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May 20, 2010

Development Strategy

Demographic Dividend?

By Nitin Desai


Population growth seems to have dropped off the public agenda these days.   One reason for this is a twist in the old Malthusian argument that sees the rising proportion of persons of working age as a positive for growth. This shift in the age-distribution, it is argued, will stimulate savings, as pressures on household and public budgets for the needs of dependent children come down.  Young workers are assumed to be more willing to take chances and be ready to migrate where opportunity is available.  To the extent to which the demographic dividend also reflects the impact of reduced birth rates, women would be less weighed down by child bearing and rearing and more available for work.

All of these arguments are plausible and consistent with the experience of Asian countries that have gone through a similar demographic dividend phase. The counter example of Latin America, where this phase of demographic evolution did not lead to high growth should warn us though that there is nothing automatic about the connection and that a lot depends on whether policies and programmes are in place to stimulate job creating growth and provide the growing number of workers with the skills required to benefit from these opportunities.

The prospects for doing this successfully in India has to take into account the large regional differences in the pace of the demographic transition.  This typically passes through three phases: an initial period characterised by a rising child dependency ratio, followed by a  rising proportion in the working age group and a falling dependency ratio and then to a phase where the dependency ratio increases because of a rising number of older persons. 

The demographic projections for the States prepared by the Population Foundation of India suggests that in the decades ahead the demographic dividend will accrue mainly in five Northern States, UP, Bihar, Jharkhand, Madhya Pradesh and Rajasthan. Some Southern States like Kerala and Tamil Nadu will actually be in the third phase of a rising age-dependency ratio fairly soon. One may note is passing that these differences reflect the failures in performance on women’s advancement and family planning in the Northern States rather than any fortunate initial condition for rapid growth.

The share of the five Northern states, UP, Bihar, Jharkhand, Rajasthan and Madhya Pradesh in the increase in the 15-64 age group will be about 56% in the next two decades and 91% in the decades after. They probably have a higher than national average share in the current backlog of surplus labour. Realising the demographic dividend will require that up to two-thirds or so of the new quality employment will have to be generated in these four states. The Rest of India may well face labour shortages, as labour force growth there drops sharply in the decades ahead to a near zero level beyond 2031, and this may be met by migration from the North.

Quality employment for the rising work force in the five Northern States will have to be provided outside agriculture.  The numbers are quite staggering-the need is for around 6-8 million new non-agricultural jobs or work opportunities in these States every year for decades ahead.  This will not happen simply because a lot of people happen to cross over into a working age group.  It will require a strong growth impetus from rising demand and an education and training system that imparts the skills needed for non-agricultural work to young (and old) workers. It will also mean very rapid urbanisation as these new work oportunities will be generated in towns and cities rather than in villages.  How well prepared are the Northern States  for this challenge?

The recent growth record of the Northern States is mixed.  Bihar and Jharkhand have grown at faster than the national average in the recent high growth period; but the other three States have grown at a much slower rate. The initial impetus for growth in the North can come from the rapidly growing areas in the rest of India.  But this requires transport and communication investments directed at connecting the Northern States regions to the booming South and West.  But besides transport massive improvements are needed in market logistics- banking, trading channels, information. Of course all this will not matter unless other deficiencies like poor power supply, inefficient administration and the lack of law and order are corrected.

When it comes to skills at the all-India level as of 2004-05 barely 15% of the workers in the 15-29 age group had received formal or informal training. As for the Northern States their skill level numbers are way below this depressing all-India numbers. Just for comparision, in the late nineties, the percentage of young workers (20-24 years old) who had received formal training was 22 % in Botswana, 28 % in Colombia, 36 % in Mauritius and 28 % in Mexico.

Accelerated skill development is needed in every State in India over the next two decades and particularly so in the Northern States where the bulk of the new young workers will be found. There is one positive factor-the willingness to learn is there and even poor families are investing in education.  The real challenge is to respond to this demand with quality education and training. The other challenge is that of geographical mobility and that requires greater tolerance of migrant labour than what we have now.  It may also require a more organised system of social security for workers and dependents separated from their traditional support structures.

All of these new workers will move to cities and the demographic dividend will be won or lost in the towns and cities of North India.  Infrastructure for new industries and offices, housing for a rapidly rising urban population, safety in the streets are needed in the Muzaffarnagars and Muzaffarpurs of North India. 

This is the doubt.  With the right sort of infrastructure the private sector will respond to new opportunities in the North.  But can our public systems in the Northern States, transform themselves to provide quality education and training? Can the present urban chaos of North India change to make planned urbanisation possible?

Realising the demographic dividend will need a radical reform of the public sector and rapid growth in the Gangetic heartland and its southern fringe as a central aim of development policy.


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