This blog is intended to go along with Population: An Introduction to Concepts and Issues, by John R. Weeks, published by Cengage Learning. The latest edition is the 12th (it came out in 2015), but this blog is meant to complement any edition of the book by showing the way in which demographic issues are regularly in the news.

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Tuesday, October 5, 2010

Are India's Demographics Better Than China's?

The Economist this week leads with a story that India's demographics are better than China's for the foreseeable future and therefore investors ought to line up their money accordingly. The Economist is one of the fairest news sources that I know, but this article pushes that envelope. 
Several factors weigh in India’s favour. The first is demography. Indians are young (see chart 1). “An ageing world needs workers; a young country has workers,” says Mr Nilekani [of the investment banking firm Morgan Stanley]. Previous Asian booms have been powered by a surge in the working-age population. Now it is India’s turn. The proportion of Indians aged under 15 or over 64 has declined from 69% in 1995 to 56% this year, says the UN. India’s working-age population will increase by 136m by 2020; China’s will grow by a mere 23m, says Morgan Stanley.
The first problem with the article is that the demographic data, drawn originally from the United Nations Population Division, have been interpreted not by demographers, but by investment bankers, who are likely to have a vested (if not invested) interest in their interpretation. It is true that fertility is declining in India and that the age structure is more favorable to economic development than it used to be. But that decline in fertility is MUCH slower than in China (which almost certainly would have had a rapid fertility decline even without the one-child policy), and so the demographic dividend is not going to be anything like that experienced by China.

The second problem relates to the interpretation of the demographic dividend. The Economist seems to think that any improvement in the ratio of workers to non-workers will produce a demographic dividend. Perhaps, but a very modest demographic dividend, as we can project for India, will likely produce very modest economic gains for the average Indian (three-fourths of whom currently live on less than $2/day). And even the Economist has to admit that improving the daily life of Indians is not going to be easy or cheap:

Indian businesses face several bottlenecks on the uneven road to growth. The most obvious of these bottlenecks is lousy infrastructure. Indian roads are awful. Potholes gape; traffic lights don’t work. Rural roads are largely unpaved; in cities traffic often snarls to a halt. Cyrus Guzder, who runs a distribution business, complains that long-distance trucks average only about 20kph (12mph). Crossing the border between two Indian states can be more troublesome than crossing an international boundary. Between Kolkata and Mumbai (a distance of 2,000km), a truck must negotiate a couple of dozen checkpoints. Delays and shakedowns by grasping officials add 30% to the cost of road freight, estimates Mr Guzder.
The other worrying bottleneck is a shortage of skills. The workforce may be young and growing, but 40% are illiterate and another 40% failed to complete school. The Boston Consulting Group sees a shortfall of 200,000 engineers, 400,000 other graduates and 150,000 vocationally trained workers in the coming years. Meanwhile, there are 62m surplus workers in agriculture, most of them barely skilled.

And the third problem with the overall analysis is that the demographic dividend is a temporary phenomenon--an artifact of the age transition. If you use it well to invest in the future, you can string out its impact, as China seems now to be doing by investing its money in other developing nations, on top of owning much of the debt of the richer countries. But the bigger the dividend, the more there will be to invest in the future, and India has a lot of catching up to do precisely because its fertility has been declining slowly, rather than rapidly.

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