India’s favourable demographics – a myth demystified

Goldman Sachs came out with its report on BRIC countries (Brazil, Russia, India & China) in early 2000s. And what a lovely timing - as during the decade India’s GDP growth rate increased to high single digits on a consistent basis. No wonder, we (Indians) assumed a high GDP growth rate as our birth right. Lots of reasons have been cited for the same – rising working population, increasing income levels, opening up of economy, rising expenditure levels driven by higher aspirations of urban youth, etc. etc. – with favourable demographics being the driving force behind most of them.

The question is – is it fair to assume high GDP growth rate our birth right, just because we have a rising population, most of which will be entering the age of employment in the coming years? Not a bad assumption. After all, history supports this argument.

However, I want to highlight a few reasons, why the same reason – favourable demographics – can be a curse for India.

1.       First and foremost, a rising young population requires employment. However, the policy paralysis at the centre has just destroyed the economic sentiment. RBI in its latest policy document has indicated collapse in investment cycle as a key worry for India. International rating agencies S&P and Fitch have already lowered outlook on India to negative (from Stable earlier) citing similar reasons. Remember, unless we are able to generate employment opportunities, we are not going to witness rising income levels, expenditures, etc.

2.       Furthermore, while we may or may not be able to generate employment leading to higher output (supply in economics terms), the increasing population will have its basic needs – food water and shelter. Basics of all economics – low supply and high demand – welcome to the world of higher inflation and this time a persistent one.

3.       Recently, during the state elections in UP, election candidates announced free laptops for all students passing class X. No doubt, it is a good step to increase education levels in the state. I do appreciate it. However, I wonder, if they have even bothered to think (forget analyse) how they are going to finance such a high cost – especially, with rising population, the no. of candidates eligible for free laptops, is only going to rise. The fiscal deficit (higher expenditure than revenue) for most states is already quite high. Furthermore, as I mentioned above, the employment crisis will only aggravate the problem.

4.       With higher no. of educated youth chasing the smaller no. of employment opportunities, it will lead to the jungle rule – survival of the fittest. While it sounds good from the economic view point of the companies, we need to keep in mind that we live in a socialistic environment – taking care of everybody, and not just the best. Also, while others may not be the best in India, it does not mean that they are incapable. However, the economic conditions in India may just not be supportive enough to allow them to earn their livelihood. And these people can just be anyone – you, me, our friends, our relatives or our next door neighbours. Are we ready for this situation?

5.       With lesser employment opportunities available, people will get attracted to short-cuts (breeding more corruption in the system) and unethical means to earn livelihood. A moral dilemma – as while earning via unethical means is wrong, everyone does have the right to live. So what do we do?

6.       And I just forgot to mention – above reasons/ situations can also cause social unrest.

There are 2 ways to conclude this now – listing out the solutions to avoid such a problem. For the moment, I am adopting the other route – leaving this food for thought for the reader.