Demographic dangers

KIRAN KARNIK

DEMOGRAPHY is in the news, thanks to the Lok Sabha elections and the latest projections of population growth. The former has brought focus to aspects like the size of the electorate, number of first-time voters, and the proportion of women voters; the latter to the likely changes in the dependency ratio. There are a whole host of related issues, some of which have been discussed in past editions of this column.

Breaking news comes from a recent study, published in Lancet in March, which indicates a far more rapid decline in India’s total fertility rate (TFR) — going down to 1.29 by 2050 — than was assumed in previous studies and projections. Keep in mind that a TFR below 2.1 indicates a prospective decrease in the total population, and India’s is already 1.91 (2021). Despite the new figures, we will continue to be the most populous country for many decades yet, due to China’s precipitous and much earlier decline in TFR (which, at 1.14 will be lower than India’s in 2050 too). The UN had earlier predicted a peak population — of 1.7 billion — for India in 2065. Now, it is almost certain that we will reach our peak population much earlier and at a lower level.

The new figures have several implications for India. The dependency ratio (the very young and old as a proportion of working-age people) will be lower than earlier anticipated, enhancing — at least potentially — the “demographic dividend”. Capitalizing on this depends, though, on the working-age population being productively engaged. If that can be done, not only will we reduce the social and economic impact of the present unemployment problem, it could also accelerate the growth of India’s GDP. The next few decades present the country a golden opportunity, which we must grab.

Following this, as more people begin to retire, the big bulge in working-age population will start to decrease. In addition, as fewer children are born (resulting in fewer entering the workforce in due course) and better healthcare increases longevity, the dependency ratio will rapidly rise. This will severely strain retirement and pension schemes through a double whammy: lower collections due to the fewer working-age people, and larger pay-outs as people live longer. Fewer working-age people also means lower income tax collections, even as more elders necessitates larger healthcare budgets. The result: an adverse effect on government finances. Taken together, this will cause a decrease in the economic (GDP) growth rate. This and tighter government finances may affect capital investment, jeopardizing future growth.

Countries already facing this problem include those with ageing populations, prime examples being Japan and various European countries. They can sustain their economies only by encouraging immigration. Most are short of both, highly-skilled/educated talent as also semi-skilled or even unskilled labour. The US, for example, is wary of a flood of illegal immigrants, but its economy depends as much on minimally-skilled farm labour from its southern neighbours as it does on the highly skilled tech talent — mainly from India — entering through the H-1B work visa route. Japan, long practically closed for migrants, is now amidst an opening of doors. Though most such countries want imported talent but not the numbers, there is recognition that the latter (low-skilled immigrants in large numbers) is inevitable. In the UK, every sixth resident is foreign-born, according to one report; with 46 million, the US ratio is only a bit lower.

As discussed in an earlier column, any migration — even within the country — creates its own social dynamics, sometimes social tensions. Yet, more societies and nations are now turning truly multi-racial. Acceptability of this is evidenced by the fact that some top political leaders, too, are immigrants — in addition to many CEOs and entrepreneurs. Strangely, there seems to be greater resistance to foreign migrants in countries like India which, at one time, were the most open to all migrants from anywhere. Yet, looking at the projections, India too must prepare to return to its old openness. The coming economic battles — skirmishes have already begun — are not going to be about global trade, but about the competition to attract migrants.

The basic problem derives from sharp declines in fertility: worrisome enough to warrant action. In China, the fertility decline was the result of a coercive one-child policy. Some years ago, this was changed, and two children were permitted. Now, the government is promoting a three-child norm. South Korea is starting high-speed trains to Seoul’s suburbs, not so much for efficient transportation but to promote childbearing! The theory is that the time saved in commuting will be put to “productive” use at home. Singapore is using a more direct means to promote bigger families: it provides cash incentives to parents for every birth and then for the children’s upbringing.

In India, many still talk of “population control”. Some politicize and communalize this, ignoring the fact that our culturally-similar neighbour, Bangladesh, has a lower TFR than India today — and it will continue to be lower till at least 2100. At 1.91, India’s TFR is already below replacement level and population growth is now driven only by past momentum. Past concerns about “population explosion” may have to give way to the opposite demographic danger: rapidly-shrinking numbers. In years to come, will we have to shift to incentivizing population growth? Experience elsewhere shows that TFR declines are generally precipitous: China is already at just 1.23, Singapore at 1.20 and South Korea at a possibly calamitous 0.82 (2021 figures).

What propels this downward shift, the desire for fewer children (often, none) is yet unclear, though there are alternative explanations. Whichever of these one prefers, it is obvious that the decades ahead call for radical policy shifts. The new projections, the various reasons for decreasing fertility, and the consequent policy options require a more detailed discussion, which will be covered in a future column.  

Kiran Karnik is a public policy analyst and author. His most recent book is ‘Decisive Decade: India 2030, Gazelle or Hippo’