Demographic Dividends for India: Evidence and Implications based on National Transfer Accounts

7/27/2019 Demographic Dividends for India: Evidence and Implications based on National Transfer Accounts

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ADB EconomicsWorking Paper Series

Demographic Dividends or India:Evidence and ImplicationsBased on National Transer Accounts

Laishram Ladusingh and M. R. Narayana

No. 292 | December 2011


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ADB Economics Working Paper Series No. 292

Demographic Dividends or India:

Evidence and Implications

Based on National Transer Accounts

Laishram Ladusingh and M. R. Narayana

December 2011

aishram adusingh is rofessor and ead, epartment of athematical emography and tatistics,

nternational nstitute for opulation ciences; and . . arayana is rofessor of conomics, Centrefor conomic tudies and olicy, nstitute for ocial and conomic Change. he authors are grateful torofessors Andrew ason and ang-yop ee for professional guidance and encouragement; to the$VLDQ'HYHORSPHQW%DQNIRUQDQFLDOVXSSRUW WR'LDQD:RQJNDUHQIRUWHFKQLFDODVVLVWDQFH DQGWRWKHSDUWLFLSDQWVRIWKH$'%:RUNVKRSRQ'HPRJUDSKLF7UDQVLWLRQDQG(FRQRPLF*URZWKLQ$VLDKHOG0D\LQ6HRXOIRUWKHLUPDQ\XVHIXOFRPPHQWV7KLVSDSHUZDVSUHSDUHGDVDEDFNJURXQGSDSHUIRUtheAsian evelopment utlook 2011 pdate7KHDXWKRUVDFFHSWUHVSRQVLELOLW\IRUDQ\HUURUVLQWKHSDSHU


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he views expressed in this paperare those of the authors) and do notQHFHVVDULO\UHHFWWKHYLHZVRUSROLFLHVof the Asian evelopment Bank.

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and measurement. he series aims to enhance the knowledge on Asias development

and policy challenges; strengthen analytical rigor and quality of ABs country partnership

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effectiveness.

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epartment.

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Contents

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. he emographic ransition in ndia

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Abstract

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demographic dividends in ndia, a gap policy makers must address when setting

priorities for human resource and capital investment to harvest the economic

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I. Introduction

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from high fertility and high mortality to low fertility and low mortality, the age structure of

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consume more than they produce while those in the prime working ages not only support

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miracle to a major transition in the regions age structure. sing cross-country panel data,

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growth of per capita income. An important result in these studies is the positive impact

of the ratio of the working-age population, which captures the age structure transition.

his offers empirical evidence for the positive impact of the demographic transition on

economic growth. urther, they concluded that the potential for the demographic dividend

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n the later stages of the demographic transition, the working-age population starts

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systematic approach to introducing age into national income and product accounts A)

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timing, duration, and magnitude. tudying demographic dividends in the context of ast

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2 | ADB Economics Working Paper Series No. 292


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ndia.

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Figure 1: Demographic and Age Structure Transition in India

0.0

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1.0

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2.0

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0

5

10

15

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6064

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2010 2030 2050Female Male

CBR = crude birth rate, CDR = crude death rate.Source: Constructed rom United Nations World Population Prospects: The 2008 Revision (United Nations 2008).

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transitions leading to a decline in the relative share of children and an increase in the

share of the elderly and working-age populations.

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destiny, thus this overall scenario conceals regional variations across states. he

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indicators and age structure transitions in major states. t is evident that there is a

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Table 1: Demographic Indicators and Age Structure Transition in Major States in India

States Demographic Rates (2009) eoo

(2002

2006)

Age Composition (%)

BR DR IMR 1971 2026

1559 60+ 1559 60+

Andhra Pradesh 18.3 7.6 49 64.4 51.7 5.3 65.5 14.2Assam 23.6 8.4 61 58.9 48.4 4.7 64.9 11.0Bihar 28.5 7.0 52 61.6 51.5 5.9 64.1 11.2Gujarat 22.3 6.9 48 64.1 51.7 5.3 65.4 13.7Haryana 22.7 6.6 51 66.2 48.0 5.8 67.0 11.4Himachal Pradesh 17.2 7.2 45 67.0 51.6 7.2 65.5 14.7Tamil Nadu 16.3 7.6 28 66.2 56.5 5.7 64.2 17.1Kerala 14.7 6.8 12 74.0 62.6 6.2 63.0 18.3Madhya Pradesh 27.7 8.5 67 58.0 50.5 5.8 63.6 11.0Maharashtra 17.6 6.7 31 67.2 52.9 5.7 65.7 12.9Orissa 21.0 8.8 65 59.6 51.6 6.0 65.1 13.8Uttar Pradesh 28.7 8.2 63 60.0 46.1 6.8 61.3 9.8West Bengal 17.2 6.2 33 64.9 51.7 5.3 65.4 14.2

BR = birth rate, DR = death rate, eoo = lie expectancy at birth, IMR = inant mortality rate.

