How prepared is India to reap a demographic dividend?
What the world's biggest country needs to do to make the most of its #1 resource
I’ve been pretty quiet on Substack so far this year n large part because all my creative energy was going into preparing for my first TED talk, which I gave in Vancouver mid-April. It’s not yet posted, but I’m thrilled that so many people who heard the talk in person said that they learned something new about population aging or that the talk made them think differently about the issue. For me, the best part was being in the audience. In this newsletter, I introduce you to two fabulous fellow speakers, and encourage us to think about how one’s work relates to India’s long road ahead in capitalizing on its demographic dividend. My second TED talk will actually be for India’s TEDxGateway on June 4th, so I continue to be busy spreading the demographic gospel!
At TED, I had the privilege of hearing Indian architect Vinu Daniel give a talk (also not yet posted) on how his company, Wallmakers, uses mud and waste to make sustainable and durable housing structures that are also visually stunning. And I do mean stunning.
Around the same time Vinu spoke, India officially became the world’s most populous country. From 361 million people just after partition to 1.4 billion today, India’s population has dramatically changed over the last several decades. But it’s the changes just over the horizon that deserve our attention. Whether India is to leap into a more prominent place in the global order or focus on delivering a better life to its millions mired in poverty, it is crucial that India see its population as the resource it is and take action now to leverage it.
That’s because India is in a crucial moment demographers refer to as the “window of opportunity,” a time when the bulk of the population is of middle ages and when societies can reap a demographic dividend, or accelerated economic growth from leveraging this favorable age structure. At the same time that the window is wide open, India’s population is slowly aging, following in China’s footsteps, as China has followed Japan and Western Europe. India still adds one million people every month, but its population growth rate has plummeted as fertility has fallen. The average number of children per woman was nearly 6 in the 1960s, but today the average is only 2, which is considered below replacement level (UN demographers put India’s replacement level at 2.19). That average masks some internal differences, but only five Indian states have a fertility rate above 2, and the highest is Bihar at just under 3.
From an environmental and resource perspective, this shift may be good news; from an economic perspective, fears that India will grow old before it grows rich may be valid. I’m known for being an anti-alarmist about population but in India’s case it is clear that a sense of urgency is needed to spur immediate policy changes. India needs to move quickly to make the most of its favorable age structure and maximize the country’s opportunity for accelerated economic growth. It will take India half the time it did Western Europe for its population ages 60-plus to increase from 15% to 30% of the total. India is not alone in seeing such a rapid demographic transition. Countries like Mexico, Indonesia, Bangladesh, and Vietnam are experiencing similar shifts. Reducing poverty and increasing standards of living should be a priority for all of these countries and their best opportunity to lay the groundwork for achieving those goals is now.
Even a demographic billionaire can’t leave people behind
So what is the most important action to reap a demographic dividend? To thrive in this new demographic reality requires that we stop leaving large swaths of our societies behind. There were fewer economic consequences of leaving behind whole groups—whether indigenous people, those of low castes, older people, women—when births outnumbered deaths and the supply of young people seemed endless. The engine of the economy had adequate manpower.
As global fertility rates have fallen, people are becoming a scarcer resource and future success rests on how well we engage this resource.
We’ve already known that investing in individuals is the key to a flourishing society. As I wrote about in my book, the East Asian economic miracle was possible because those states poured attention into education and health. That human capital foundation, plus sound business practices like export-oriented economies and a climate attractive for foreign direct investment, helped bring millions out of poverty and made those economies the powerhouses they are today.
Unfortunately, large swaths of Indian society are being left behind as the economy has grown—now to the world’s fifth largest—and if they stay behind India will lose its chance to maximize growth in this short window of opportunity. India has a long way to go in terms of human capital investment, particularly when we look by income level and age. Indian women in the lowest wealth quintile have completed only a median of 0.4 years of schooling, compared with a median of 9.3 years for females in the highest wealth quintile. The median number of years of schooling was 3.7 years among males in the lowest wealth quintile and 10.0 years among those in the highest quintile. Only 4% of women ages 15-19 and 9 % of women ages 20-24 have no schooling, while almost half of women ages 45-49 (48%) and 41% of women ages 40-44 have no schooling. There are some signs that things are changing: There is almost no difference in school attendance by males (94%) and females (93%) between ages 6-14.
Of course, it is not enough to just increase education, such as the number of college graduates, if their skill sets do not match the labor market needs. The education system in India is not generally improving young Indians’ employability, and while youth unemployment rates have increased across levels of education, they have increased the most among the most educated. There needs to be a domestic supply of workers with managerial and technical expertise, not just lower-skilled labor. Only 23% of women in India are counted as working on average, with fewer in urban areas and very few of India’s highest educated women working at all. Discrimination against women is holding the country back as high-skilled, educated women are closed out of jobs—something economists call “educated unemployment.” Changes in gender norms are just not keeping pace with aspirations for economic growth.
