The United Nations (UN) has said that India will overtake China as the world’s most populous country this year. The statement has naturally attracted public attention. There may be some debate as to whether or not this demographic event will happen this year. There has not been a complete census in India since 2011. Right now we only have guesses. The UN says that by the middle of 2023 there will be 1.43 billion Indians. The Indian government’s estimate is lower. The Indian Census Office’s technical group on population projections said in July 2020 that it expected a population of 1.39 billion in 2023 – or 53 million less than the UN estimates. However, there is no doubt that India will inevitably overtake China on the population front. It is only a matter of time.
The UN report has reignited the age-old debate on whether India can take advantage of its demographic advantage before its labor force reaches its peak and the population ages. and especially whether India can catch up with China before the demographic window closes in the coming decades, especially given factors such as labor force crunch, misallocation of capital and perhaps lower productivity growth in the case of the West. Because the country is progressing slowly. The geopolitical push to deny it access to new technologies cannot be countered by domestic innovation. Meanwhile, a fact check: India is currently about 15 years behind China in terms of per capita income at market exchange rates. In other words, our current level of average income is the same as China’s in 2007.
View Full Image
A useful starting point is to compare contemporary India with some other successful Asian economies when they were at a similar demographic turning point in earlier years. One number considered as a broad proxy for the demographic composition in a country is the mean age of its population – or in the case of the age of the person in the middle each citizen is ranked in ascending or descending order of age. Right now the average age of India is about 28 years. Many other Asian cohorts previously had similar median ages, from Japan in the 1970s to Malaysia in 2017 (see chart). This is roughly the point when most of these countries were in the midst of an extraordinary economic boom. Not everything can be attributed to demography. For example, China’s median age in 1999 was 28, and its subsequent economic growth also coincided with its entry into the World Trade Organization.
Economists generally account for economic growth in terms of its three main drivers: the size of the labor force, the investment rate, and productivity growth. Household savings and investment are higher in countries where people are mostly of working age, because the number of dependents per working person is relatively low. There are some nuances to be considered. For example, the quality of the labor force matters in terms of education, health and skills. The general rule is that countries in their early stages of development promote economic growth by using more inputs; Generally, they have higher investment rates as well as a growing labor force. Productivity plays a more important role in later stages of development.
The data shows how India and six other successful Asian economies fared in terms of average income, investment rate and labor force participation when their average age was 28. The numbers tell an interesting story. First, the level of per capita income of each country was very different when its average age was 28 years. It also partially reflects the early conditions of the year when their age structure was similar to that of India today. Second, the investment rate in each of these countries at that time was roughly in the same range, between 25% and 40% of GDP. Vietnam and Malaysia are on the bottom, Japan was on the high end, while China maintained very high investment rates in the two decades following 1999.
The big difference between India and the other six countries is in the labor force participation figures, or how many people of working age are in the labor force. India’s labor force participation rate is much lower than other reports at the time, and the difference ranges from 15 to 32 percentage points. This wide gap is explained by the very low level of female participation in the labor force, as shown in the table here.
The result: India has been unable to productively employ its young population, especially women. The result is that Indian economic growth in recent years has been largely driven by more intensive use of capital as well as productivity growth. Several recent statistical studies have highlighted a similar structure. One way to boost potential growth is to create conditions for high employment, something India has struggled with in recent decades, even if claims of “jobless growth” are exaggerated.
The advantage of having the world’s largest population is only when there are enough jobs to convert a demographic fact into economic opportunity.
Niranjan Rajadhyaksha is the CEO and Senior Fellow of Earth India Research Advisors and a member of the Academic Advisory Board of the Meghnad Desai Academy of Economics.
catch all business News, market news, today’s fresh news events and Breaking News Update on Live Mint. download mint news app To get daily market updates.