Sources: Demographic rates (2009) are rom the Ofce o the Registrar General o India (2011); lie expectancy at birth is rom theOfce o the Registrar General o India (2008); age composition in 1971 is rom the Ofce o the Registrar General o India(1997); and age composition in 2026 is rom the Ofce o the Registrar General o India (2006).

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smoothing out regional differences. hus in the long run in the later stages of the

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the national aggregate are unlikely to conceal regional differences.

III. Economic Growth and Social Policies

he history of economic growth in ndia was disappointing for more than a quarter of a

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reductions, deregulation, and other policies.

Demographic Dividends for India: Evidence and Implications Based on National Transfer Accounts | 5


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leading engine of growth; placing greater reliance on market forces; and opening the

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Table 2: Indias Sector Growth Perormance, 19702002

Total GDP

Growth (%)

Sector Growth o GDP

(% per year)

Agriculture Industry Services

19701972 to 19801981 (average) 3.2 2.0 4.0 7.2

19811982 to 19901991 (average) 5.7 3.8 7.0 6.719911992 1.3 1.1 1.0 4.819921993 5.1 5.4 4.3 5.419931994 5.9 3.9 5.6 7.719941995 7.3 5.3 10.3 7.119951996 7.3 0.3 12.3 10.519961997 7.8 8.8 7.7 7.219971998 4.8 1.5 3.8 9.819981999 6.5 5.9 3.8 8.319992000 6.1 1.4 5.2 9.520002001 4.0 0.1 6.6 4.820012002 5.4 5.7 3.3 6.519921993 to 19961997 (average) 6.7 4.6 8.0 7.619971998 to 20012002 (average) 5.4 2.3 4.5 7.8

GDP = gross domestic product.Note: Growth rates or 20012002 are projections o the Ministry o Finance based on partial inormation.Source: Economic Survey 20012002 (Government o India, Ministry o Finance 2002).

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economic growth and poverty alleviation in ndia is, however, not so clear in view of the

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needs of housing, sanitation, adequate health care, and universal education; and the poor

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Table 3: Trends in Social Service Expenditures by Governments

in India, 20052011 (central and state governments combined; in 10 million rupees)

Items20052006 20062007 20072008 20082009 20092010 20102011

Actual Actual Actual Actual (RE) (BE)

Total Expenditure 959,855 1,109,174 1,316,246 1,595,110 1,909,380 2,071,147202,672 239,340 294,340 380,269 476,351 522,492

Expenditures on Social Servicesi) Education 96,365 114,744 129,366 161,360 204,986 235,035ii) Health 45,428 52,126 63,226 73,898 90,700 99,738iii) Others 60,879 72,470 101,992 145,011 180,665 187,719

As Percent o GDP

Total Expenditures 25.99 25.83 26.40 28.57 29.15 26.29Expenditure on Social Services 5.49 5.57 5.91 6.81 7.27 6.63i) Education 2.61 2.67 2.59 2.89 3.13 2.98ii) Health 1.23 1.21 1.27 1.32 1.38 1.27iii) Others 1.65 1.69 2.05 2.60 2.76 2.38

BE = budget estimate, GDP = gross domestic product, RE = revised estimates.Source: Economic Survey 2011 (Government o India, Ministry o Finance 2011).

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not statutory, which provide additional postretirement income to employees on a regular

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governments for persons facing virtual destitution. he then undivided state of ttar

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eghalaya, ondicherry, ikkim

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month.

n view of the growing concerns regarding inadequate old-age income security and

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ocial and ncome ecurity report to examine policy questions. he focus of the report,

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features and recommendations were the following

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retirement accounts As).

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he committee also recommended a choice of three types of funds safe

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14/30

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purchased from a life insurance company.

IV. Demographic Dividends in the National Transer

Accounts Framework

ndia is a federal economy so revenue and expenditure functions and regulatory functions

are divided among central, state, and local governments.. As per the constitution,government activities are assigned to the union list, the state list, or the concurrent

list. ocial sectors such as education, health, and social security are included in the

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purposes.