Hunger and malnutrition remain severe. Sixty-seven percent of children in the 6-59 months age group are stunted due to malnutrition, according to the World Bank. This poor start can affect them throughout their lives.
Economic reforms maximize demographic impact
As I always say, demography is only part of the story. In the case of the demographic dividend, the other part of the story is India’s business climate. India’s leaders have been working to make the country more investment-friendly, a necessary move if there are going to be jobs for the 920 million Indians of working age (15-59). They’ve opened almost all sectors to foreign direct investment and now allow automatic investment, removing a lot of the red tape of government approval. Bangladesh has been less successful at attracting FDI so far because of “poor infrastructure, scarcity of power supply, political instability, rigidity of the bureaucrats, [and] poor law and order.” India has the potential for a more liberal FDI regime than China because of openness to foreign ownership and a business-friendly bankruptcy code. Indeed, they’ve started attracting more FDI than China.
Of course, open FDI can come at a cost. For those ventures, and homegrown investments, considerations of environmental and social impact (ESG) are necessary to avoid exacerbating existing inequalities. For example, the massive Pavagada Solar Park, being developed by Adani, Tata, Fortum Solar, and Azure, helps India move towards necessary investments in clean energy to meet the rising demands of its 1.4 billion people, but has put many who don’t own land, like women and those of the lowest castes, out of a job. Investment projects can build resilience into their roadmap by requiring job retraining for those displaced agricultural workers and making local development initiatives like sanitation and education mandatory complements.
India also needs to reform its employment structures. Labor laws have permitted an increase in gig labor and poverty among informal workers since 2011. Now, 90% of private sector jobs either have no written contract or a contract for less than a year of employment. Almost half of employed women are agricultural workers—61% in rural areas—and 83% of employed women earn cash for their work. This precarious employment in the informal economy provides little security in old age because they don’t pay into a pension or social welfare system from which they might withdraw.
We’ve been talking about India’s potential growth in manufacturing for decades but it has yet to materialize. India accounts for only 1.9% of global exports of goods and its top 20 firms earn 50% of corporate India’s cashflows. While moves towards a common market are positive, the question remains: Can India’s manufacturing sector grow enough to provide jobs for those leaving agricultural work? The demographic trends are moving in a favorable direction, but the economic trends are not. Even though decades of declining fertility mean that the number of 15-to-17-year-olds entering the workforce peaked several years ago, there will still continue to be 70 million youth in that age group for the next decade. Yet, youth employment in both agriculture and manufacturing fell by 3.5 million jobs a year from 2004 to 2018, meaning 40 million fewer youth jobs.
And India needs to hurry
For those societies in the thick of the demographic transition today, time is not on their side. The speed of population aging means that they need to build human and financial capital now to propel economic longevity for the future. For India to eventually reap a “silver dividend,” the potential for economic growth from gains in longevity and longer working lives, they need healthy and employable older persons in the future. That foundation starts now, as it does in Thailand, Indonesia, Vietnam, and scores of other low- and middle-income countries. The eldest members of these societies today are the least educated and have the greatest financial needs, so balancing their need for help and care with the need to invest in younger generations is a serious challenge in a situation of scarce resources.
Many countries are looking to India to provide an alternative to the global order—as it has often done in the past. India’s ability to provide regional security or assert itself as a global leader is dependent upon how it maximizes its greatest resource—its people—today. India can be a land of opportunity. Seventy-one percent of Multi-National Companies (MNCs) working in India consider the country an important destination for their global expansion. But India’s leaders must harness the potential of India’s greatest resource: its 1.4 billion and counting people.
TED this year kicked off with a talk by Angus Hervey, whose Future Crunch initiative shares good news from around the world as a way to balance pervasive negativity in the news cycle. As you may have heard me say, what most surprised me as I finished the final chapter of 8 Billion and Counting was that I felt optimistic about how much global wellbeing has progressed and the direction population trends are generally heading. Many of Angus and team’s stories, particularly about global health, reinforce my optimism. Cigarette smoking among US adults, they recently tweeted, is down to only 11%.
I see India as a massive oil tanker in the Suez Canal - almost impossible to turn! Having Modi in charge is not good for the sustainability of India and it’s citizens - just look at this treatment of non Hindi religions, women and the natural environments- all being hit with exploitation of one sort or the other
Insight-full, as always.
Looks like the link to the paper on India attracting more FDI than China is broken. Could you check and fix, please 🙏
Thank you.