New DelhiApril 5, 2010 01:47 PM IST
First published on: Apr 5, 2010 at 01:47 PM IST
The demographic dividend has been in the news. Comments on the reservations bill correctly emphasise that it creates the preconditions to garner the dividend and more recently the Chief Economic Advisor has said that it will facilitate a higher savings rate.
I argued once that dividends are not automatic and come to the brave who have an operative view of social change and would stick to that. Otherwise demographic pressures can be a drag. When Goldman Sachs started the Demographic Dividend,impressed as I was with the skills of their brand ambassador Roopa Purshottama,I was wary of growth made easy with population and savings rising through a younger work force and slide rule projections of higher GDP,air-conditioners and other goodies coming out of our ears.
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A couple of years later the IMF and the Bank Indonesia were to ask me to address the World’s Central bank chiefs in their annual retreat in Bali on the demographic dividend since they were worried about ‘global imbalances’ coming out of demographic dividends. I went through the mathematical structure of the model and argued,I think convincingly,in a paper they published that only a few of the dividends are inevitable. Others depend on the way we do things. The only dividend which will come anyway is the extent to which the labour force grows faster than population rates and that difference adds on to the rate of GDP growth. That is a truism but it will be in India’s case very low (a fifth of one percent of GDP),as India’s great demographer the late Marie Bhat showed. Kaushik Basu argued recently that the demographic dividend will give us a higher savings rate,but our saving rates rose even without the demographic dividend and so behaviour and policies will matter. This emerges from a higher worker retiree ratio,but our savings rates were going up when this was not the case.
