The Indian Economy Blog

July 1, 2006

A Tale Of Two Countries?

Filed under: Business,Health,Human Capital — Edward @ 5:20 pm

The idea that India is not one country but two (or more?) is, of course, not a new one, but it does seem to me to be a thesis which is worth revisiting, in particular in the light of India’s current demographic realities. Chris Wilson in a paper (pdf) entitled “Implications of global demographic convergence for fertility theory” suggests that in order to understand anything which is worth understanding about India some type of regional dis-aggretation is vital since there is so much variance between states. In arguing this he makes the following seemingly valid point that:

if the Indian state of Uttar Pradesh were an independent nation, it would today be the fourth most populous on Earth (assuming China and India are disaggregated), with more inhabitants than Pakistan or Russia

And of course fertility and child mortality in Uttar Pradesh has nothing whatever to do with fertility and child mortality in, say, Kerala.

Now P.N. Mari Bhat, of the Institute of Economic Growth in Delhi explored this idea a little further in a recent paper (pdf) entitled Demographic scenario, 2025.

In the introduction to his paper Bhat makes the methodological point that:

It is beyond the scope of this paper to discuss the population prospectus on a state-by-state basis. But because they make telling contrasts, two broad regions- north and south – will be considered for detailed treatment. The ‘north’ in our discussions comprises of Uttar Pradesh, Bihar, Orissa, Madhya Pradesh, Rajasthan, and newly formed states of Uttaranchal, Jharkhand and Chhatisgarh. The ‘south’ comprises of Kerala, Tamil Nadu, Andhra Pradesh and Karnataka. During 1991-2001, the average population growth rate was 2.22 percent per annum in the north while it was only 1.24 percent in the south.

He then goes on to suggest one possible scenario for Indian population development up to 2025:

The provisional results of the 2001 Census suggest that in the year 2000 the northern and southern regions had a population of 450 and 220 million, respectively ……. In the case of south India, TFR has been assumed to fall progressively from 2.3 in 2000 to 1.9 in 2010 and then to remain constant at 1.8 until 2025. In north India, the Total Fertility Rate (TFR) has been assumed to decline from 4.4 in 2000 to 3.6 in 2010 and further to 2.7 by 2025. Between 2000 and 2025, the expectation of life at birth in south India has been assumed to rise from 64 to 70 for males and from 67 to 74 for females. During the same period in north India, the expectation of life at birth has been assumed to rise from 59 to 66 for males and 58 to 67 for females. As south India appears to be hit more by the AIDS epidemic, a slower rate of increase in life expectancy has been assumed there.

Now all of this is very provisional, since population projections are notoriously unreliable, but three things to seem to stand out:

i) The fertility differential between north and south. If anything I would say that assuming a stabilisation of TFRs at around 1.8 for south India to 2025 is pretty questionable, since it doesn’t seem to take account of the possible impact of birth postponement (which as we can see in Southern Europe, Japan, and the Asian Tigers, can lead to lowest-low fertility in the 1.2-1.3 TFR region). If economic growth continues to take-off in the south and you get a more educationally qualified, and a more gender-equal evolution, associated with rapid economic growth in the region, then this ‘modern’ low fertility profile is likely to appear as a consequence (this does seem to be the global experience). In which case India is likely to become even more ‘divided’, with low fertility, ageing population issue in the south, and a pre-modern fertility and excessive child mortality pattern still clinging on to some extent in the north.

ii) The life expectancy dimension. As can be seen there is an important differential in this regard between north and south, with the lower life expectancy in the north being associated with the relatively higher infant and child mortality.

iii) The AIDS wild card. No one really knows what will be the impact of this on both life expectancy and future fertility.

Another point Bhat refers to is the changing age structure of the Indian population:

We can be more certain of the changes in the age structure of the population. Under the realistic scenario, between 2000 and 2025, the percentage of population under 15 years of age is expected to fall from 36 to 27 percent. Actually, the population under 15 years is expected to increase only marginally from 360 to 371 million in 25 years. On the other hand, the adult population in the age group 15-64 is expected rise from 604 million in 2000 to 942 million in 2025. i.e., from 60 percent to 67 percent of the total population. The elderly population is also expected to rise sharply from 45 to 89 million, and their share in the total population would rise from 4.5 to 6.4 percent. As a consequence of these age structural changes, the age-dependency ratio (ratio of non-working age population to working age population) is expected to fall from 67 percent in 2000 to 46 percent in 2025.

