Lalu Yadav, who as chief minister presided over 15 years of economic and social stagnation in Bihar, is suddenly being lionised as a management guru. As railway minister, he has transformed railway finances and performance.
The middle-class remains shocked that Lalu has fathered
nine children, worsening the population explosion (viewed by
this class as one of India's top problems).
Yet, economists are now unanimous that rising population is
giving India a 'demographic dividend' that will soon help it
grow faster than China. Seen in this light, Lalu Yadav's
contribution to the demographic dividend may outstrip his
contribution to the railways.
To try and enforce a two-child no-rm, many states have
enacted laws disqualifying people with more than two
children from getting government jobs or contesting
panchayat elections. I view this as a violation of civil rights
as well as economic sense.
But the Supreme Court has upheld these laws, in neo-
Malthusian ignorance of the demographic dividend. Some
readers wonder how the much reviled population explosion
could possibly morph into a beneficial demographic dividend.
Let me explain. Developing countries go through three
In phase one, improved income and health slash the infant
mortality rate, and a baby boom (or population explosion)
ensues. It worsens the dependency ratio the number of
dependents per income earner. This creates a Malthusian
scare about population outstripping incomes.
phase two, births plummet as incomes and contraception
improve. The baby boomers, once regarded as a population
curse, grow up to create an unprecedentedly large army of
income-earners, boosting GDP.
The dependency ratio improves dramatically: there are more
hands to earn and fewer mouths to feed. This is the first
demographic dividend. It is estimated to have improved per
capita income in Latin America and East Asia by 0.5-0.6%
annually between 1970 and 2000 (meaning billions of dollars
A second demographic dividend follows. With improved
health, baby boomers expect to live longer, and so save
large sums for retirement. This higher saving finances
additional investment and accelerates GDP growth. This is
the second dividend.
The size of the two dividends depends on economic policies.
Good policies accelerate the virtuous circle of incomes,
savings and growth, yielding huge dividends. But poor
policies may mean economic stagnation and no dividends.
In east and southeast Asia (which grew very fast between
1970 and 2000), economists Ronald Lee and Andrew Mason
estimate that a whopping 44% of the increase in per capita
income arose from demographic dividends. In phase three of
a country's development, the dividend starts disappearing.
A growing desire for small families mean that the baby boom
is followed by a baby bust. When the baby-boomers begin to
retire, the baby-bust generation does not produce enough
replacements. The proportion of non-earning old people
rises sharply, and tends to reduce income per head.
China will reach this phase in a decade or so. It went
through phase one in the '50s and '60s. Then, after Mao
decreed a one-child policy, it enjoyed a handsome
demographic dividend from the '70s onward.
But the baby bust caused by the one-child policy means that in a decade, the proportion of workers will fall and of retirees will rise sharply.
This will reduce GDP growth. China's population will peak around
2030 and then shrink. India entered phase one in the 1950s, when
population growth accelerated to 2% annually from 1% earlier.
phase two began in the late 1980s: population growth began
This is now down to 1.5% annually, and is still falling. India's
economic policies have improved at just the right time, boosting
the two demographic dividends. That is an important but much-
ignored reason why Indian GDP growth has soared to record
heights in recent few years.
In many countries, the demographic dividend lasted four or five
decades. In India's case it could last much longer, maybe a century.
Because, while much of India has taken to contraception and the
fertility rate has fallen below replacement level in states like
Kerala and Tamil Nadu, it remains high in the backward states of
Bihar and Uttar Pradesh.
China's population will stop growing by 2030, and so will that of some Indian states, but India's overall population is projected to keep rising till 2100 or longer, thanks to UP and Bihar.
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