Posted by: Vikram | March 8, 2011

Only half the sky. Could India fail to reap its demographic dividend ?

What is a demographic dividend ? A very simple and intuitive way of understanding it is thinking why a restaurant would prefer to be located in a crowded downtown area rather than in a sparsely populated area. More people means more customers which means more revenue. Ultimately, people consume and produce, they are the cornerstones of a productive, expanding economy. And young people (especially if healthy and educated) produce and consume more.

India has been predicted by many to reap the rewards of a demographic dividend in the coming years as,

fertility decline leads to reduction in the number of children and increases the ratio of workers to non-workers for a few decades.

The key parameter is the ratio of non-working age population to the working population,

Demographic Ratio = Number of non workers/Number of workers

So the lower the ratio the greater the demographic dividend. The demographic dividend is particularly marked if the nation chooses to invest in skills and the working population can produce a wide range of products and services on a large scale. India faces significant challenges in this area, mainly on account of its sub par and limited education system.

But in her paper “The Other Half of the Demographic Dividend“,  Sonalde Desai argues that there is a far more potent structural factor that can prevent India from realizing its demographic dividend. Sonalde identifies the status of women in the workplace and in society as key factors that will significantly inhibit women from contributing to the pool of productive workers in India. This would increase the demographic ratio and significantly diminish the demographic dividend. She uses striking comparisons with China to bring this out. The following table summarizes the ‘naive’ demographic ratio for India and China computed using the simple formula given above,

Year    India   China

2001      0.55     0.39

2030      0.48     0.50

However, Desai adds to the mix, the ILO statistics on the participation of women in the labour force given by the work participation ratio (WPR),

Nation                                   India       China

Able women working (WPR)    38.4%      68.9%

An Indian woman in the working age is about half as likely to be doing economically productive work as her Chinese counterpart. Thus, a huge chunk of the productive population is rendered ineffective with substantial negative implications for the broader economy. Taking into account these actual rates of women’s work participation, Dr. Desai arrives at the following corrected demographic ratios,

Year       India    China

2030       1.26     0.89

India thus might not realize its full demographic dividend, and might continue to have a smaller proportion of productive workers than China.

These calculations naturally lead one to ask why the work participation rates of Indian women are so low. A wide range of social and institutional factors seem to be responsible. Data and trends show that highly educated women from the highest quintile subset of the Indian economy (WPR: 23 %) are far less likely to work than women from poor rural families with no education (WPR: 81 %). Desai points out,

education in India appears to be associated with lower rather than higher WPRs.

Desai also points out two critical factors for this rather surprising trend,

The absence of skilled work preferred by educated women may be partially responsible for this negative relationhsip. …. gender discrimination in earnings may also play a role in reducing female employment.

Indeed, women in India earn 53 paise for every 100 paise earned by a male in the private sector and 73 paise in the public sector. I would add to this the lack of safety for women in public spaces in urban areas, something that inhibits women from working certain sets of jobs and night shifts.

If India is to realize its demographic dividend, then along with a strong push for skill development in the youth, a comprehensive policy for encouraging job opportunities for women and ensuring income parity and safety seem to be essential. Or Indian men will be left holding up only half the sky.

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Responses

  1. Vikram: We also need to correct for the fact that the productivity of the average worker is lower in India than in China and will continue to be so given that almost half of Indian children are uneducated and two-thirds malnourished.

  2. Vikram: You might find it useful to follow up on the references given at the end of this comment. You should be able to access the journal through the university library.

    http://thesouthasianidea.wordpress.com/2009/10/15/ten-unacceptable-things/#comment-7129

    • Thanks. Would be interesting indeed to find out exactly why higher economic growth has not lead to better human development in India.

  3. You may find this Link useful for the debate :

    http://chinaoverindia.blogspot.com/2011/02/there-is-no-indian-demographic.html

  4. I don’t think we should turn this discussion into a speculative competition with China. How India leverages its human capital should be quite independent of whatever happens in China.

    In this perspective I find the analogy of a restaurant in a crowded area resting on an important unstated assumption. More people = more customers = more revenue only if the people have purchasing power. A restaurant in a slum won’t do much while one in far-off resort patronized by rich tourists would flourish. In the absence of purchasing power, more people would just equal more squalor and human waste.

  5. Vikram: It just occurred to me that the alternatives are not limited to reaping or not reaping the demographic dividend. If we don’t watch out, it could easily turn into a demographic nightmare. What we are seeing in the Arab world is really the demographic bulge without productive outlets.

    I also realize that the China/India comparison remains of interest to many. Some time back we had looked at it from an unusual angle:

    http://thesouthasianidea.wordpress.com/2011/02/20/would-you-wish-to-be-chinese-in-china/

    • Yes indeed. We could have a demographic disaster. I am not sure if the Arab situation is likely for reasons I mentioned in this post, https://vikramvgarg.wordpress.com/2011/02/03/why-do-they-not-happen-in-india/

      I am really not sure whats going to happen in India. Fertility rates vary hugely across India, http://en.wikipedia.org/wiki/Indian_states_ranking_by_fertility_rate Most states have TFR’s close to replacement. Urban areas typically have a TFR of about 2. Rajasthan, MP, UP and Bihar are large states with very high TFRs but the population there is mainly rural.

      In contrast, Arab nations seem to have high TFRs even with large urban populations, Egypt for example has a TFR of 3.01 with 43 % urban population. Yemen has a TFR of 4.63. Syria 2.93 with 53 % urban population. So I dont see an Arab style situation arising in India.

  6. Vikram: I don’t think the TFRs are relevant in this discussion. We are not talking about the yet to be born. Rather, it is the bulge in the age pyramid of the already born that will move up into the labor market.

    I agree there are many social and political differences from the Arab situation but the shape of the age pyramid is common to both.

    See comparative age pyramids here (the data is old but still illustrative):

    http://fathersforlife.org/population_politics/world_population_pyramids_selected_countries.htm

  7. Vikram: Take a look at this comment about demographics:

    “The Arab revolt is rooted in youth bulges and dictators. For the 60 percent of Arabs under thirty years of age (the median is twenty-six), there are no jobs and thus no marriages. India has almost the same demographics but is a democracy with 9 per cent growth in annual GDP. Most Arabs have neither.”

    http://nationalinterest.org/commentary/springtime-for-civil-war-5051

  8. @Vikram

    wrt 2nd last paragraph.

    Dont you think that the astonishingly low incomes of women in private sectors(wrt IT\BPO) can be attributed to the capabilities.

    Outside Delhi(ie Bangalore,pune,mumbai,kolkata,hyderabad) I dont think that there is a case of lack of safety for women. I can speak of personal experience that private companies are very strict at matters pertaining to safety for women ,because it leads to there image and therefore it matters for them, and unlike in North , in South societies are in general not that conservative.

    • Welcome pega.

      I am not sure what you meant. Did you mean to say that the income gap is due to a real skill gap ?

      I meant safety in a broader sense, for e.g. protection against sexual harassment at a work place. From anecdotal accounts, it seems rather prevalent and the government hasnt taken any concrete measures to stop it.

  9. Yeah I meant real skill gap , how else can you explain lower average incomes. More so ever how can you relate lower “average” incomes to lesser number of women working.

    But again dwelling on this point is like missing the whole story completely.


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