India is now the world’s largest country by population—or, at least, it will be at some point this year. While this change has been a long time coming, it has come sooner than anyone expected as China’s population has begun to shrink earlier than projected. Undivided India and China have competed throughout history for the population crown. The 1947 partition of India appeared to put China permanently ahead. But India’s new status will likely last through mid-century and beyond. knifePopulation projections in 2100 suggest that India will still have more than a billion people, while China will come third with 730 million compared to Nigeria’s 750 million.
Furthermore, this change is likely to be permanent. A United Nations report states that in 1980, 42% of Asians lived in East Asia; This proportion will drop to less than a third by 2050. Indeed, by that date about half of Asians will be South (and Southwest) Asians. Therefore, between now and 2050, South Asia should enjoy a significant demographic dividend, boosted by a rapidly growing working-age population. East Asian Tigers like South Korea used this moment to achieve rich-country status.
However, we have long known that countries in South Asia will not be able to take full advantage of this demographic opportunity because they have not prepared their populations for it. Indicators of health and education of the workforce are very low. If the world is less open to trade than it was when the tigers emerged, then many governments in South Asia must also accept their share of blame for failing to support trade, investment and labor welfare. The prospect of ruining the moment is bad enough. What would be worse if we compound the error by failing to think about what happens when our societies age.
It may seem like this possibility lies in the ridiculously distant future. For anyone coming from Europe to South or Southwest Asia, there is a feeling of being surrounded by youth. India’s average age is about 28 years, compared to 38 in China or 47 in Germany. But, as we’ve seen with China, these numbers can change more quickly than expected. Originally, neither the United Nations nor leaders in Beijing expected China’s population to start shrinking by 2030. Instead, it started last year, maybe earlier. When it comes to the demographic dividend, its rapidity takes us by surprise.
Within India, there are already signs that this pivot is going to happen sooner than anticipated just a few years ago. The total fertility rate (TFR) of the country has now fallen below the total replacement level. Furthermore, the figure hides large differences across regions: population growth is concentrated in some northern and central states, while many others, especially in the east and south, have higher fertility rates, like Japan or Russia.
Such disparate demographic trends within a country are not unprecedented. Unfortunately, in India’s case, inter-regional migration, which would normally act as a stabilizing factor, is not as easy as it is elsewhere. India is very heterogeneous, and ethnic and sub-national politics mean that internal migration – while a right, as in China – is rarely a priority.
As we know from the case of China, an aging population means that governments are suddenly faced with greater calls on their resources and fewer taxpayers to support them. The balance between savings, consumption, investment and growth has to change.
Most importantly, entitlements and state services designed for a growing working-age population may become unaffordable for countries where the number of retirees is higher than expected. For example, America has always been concerned about the finances of Social Security and Medicare, for good reason.
India’s military and state pensions are by themselves enough to tip the country into fiscal disaster when there is little change in its demographic composition. For state governments, pension payments already account for about 30% of their tax revenue.
Efforts have been made over the last two decades to move to more fiscally responsible entitlement plans. But all this is looted by politicians seeking votes from retired soldiers or government employees.
As Indian officials prepare to present the new Union Budget next week, the country’s status as the world’s largest must be on their mind. New entitlements should be fully funded, and old entitlements re-examined for their fiscal implications. One has to prepare for an India that pays less taxes and seeks to reduce rather than set aside savings.
South Asia may not have been prepared for its decades with a growing workforce. It should not repeat that mistake when it comes to dreaded decades in which the workforce will shrink.
Mihir Sharma is a Bloomberg Opinion columnist and author of ‘Restart: The Last Chance for the Indian Economy’
catch all business News, market news, breaking news events and breaking news Update on Live Mint. download mint news app To get daily market updates.