Economics of India’s population growth

General Studies Paper 3

Context: The annual State of World Population report 2023 by the UN Population Fund (UNFPA) stated that India’s population is expected to surpass that of China by the middle of this year at the latest.

History of India’s population

Population vs Economic development

• Starting point of this debate is Thomas Malthus’ argument in 1798.
  • Malthusianism is the theory that population growth is potentially exponential while the growth of the food supply or other resources is linear, which eventually reduces living standards to the point of triggering a population decline. This event, called a Malthusian catastrophe.
  • Since then, however, the world population has grown eight times to reach 8 billion.
• During the 1950s and 60s, “the general view of economists was that high birth rates and rapid population growth in poor countries would divert scarce capital away from savings and investment, thereby placing a drag on economic development.
• However, between the 1970s and 1990s, several studies “failed to detect a robust relationship between national population growth rates and per capita income growth”
• The global view reverted in the 1990s when researchers again found a clear “negative association between population growth and economic performance”.
  • During this time, World was also introduced to the concept of “demographic dividend” i.e., high economic growth when there is a bulge in the working-age population (roughly speaking, population between 15 and 65 years).

In Indian Context

• Opportunities for India:
  • Theory of demographic transition suggests that population growth is linked to overall levels of economic development as more people are able to produce more goods.
  • The rising young population (>66 % population in 15-59 age) provides India with a great opportunity for growth, peppered with the possibility of path-breaking innovation.
  • India’s population heterogeneity ensures that this window of demographic dividend becomes available at different times in different States.
  • Farming and industry will be able to benefit from economies of scale.
  • It will lead to higher tax revenues which can be spent on public goods, such as health care and environmental projects.
  • The size of the population is intimately connected to the global power dynamics shaping the relationship between nations and regions.
• Issues with population:
  • The increase in the working-age population may lead to rising unemployment, fueling economic and social risks.
  • High population growth also affects the faster depletion of resources.
  • The 65+ category is going to grow quite fast i.e., increase from 8.6% now to 13% by 2030.
  • If India is unable to reap demographic dividend, it will become a demographic disaster.

Lessons for India  

• India’s fertility rate (the number of children per woman) is already below the replacement rate of 2.1 but the population will peak by 2064.
• The bigger challenge now is to figure out how to best use India’s demographic dividend because despite China growing at remarkably high over the past four decades it may become old before becoming rich.
• Countries like Singapore, Taiwan and South Korea have already shown us how demographic dividend can be reaped to achieve incredible economic growth by:
  • Increasing women’s participation in the workforce. As of 2022,29.4 % of women were working or looking for work, down from 34.1% in 2003-04.
  • Investing more in children and adolescents, particularly in nutrition and learning during early childhood.
  • A greater focus needs to be on transitioning from secondary education to universal skilling and entrepreneurship, as done in South Korea.
  • Health investments – Evidence suggests that better health facilitates improved economic production.
  • Making reproductive healthcare services accessible on a rights-based approach. We need to provide universal access to high-quality primary healthcare.
  • India needs to address the diversity between States. Southern States, which are advanced in demographic transition, already have a higher percentage of older people.
  • A new federal approach to governance reforms for demographic dividend will need to be put in place for policy coordination between States on various emerging population issues such as migration, ageing, skilling, female workforce participation and urbanization.

Conclusion

• India has a window of opportunity to reap the benefits of demographic dividend until 2040s otherwise it could become demographic liability or demographic disaster.