India’s growth, once the horror of the alarmist West, is slowing sharply. In fact, the 2019 Economic Survey conducted by the Indian Ministry of Finance predicts that the country’s fertility rate will fall below the replacement rate (generally regarded to be 2.1 children per woman) as soon as 2021. Some states will then have to start to transition to an ageing society as early as the 2030s and will reach a near-zero growth rate by 2031-41.
These changing demographics will have serious implications for India across education, healthcare, taxation, public pension funding, labour participation and elderly care. The retirement age will likely need to be increased to provide enough workers and taxation to pay for increased healthcare costs and more elderly dependent citizens.
Despite this, India’s Prime Minister’s is encouraging his citizens to have smaller families through new coercive policies, as Marcus discussed this week. In his recent Independence Day speech Narendra Modi discussed a “population explosion” and its consequences for the country, stating that smaller families benefit everyone because existing resources can be shared among fewer people. His comments have already given rise to speculations about a possible future population control law.
The Indian Prime Minister is wrong on more than one count. It seems that he is ignoring both his country’s actual situation and economics.
People often think the fewer people there are in the world, the more of the ‘pie’ will be left for them. This is wrong because, in fact, the 'pie' gets a lot smaller when there are fewer people, and there is less for everyone.
The economy will get smaller because ageing reduces the labour supply. How will businesses you invest in stay afloat with no new innovative people? An ageing population also causes saving rates to decline, as people being to spend their retirement funds instead, which reduces business investment. A shrinking supply of working-age people can also mean employers will look elsewhere to expand, making it harder for local governments to raise enough taxes to pay for infrastructure and education, and encouraging those younger people who remain to look for better opportunities and education options elsewhere.
Moreover, who will be left to buy assets such as houses and stocks that people might plan on selling to pay for their own retirements if there are far fewer people? There may well be an over-supply of those things, meaning they must be sold at a loss, if at all.
So, while it might make financial sense at an individual level to have fewer children and have more money left for you, at a societal level there will be less for everyone when you do this.
How does this apply to India?
The Indian Economic Survey notes that the population in the age bracket 0-19 has already peaked due to the sharp decline in fertility across the country. It is projected to drop from as high as 41 percent of the population in 2011 to 25 percent by 2041. At the same time, the proportion of elderly people, aged 60 years and above, will continue to rise. This age bracket is expected to double from 8.6 percent in 2011 to 16 percent in 2041.
The report suggests that several states may have to resort to consolidating elementary schools in order to keep them viable. It also suggests increasing the retirement age, because more workers will be needed and there will be fewer working-age people to pay taxation to support the pension system. Additionally, expanding medical facilities in anticipation of the growing elderly is recommended.
In the meantime, India must make the most of the young people currently entering its workforce, through investment in quality education and job creation, in order to encourage productivity and innovation. It will certainly not want to be considering population control laws.
Shannon Roberts is co-editor of Demography is Destiny, MercatorNet's blog on population issues.