So in age structure terms the situation is rather favourable from India’s point of view as the proportion of people in the working ages is going to rise and rise. This is really the heart of India’s demographic dividend process, although, of course, there is nothing inevitable about this dividend and things will very much depend on having adequate policies to meet the challenges, and in particular policies which address the need to equilibrate the imbalances between north and south. One possibility which would help this equilibration process would be to facilitate migration from north to south, but from where I am sitting it is hard to say how viable or realistic this is.

In general it is possible to say that for India population ageing will not be a huge problem in the short term, but that it will be much more of a problem in the south (which is why again immigration would be interesting, although obviously there are important cultural issues to think about here, I have no idea, for example, just how feasible the displacement of female care workers from the north to tend for elderly people in the south ever could be, all I can say is that is what is happening here in Spain, from where I am writing this, with young women arriving in large numbers from Bolivia and Ecuador, and what works in Spain might work in India) . What can be said, however, is that in population terms India will now start to have the wind blowing behind her, which should be much more favourable than having it blowing straight into her face as it has been up to now.

8 Comments »

  1. In a more mobile society as India has become, one wonders if there really be two countries for long. The “immigration” of Bihari laborers to Southern cities, the knowledge workers from the North populating cities such as Hyderabad and Banagalore, and the gradually increasing fluidity of the entire population as the country’s vast middle class acquires more economic resources – these megatrends may erase most of the qualitative differences between the North and South. They did in the United States, which, too, had a south that was qualitatively different than the north until the sixties and seventies. Now it is one uniform country.

    In fact, there is a much wider gap between the urban and rural Indias rather than the north and south, and bridging that gap may take a century.

    The post referred to “global experience” as a guide. I firmly believe that broad trends are completely universal, and much of India’s future can be predicted by global experience. Of course, the micro changes will be more particular to India and much harder to predict.

    Comment by Sarat — July 2, 2006 @ 3:55 am

  2. There will be no “demographic dividend” if key economic reforms aren’t realized until the average age is 45.

    Comment by AK — July 2, 2006 @ 5:04 am

  3. “There will be no “demographic dividend” if key economic reforms aren’t realized until the average age is 45″

    Obviously not AK, obviously not. But India’s median age won’t be anything like 45 for another half century or so (while of course Italy, Germany and Japan are already pushing up to that threshold), so you have to take a very pessimistic view of India’s capacity for change if you don’t think the reforms can come over that time horizon. Personally I think they will come much sooner, maybe not tomorrow, but much sooner.

    The demographics seem to tell us that India’s ‘big decade’ can be around 2015 – 2025. If you can get the health and educational issues (especially in the north) sorted by this time, you will have a lot of bright, healthy, energetic young people (remember nutrition in infancy and cognitive capacity are correlates) coming online at just the time there will be an increasing relative scarcity of such talent at a global level. But I absolutely agree, you need to get the reform end of things well and truly sorted.

    “In a more mobile society as India has become, one wonders if there really be two countries for long.”

    Good point. Looking at global population trends it is hard to see where international migration will be coming from – to feed eg the ‘growth machines’ of the developed world – ten to fifteen years from now. Latin America will dry up as a ‘feedstock’ for the US at some point, and it is hard to see China being able to leverage international migration due to culture (think Japan) and its sheer scale. But internal migration in China seems to be almost done, if you look at the labour market tightening that is going on. This has all been very rapid there.

    “the knowledge workers from the North populating cities such as Hyderabad and Banagalore”

    Yes, but we also need to be careful here. This can exaccerbate the ‘two India’s’ situation: think Krugman, increasing returns and ‘clustering’. You can have some dynamic high-value sectors grouped around one pole, and a lot of low value ‘poverty-related’ activities at the other. Again, Spanish experience is again interesting here, since with development educational equality has spread across all the regions, with university entrance rapidly approaching 50% of the young cohorts across the country, but the work for these graduates (apart from jobs in the public sector) is very much concentrated in the urban clusters of Barcelona and Madrid, with the consequence that internal migration of the highly educated is once more on the rise and regional differences are growing not reducing, especially in the ageing population context.