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private sectors in the production and consumption of goods and services, including

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economy. hus, external account transactions are of importance for ndias economic

growth, which implies that the A open economy approach to estimating aggregate

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in working ages can support a higher level of consumption than populations concentrated

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Cs and age reallocations.

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where, Pa, t) is the population aged a at time t, and J a) and I a) are the age patterns

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clearly have an edge over ad hoc measures such as the total dependency ratio. A

standard measure of the economic growth of an economy is income per capita and can

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16/30

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ndia in this paper follows the macroeconomic framework and simulation approach in

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)(. he income

index is income per equivalent consumer relative to income, and the consumption index

is the consumption per equivalent consumer relative to income per equivalent consumer.

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he two indices measure the extent to which income and consumption per equivalent

consumer rise relative to income under the assumption that productivity changes due

to technological innovations only. f individuals save and accumulate assets during the

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does. n the later stages of the transition, however, with fewer children to support

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growth of the income index or the consumption index and the rate of growth of the .

A. Data Requirements, Sources, and Assumptions

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Table 4: Macro Aggregate Controls or Labor Income and Consumption by Sectors in India,

20042005 (10 million rupees)

Consumption by Sector Public Private Total

Education 60505 38221 98726Health 74441 80895 155336Others 184152 1537401 1721553Macro-Control or Labor Income 1546099

Source: National account statistics 2008 (Government o India, Central Statistical Organisation 2008).

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self-employment and household expenditures on education, health care, food, nonfood



17/30

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XVLQJDPXOWLVWDJHVWUDWLHGVDPSOLQJGHVLJQDGRSWHGVSHFLFDOO\IRULW7KHPHGLXPvariant projections of the nited ations ) for ndia were the source for age structure

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macroeconomic parameters of economies that experienced demographic dividends in the

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B. Economic Lie Cycle

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employed farmers, or work in the informal sector.



18/30

Figure 2: Economic Lie Cycle or India, 20042005

0

10,000

20,000

30,000

40,000

0 10 20 30 40 50 60 70 80 90+

PerCapitaIncome/Consumption,

IndianRupees

Age

Labor Income Consumption

INR = Indian rupees.Source: Authors calculations.

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interesting features, particularly for school-age consumers and at older ages. er capita

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economically gainful activities, per capita consumption rises concomitantly with the rise

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pattern of per capita consumption is that the elderly support an average consumption

nearly at par with that of those in the prime working ages. his suggests intergenerational

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savings and liquidating income and assets.



19/30

C. The Lie Cycle Defcit and Intergenerational Reallocations

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more than they produce; it is covered through private interhousehold and intrahousehold)

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Table 5: Aggregate Labor Income, Consumption, Lie Cycle Defcits, and Age Reallocations

by Decades in India, 20042005 (10 million rupees)

Total 019 2029 3049 5064 65+

Lie Cycle Decit 429,516 583,062 58,499 267,329 39,687 94,971Consumption 1,975,615 640,114 377,019 572,539 256,732 129,211

Public 319,098 159,705 41,492 66,958 32,177 18,766Education 60,505 58,905 1,600 0 0 0Health 74,441 20,737 7,742 21,931 14,292 9,739Other 184,152 80,063 32,150 45,027 17,885 9,027

Private 1,656,517 480,409 335,527 505,581 224,554 110,446Education 38,221 31,798 6,423 0 0 0Health 80,895 12,767 8,678 26,271 19,584 13,595Other 1,537,401 435,844 320,426 479,310 204,971 96,851

Labor Income 1,546,099 57,052 318,520 839,868 296,419 34,240Age Reallocations 429,516 583,062 58,499 267,329 39,687 94,971Asset-Based Reallocations 395,527 20,038 16,922 142,122 135,357 114,932

Net Asset-Based Income 1,067,028 46,986 151,226 440,934 257,469 170,414Less: Net Savings 671,501 26,948 168,148 298,811 122,112 55,482

Public Transers 0 81,138 35,904 45,406 5,006 5,178Private Transers 33,989 481,886 111,325 364,045 170,038 25,139

Inows 1,213,290 498,342 246,997 264,478 122,272 81,200Outows 1,179,301 16,456 135,672 628,523 292,310 106,339

Interhousehold 33,989 2,705 4,952 10,695 8,894 6,743

Inows 36,458 2,829 5,401 11,685 9,518 7,025Outows 2,469 124 449 990 625 282Intrahousehold 0 479,181 106,372 374,740 178,932 31,882

Inows 1,176,832 495,514 241,596 252,793 112,754 74,176Outows 1,176,832 16,332 135,224 627,533 291,685 106,058

Source: Authors calculations.

