The mere comfort of numbers

The projections by the consultants showed that the differences between, say, India and Japan or Spain are large. Retirees are three times more in number than workers (also children) in Japan or Spain as compared to India; consequently 4.4 workers would support a retiree in India, but 1.4 in Japan or Spain. China also loses out. The differences in savings and demand-led growth in these models created large imbalances. But, my teacher, the Nobel-winning economist Lawrence Klein, also taught us that econometrics shows us the frailty of long-term projections. Even if output per worker does not change, output per capita would grow if the growth rate of workers exceeds the growth rate of the total population (the difference between the two growth rates being critical). This is the substantial demographic dividend and its robustness comes from a truism. But while the FM has given one set of numbers this dividend could be as low as 0.1 per cent, although under some assumptions it would be around 0.5 per cent, close to the FM’s numbers.

In the demographic dividend models shown earlier, higher savings propel higher growth and in the “demographic dividend made easy models” India grows at more than double the rate of other countries, till the middle of the century. But in India, for example, savings went up when dependency rates were also rising in the last century. The models may be right for non-demographic reasons, and even with high dependency savings rates could still be high if Nani Ma asked you to be parsimonious and you were so.

During a demographic transition, another kind of bonus can accrue which I call the sweetest bonus. The time spent by women in bearing and raising children falls, while the decline in mortality lengthens the life left after the cessation of childbearing. Demographer Mari Bhat estimated that when the demographic transition nears completion, in India the age at first birth would be 21-22 years (less than 20 now) and the age at last birth would be around 28 years (38 now). Women could then be expected to enter the labour force in large numbers. Consequently, the growth rate of the labour force would remain higher than the growth rate of the total population for an extended period of time. The significance of this “deferred bonus” of the demographic transition could be higher than the immediate bonus resulting from the dividend of age-structure changes.

This dividend, however, would be intertwined with structural changes in the economy, and in a patriarchal society it is again not automatic. In fact, in some periods women’s participation in the workforce went down. The dividend, to the extent it exists, will also, as the FM says, depend on skill formation. Skill formation is terribly important, but the demographic addition may not be as high as some make it out to be. The demographic dividend will only go to the brave and the FM is right in recognising that India’s manpower is important.

The writer is a former Union minister for power, planning and science, and was vice-chancellor of JNU alagh@icenet.net