    Comment by Edward — July 2, 2006 @ 12:18 pm

  4. Very interesting topic indeed …

    I have mused about it before http://clausvistesen.squarespace.com/alphasources-blog/2006/4/28/indias-young-population-and-related-issues.html

    Particularly this bit from a Boston Globe article seems to the point here …

    ‘India’s last census in 2001 revealed a sharp demographic divide between poorer northern states and economically advanced southern states, where there has been a sharp decrease in the rate of population growth in the last decade.

    Experts say the demographic imbalances could fan regional tensions as people move from the poorer heavily populated areas to richer southern India. Imbalances could also fan political tensions. Last year, a leading Hindu hard-liner angered women and Muslims by pressing Hindus to have as many children as possible to avoid being swamped by Muslims.’

    This issue simply needs to be reconciled along side the push for reforms if the demographic dividend is going to benefit India as a whole.

    And this is also so very important I believe … this is a lingering phenomenon in India and it cannot be easily undone.

    ‘In fact, there is a much wider gap between the urban and rural Indias rather than the north and south, and bridging that gap may take a century.’

    So in the end there are grounds on which to be both optimist and pessimist I guess.

    Comment by claus vistesen — July 2, 2006 @ 9:13 pm

  5. “So in age structure terms the situation is rather favourable from India’s point of view as the proportion of people in the working ages is going to rise and rise. ”

    Wow.. this sounds so wonderful… nice bed time story. Please let us more edward.

    The reality is….

    a.when Bank of Japan (BoJ) ends ZIRP, our stock market will almost die. There is no reason for anyone to give 16% PEs to useless stocks when global economy is slowing considerably

    b.our deficits will cause rupee to appreciate and hence the prices too leading to more RBI rate hikes which will slow down the domestic economy too.

    Since both global and domestic economy is in shambles… ALL THE INDIAs YOUTH will only be causing a revolt. There is nothing more going to happen.

    Its OBVIOUS that wind blowing behind her is going to END. So why this demographic discussion is taking place (atleast once in a month – highlighting any artcle that comes out.)

    Comment by Benny — July 3, 2006 @ 3:47 am

  6. “our deficits will cause rupee to appreciate and hence the prices …”

    Should have been

    ” our deficits will cause rupee to TUMBLE…prices of commodities to rise…”

    Comment by Benny — July 3, 2006 @ 3:50 am

  7. “when Bank of Japan (BoJ) ends ZIRP, our stock market will almost die.”

    That’s one hell of an assumption you are making here Benny, that Japan *can* end Zirp I mean. I know the BoJ is trying, they’ve been trying for over a decade, and they haven’t really pulled it off yet. I think we should wait and see a bit here. Japan’s demographics – wages are rising coz they are running out of workers, and the ageing population is saving rather than spending – suggest there will be no early sustainable end to Zirp.

    But this wasn’t your main point I think, your main point was that the US trade deficit, and a tendency to a weaker dollar vis-a-vis developing economy currencies wouldn’t apply to India, because India’s deficits mean the rupee will tumble. I don’t buy this, but you are entitled top your point of view. Now let’s see if it does. Theories need to be testable.

    “Since both global and domestic economy is in shambles… ”

    Well, it’s growing at circa 5% per annum at the moment, largely thanks to the developing econimes, so I would hardly call that a shambles. It’s more than we have ever seen before.

    “So why this demographic discussion is taking place”

    Because I for one think demographics are important, and normally neglected. You obviously don’t Again, you are entitled to your point of view. There *will* be more of the same I’m afraid.

    Comment by Edward — July 3, 2006 @ 4:49 pm

  8. “I know the BoJ is trying, they’ve been trying for over a decade, and they haven’t really pulled it off yet. I think we should wait and see a bit here. Japan’s demographics ……….”

    So Eddie, sweet heart, will you stop this India-is-going-to-be-gr8-with-demographics posts when Japan rises rates ? (even though demographics of Japan is not condusive for rising rates ?

    Comment by Benny — July 7, 2006 @ 1:46 am

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