Barriers to potential demographic dividend

I must have been about 15 when I first heard “Demographic dividend”. It was the height of the Emergency and the accepted wisdom was in favour of population control. There were rumours about forced sterilisation drives in rural UP and Bihar, and the urban middle-class approved.

Our geography teacher was a brave man. In a class about the economic geography of India, he first parroted the slogan of the day, “We two, our two” extolling population control.  Then he drew a deep breath and said, “There’s another way of looking at large populations. I heard this brilliant Harvard economist, Subramanian Swamy, explain how it could prove to be an advantage.”

He then pointed out that a larger workforce could generate more output, even if productivity was low. He introduced us to the basic concept of workforce: population ratios, and explained how a young workforce with a “bulge” in the 15-35 age cohorts could generate high gross domestic product (GDP) for decades. It was a revelation in itself. It was also the first, and only time, that I can recall a school-teacher in Calcutta (as it then was) articulating an idea that directly contradicted the “book”.

Many years later, looking at the apparent miracle of the Asian “tigers”, it became obvious that the demographic dividend worked. Japan, South Korea, Taiwan, the People’s Republic of China, Thailand and Indonesia had all turned around economies devastated by war, civil war, famines and natural disasters. The demographic dividend was one thing they had in common.

Post-Emergency the outrages of forced sterilisation made politicians wary about population control. By the 1990s, the demographic dividend had become the mainstream wisdom. It is still being faithfully trotted out every so often as an inevitable historical reason why India will become an economic superpower.

Sadly, this is unlikely. There were many other variables that the “Tigers” had in place, that enabled them to exploit their respective demographic dividends. One was monetary systems that encouraged investments to flow easily into high-growth areas. In Japan and Korea, for instance, the relevant Ministries ensured private enterprise had access to cheap, abundant capital.  India Inc. is capitalstarved and trammelled by regulations that hobble investors.

The second thing was that all these countries created large, globally competitive manufacturing bases and excellent infrastructure. This easily absorbed the workforce. The “Tigers” moved seamlessly from being agricultural economies to becoming manufacturing powerhouses, while Japan revived its formidable industrial complex, which had been ravaged by the Second World War.  

India has missed the bus in manufacturing. Almost every other Asian nation has significant competitive advantages in manufacturing. India’s physical infrastructure is also barely adequate, if that. The fact that 40 per cent of fruit and vegetable production goes to waste is a big pointer to lacunae in infrastructure. Roads, rail, telecom, airports, ports; you name it, the capacity is inadequate.

The third common factor where India is lacking is education. In every one of the “Tigers” and somewhat later, in the People’s Republic of China, the young workforces were already fairly well-educated by the time the “bulge” came along. The workforce could easily be skilled to take up manufacturing jobs and in time, they could be skilled to enter higher-value services and R&D.

In India, about 20 per cent of the population still lacks the ability to put signatures on paper. The lack of scale and of quality in primary education makes it very hard to take a boy off the farm, and put him onto an assembly line. To add to the woes, female participation in the workforce is low, and falling. There are multiple socio-economic barriers impeding the deployment of almost half of the potential workforce.

It is possible to erect infrastructure in a hurry, even if it’s difficult. It may even be possible to change labour laws, and land-use laws, to improve prospects for manufacturing. But there is no royal road to learning — it takes 8-10 years before a child can read with sufficient fluency to understand basic technical manuals. That bulge won’t last forever — it is historically inevitable that people age.  It’s a moot point if India will ever cash in on the potential of that demographic dividend.  

Twitter: @devangshudatta