Monday, July 23, 2012

Demographics without a Dividend

There are some common issues highlighted in almost all political, corporate and intellectual discourse in India regarding the economic growth and development of the nation. On one hand, while it is a general consensus that India’s greatest advantage viz-a-viz its peers in the developing countries’ bracket is the world’s highest working age population,  on the other, almost everyone agrees that we need massive investments in education, infrastructure and healthcare to uplift millions out of poverty. However, there is one critical factor at the base of these two issues which, till around 15 years back was prevalent in government policy as well as general educated discourse but has disappeared since then. It is our burgeoning population and the high population growth rate which, if not controlled immediately, can derail the country’s dream of inclusive growth and poverty alleviation forever. There are some concrete reasons behind this argument.   

As per the latest census results, the population of the country in the decade 2001 to 2011 grew by around 18.2% in absolute terms while it grew at around 18.5% in the previous decade. Now, India’s population in 1991 was 85 crore and it was almost 100 crore by 2001. Now, it stands at 120 crore. We have added 20 crore people in the last 10 years while we added 15 crore in the previous ten. In essence, we have added more than the total population of USA in the last twenty years. Here comes the worst part. Among the thirty largest nations in terms of land area, we have the highest area density of population, almost twice that of China’s. Now, for all the proponents of the so called ‘demographic dividend’, the only way a population can feed itself and live a bare minimum life standard as per UN standards is if there is a bread earner in every household. Despite India’s family oriented structure, even if we assume a very rough estimate of 6-7 persons per household, we require atleast a working population of 17-18 crore. Herein lies the reality check.

Agriculture, which already somehow sustains 700 million in the country at life standards way below minimum UN benchmarks, is already suffering from extra labour wherein, beyond a point, a standard hectare of agricultural land cannot employ more than a certain number of labourers. Our agriculture suffers from an economic concept called ‘disguised unemployment’. In simple terms, it means that employing more labour beyond a threshold can only be achieved if you do not employ tractors and other machines to do manual work. But the total productivity of that increased labour would still remain below that what could have been achieved by less labour and more capital investment in technology. Thus, the only option is to transfer this excess labour to manufacturing and construction industries. But that’s where the Pandora’s Box is fully opened.

Construction and manufacturing are capital intensive sectors which can only achieve high employment levels if massive plants are built and huge infrastructure projects are initiated. But such money can only come from foreign direct investment and opening up of the sectors to private investment. And that’s where the twist in the tale arrives. Advancement of technology in the developed world (mostly western nations) has enabled foreign companies to possess latest technology and automated factories wherein manual work is restricted to a certain number beyond which the plant or factory would go for a loss (similar to what happens in agriculture as described above). Thus, while India has slowly opened up its manufacturing and construction sectors to foreign and private investment in the last two decades, the deployment of capital intensive technology by foreign companies has led to all private players within India as well going for the same technology which enhances productivity and lets them compete in the market place. This has limited the total number of workers that can be employed by any manufacturing plant or construction site of a standard size. For example, the total number of direct employees in Tata Motors’ manufacturing facilities in India put together were around 85,000 till the mid 1980s but has reduced to around 45,000 now.

The solution to this issue as promulgated by some experts that there should be more and more number of manufacturing facilities set up in the coming decades so as to absorb the massive youth population brings into the limelight one of the most critical development issues facing India today. We must remember that the one factor that is fixed permanently is the total land area we have. So, increasing number of manufacturing plants, roads, real estate projects and railways is fast gobbling up cultivable land. As per estimates, by 2025, the total per capita agricultural land area in India will be reduced to less than 0.1 hectares while the most alarming figure is that the while per capita agricultural land area remained at around 0.64 hectares in 1950-51 (population then was 360 million), it has nosedived to 0.22 hectare by 2008-09 when the population was 1.2 billion. And, if the population grows at the current rate, we will have 1.5 billion to feed by 2025 as against 1 billion in 2000, with per capita agri land area plummeting to 0.15 hectares. So, as per experts, the only solution lies in increasing the productivity of agriculture around 2.5 times in the next 10 years. Also, if we consider a shift in the dietary patterns of our population especially the middle class from wheat and rice towards vegetables, fruits and non vegetarian diets, it will require greater capital and technology investment by the government to provide incentives to farmers to grow fruits and vegetables and feed for livestock. The sustaining high food inflation rates in the last few years, low levels of agricultural R&D spend coupled with rotten governance in rural areas makes increasing agri-productivity to 2.5 times a task beyond Herculian capacities.

