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Economy: The demographic angle... - Views on News from Equitymaster
 
 
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  • Feb 20, 2007

    Economy: The demographic angle...

    While the Indian economy continues to display robust health as can be evinced from the strong GDP numbers, the changing demographics of India are also expected to contribute in its favour going forward. This is more so, given the fact that most of the developed nations are saddled with the increased burden of an ageing population. In this article, we shall highlight the positives of India's population and the challenges that it faces going forward.

    India's population: The positives...

    Getting younger: While India is slated to become the most populous country in the world, tipping China, what is important to note is that the population of India will also be relatively much younger. In fact in the Pharma Summit 2006, Brian Tempest (Chief Mentor of Ranbaxy) had stated that in India, while 50% of the population is below 25 years, around 65% is below 35 years of age. This implies that in the long-term, a big portion of the population will be within the working-age group, which will contribute to the economic growth and act as a source of the extra needed global workforce.

    Cheap and skilled labour: One of the reasons why 'outsourcing' is gaining momentum in the country is the availability of labour that has English speaking fluency and skilled expertise in certain domains. The cheaper cost of labour in India has also been instrumental in boosting the outsourcing industry in the country. India Inc. (especially the pharma and software sectors) has already displayed its prowess by leveraging on its low cost advantage (both in manufacturing and labour) to boost its export potential - a trend, which is expected to continue in the future as well. To put things into perspective, labour costs in India are estimated to be around one seventh of the costs in the US. Also, in the context of the pharma industry, India has 6 times the number of trained chemists in the US at a tenth of the cost (Source: Nicholas Piramal).

    The challenges are...

    Quality of labour: While the rise in working age population is firmly in India's favour, what needs to be understood is that the quality of labour is more significant. This is because high quality labour ensures unlocking of productive capacities and technical progress, thereby contributing to higher growth. As can be evinced from the table below, India has a long way to go in terms of providing basic education as compared to some of its Asian peers.

    Education: India has a long way to go
    Country Primary (%)* Secondary (%)* Tertiary (%)*
    China 117.6 72.5 19.1
    Phillipines 112.4 85.9 28.8
    Thailand 98.5 77.3 41.0
    Indonesia 117.0 64.1 16.7
    India 116.2 53.5 11.8
    * Gross enrollment ratio in 2004
    Source: World Bank

    Literacy levels: While India's literacy rate (age group 15 years and above) considerably improved from 18% in 1951 to 61% in 2004, it nevertheless lags its Asian counterparts, which have a literacy rate of above 90%. Another feature to be noted is that there is a wide difference in literacy rates within the various states. For instance, while Kerala enjoys the highest literacy rate of 91% (2001), Bihar has the lowest literacy rate of 47% (2001). This means that the Indian government needs to place increased emphasis on education in a bid to further enhance the quality of labour in the country.

    Literacy levels: India at the lowest end
    Country Literacy rate (2004)*
    Malaysia 89
    Phillipines 93
    Thailand 93
    China 91
    Indonesia 90
    India 61
    Source: World Bank
    * Age group 15 years and above

    To sum up...
    The long-term growth story India is expected to remain strong with the GDP estimated to grow by around 7%-8%. Having said that, the government needs to lend more focus on improving the infrastructure and the level of education, if India has to sustain its growth momentum or may be even grow at a higher rate. This is only possible if the Indian government allots a considerable weightage of its public expenditure to the same.

     

     

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