‘expensed’ in the economic growth that the south and the west of India experienced as early as the 1970s, when their infant mortality began to fall. In the northern states, however, infant mortality has only just started to trend down. [10]
As a result it is the second, larger hump in India’s dividend which is yet to peak, and which will come from the northern states—and primarily from the bimaru regions. The demographer Ashish has estimated that the share of BIMARU states alone in our population growth between 2001 and 2026 will be around 50 per cent, while the share of the south will be only 12.6 per cent. As a result, over the next decade, the north should begin to ride the crest of its dividend, towards higher growth.

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