Coming back to employment, the much glorified services sector is already constrained by its very nature to provide employment beyond a certain figure. Despite the fact that growth in the IT/IT services space and the financial sector has provided jobs to around 2.5 million youth in the last ten years, services sector jobs require a certain level of skill set which requires an individual to atleast have diploma level qualifications. There were roughly 400,000 engineers churned out by our engineering colleges last year and this figure increases by about 15% every year. And this is in addition to the 2 million arts, humanities and basic science graduates and diploma holders annually produced by non vocational courses in the country. Thus, number of college graduates every year is almost equal to the numbers which have found employment in organised services sector in the last ten years. Most end up doing part time or temporary jobs in the retail and construction related industries and the few unfortunate ones are absorbed by increasing crime and movements like Naxalism.

The only solution to this colossal challenge is a government policy in collaboration with industry and NGOs/NPOs on three fronts. Firstly, central and state governments led population control and family planning programmes must be initiated which promote the concept of having one child or at maximum two. These programmes must be run in collaboration with banks and NGOs to educate adults and rural youth which incentivises young married couples to rewards and better insurance and housing/auto loan schemes if they have just one or maximum two children. This will especially work wonders in the rural areas.

Secondly, there must be massive public and incentives for private investment in creating capacity based on current technology as in agriculture and food processing industries which have the capacity to create millions of new jobs in rural areas. Its a known fact proven through numerous economic and demographic studies that greater financial security and possibility of jobs for rural youth result in them marrying late and having lesser number of children as the age old concept of children contributing as bread earners for the entire family is done away with. Thus, in other words, not just for poverty alleviation but also for controlling population growth aret, we need another revolution in our agriculture much greater in impact than the Green Revolution (to be discussed in another blog post soon).

Thirdly, there is a pressing need to include chapters and topics on demographics and ill effects of population growth in India in the primary school syllabi especially in local language school boards since there is vast evidence proving that more than 85% of primary school children in Tier 2 cities and below study in state language boards. This will prepare the youth for better family planning in the future. That is also where the effective implementation of the Right to Education Act 2009 comes into the picture. As more and more students are able to attain better quality education with a syllabi in sync with modern realities, that can go a long way in reducing the population growth arte to below 1% in the coming decades.      

However, as we have already produced more than 10 million in each of the last 3 decades, we might face a bleak scenario beyond 2040 that probably very few experts have dwelled upon in recent times. Assuming that the population growth rates go below 1 percent by 2030 and there are more and more single or at max dual child families in the country, it will pose the harrowing new challenge of taking care of the elderly who were born in after 1960. In rural India, it’ll be a huge challenge with one or two young people with not such huge family incomes (since even by 2040, real household incomes in rural India at present rates would not grow beyond 15% at current rates) taking care of 2-4 elders per household, That’s where the need for taking initiatives right now by the Centre in conjunction with the states to launch a huge social security program for the elderly across rural and urban India belonging to Below Poverty Line (BPL) households which can be in terms of cash transfers along with free medical insurance is a must. But despite above issues (which need to tackled through financial and social security penetration), there is no doubt that at present level of technological penetration and decreasing per capita land, population growth rate reduction measures must be the primary aim of our government and Parliament. Else, we might be pushing a large part of India into an abyss where generations might be lost forever.  

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