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education and health care, respectively.



20/30

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Figure 3: Aggregate Lie Cycle Defcit, Asset-Based Reallocations, and Private and PublicTransers in India, 20042005 (Indian rupees)

30,000

20,000

10,000

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30,000

40,000

50,000

0 10 20 30 40 50 60 70 80 90+

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Lie Cycle DecitPrivate Transers

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reallocations.



21/30

V. Demographic Dividends

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while the second dividend is studied in terms of the income index ( and

consumption index )( GHVFULEHGLQWKHSUHFHGLQJVHFWLRQV7KHNH\LQSXWVIRUWKHsimulation to generate the and indices of income and consumption are the age

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Figure 4: Economic Support Ratio, Consumption Index, and Income Index

or India, 20052295

0.00

0.20

0.40

0.60

0.80

1.00

2005 30 55 80 2105 30 55 80 2205 30 55 80

Economic Support RatioIndex o ConsumptionIndex o Income

95

L/N = economic support ratio, c/yl = consumption index, y/yl = income index.


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population and the gradual increase in the share of the elderly population. he effective

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the income and consumption indices rose more sharply than the , and the gap

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the rate of growth of the income index ( or the consumption index )( ) and the

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dividend with some overlapping remains positive. he peak in the growth rate of the

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Figure 5: Annual Growth Rate o Demographic Dividends in India, 19802295 (percent)

0.60

0.40

0.20

0.00

0.20

0.40

0.60

0.80

1980

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23/30

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to study the demographic transition and changing age structures in the conomic and

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retirement system. An important macroeconomic consequence of an aging population isWKHPDQQHULQZKLFKZHDOWKLVGLVWULEXWHGDQGEHKDYHVRYHUWLPHGXULQJWKHWUDQVLWLRQ

he components of wealth to consider are child rearing transfers k


24/30

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costs, the predominance of young workers who are yet to start accumulating wealth for

retirement, and a lack of incentives to save.

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and private institutions and the policy environment through aggregate controls and age

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consumption throughout the computation is a limitation of the A approach.

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economy includes traditional village farming, modern agriculture, handicrafts, a wide

range of modern industries, and a multitude of services. ervices are the major source

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n a study of patterns and causes of economic growth in ndia, Basu and aertensREVHUYHGWKDWZKLOHWKHQGLDQSRSXODWLRQKDVPRUHWKDQGRXEOHGVLQFHWKHV

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education, and a residual called total factor productivity ). he results of this study

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25/30

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more prominently with an increase in . ndias savings rate as a percentage of

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needs of housing, sanitation, and adequate health care to the population as a whole; the

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VII. Summary and Conclusions

sing the A framework, this paper estimates and offers evidence for the positive

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policies, and market orientation. he replaces the ad hoc total dependency ratio

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perspective.

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it dwindles and the second demographic dividend gains prominence. he total dividend



26/30

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income gradually decline while pension wealth and asset accumulation relative to income

steadily rise.

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retirements. o reap the economic gains of the potential second dividend, however, an

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27/30

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About the PaperLaishram Ladusingh and M. R. Narayana find for India that income per effective consumercould increase by 24.9% from 2005 to 2035, of which 9.1% is from the first demographicdividend, and 15.8% is from the second demographic dividend; and that the seconddividend will be stable up to 2070. However, the authors emphasized the need for policyreorientation to fully harness Indias demographic dividends.

About the Asian Development BankADBs vision is an Asia and Pacific region free of poverty. Its mission is to help itsdeveloping member countries reduce poverty and improve the quality of life of theirpeople. Despite the regions many successes, it remains home to two-thirds of the worldspoor: 1.8 billion people who live on less than $2 a day, with 903 million struggling onless than $1.25 a day. ADB is committed to reducing poverty through inclusive economicgrowth, environmentally sustainable growth, and regional integration.

Based in Manila, ADB is owned by 67 members, including 48 from the region. Itsmain instruments for helping its developing member countries are policy dialogue, loans,equity investments, guarantees, grants, and technical assistance.

Asian Development Bank6 ADB Avenue, Mandaluyong City1550 Metro Manila, Philippineswww.adb.org/economicsISSN: 1655-5252Publication Stock No. WPS124554

December 2011

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Documents

Demographic Dividends for India: Evidence and Implications based on National Transfer Accounts