Economic theory suggests that when the proportion of young people in a region increases, a significant boost to economic growth should materialise. The years after World War II saw the West, in general, and the US, in specific, benefit from this dynamic as baby boomers delivered record productivity. However, even as India's demographic profile today is similar to that of the US in 1960, contrary to popular belief, a demographic dividend is very unlikely to accrue to India anytime soon. This is mainly because a large share of India's youth today lacks education as well as jobs to deliver this productivity. To add to the imbalance, India's gender ratio is skewed significantly in favour of men.
India's rapid economic progress over the past two decades masks its abysmal progress on social indicators. Worryingly, this imbalance between rapid economic progress and stagnant-cum-awful social metrics is particularly glaring in India's northern belt (INB; the region spanning Rajasthan in the west to Bihar in the east). Despite the fact that INB is the youngest region in India, the region runs the risk of exploding as millions of barely literate men face a lifetime without jobs and without women.
Despite its rich cultural heritage, the noughties have seen the INB deal with the emergence of four dangerous socio-economic problems, namely, (1) the persistence of a skewed gender ratio, (2) the emergence of a 'youth bulge' (3) that is largely uneducated and/or unemployed, and (4) GDP growth in the most prominent sector of this region, i.e., agriculture, being consistently low. Let me elaborate upon these four points.
Firstly, let's take India's gender ratio. Women constitute only 48 per cent of India's population. This is the poorest among its emerging-market peers. This can be largely attributed to INB's poor gender ratio - women constitute only 47 per cent of the population - which disturbingly has deteriorated in the noughties after recording an improvement in the nineties. Consequently, now INB accounts for only 43 per cent of India's female population compared with 57 per cent of the male population. Secondly, the youthful structure of India's demographic profile can also be attributed to INB as this region is characterised by the youngest population structure in the country - 20 per cent of INB's population is aged between 15 and 24. However, owing to lack of skill and education (only 71 per cent of the people in INB are literate compared to 80 per cent in South India), INB won't be able to reap the benefits of its youthful demographic structure. Thirdly, unemployment too is a bigger problem in INB than in the rest of India - a fact that does not augur well for North India in light of its youthful demographic structure. Astonishingly, 64 people out of every 100 in INB are unemployed (the corresponding number for South India is 36). Lastly, agriculture, which accounts for 60 per cent of employment in INB has consistently grown at a slower pace than the industrial and services sectors for the last two decades.
India's adverse standing on the poverty headcount ratio - 21 per cent of India's population lives on less than $1.9/day - is mainly attributable to the widespread economic destitution in INB, which accounts for a much higher share of India's poor population. My maths suggests that over two-thirds of India's destitute people live in INB.
The combination of a predominantly young population, large-scale economic destitution and unemployment has resulted in higher crime rates in INB. The persistence of inequalities and poor employment opportunities has also led to an increase in instances of communal tension in INB. For instance, Uttar Pradesh witnessed the highest number of communal incidents among the states during calendar years (CY) 2010-14. Besides the increase in crime rates and social tensions, a combination of skewed gender ratio, economic destitution and a large population of unemployed youth has resulted in social unrest and, consequently, explicit economic losses. For instance, Uttar Pradesh has lost 416 man-days in CY13 due to various disturbances such as strikes and lockouts.
In contrast, the South is almost like a middle-income country with superior performance (and improving) on a range of socio-economic parameters. For example, per capita income in South India is $2,000 versus $1,200 for INB. The gender ratio in the South is 995 women for every 1,000 men, whereas in INB there are only 901 women for every 1,000 men. The opposing forces of a democratic political system and a social system characterised by caste politics have interplayed with each other constructively in South India, thus helping the South avoid North-Indian-style socio-economic destitution. Thanks to a reasonably well-educated and aspirational society in South India, the southern states' labour markets are in better shape as compared to INB, which suffers from an oversupply of under-skilled labour. Furthermore, even the southern states' public finances are better managed and state-level balance sheets are characterised by lower levels of debt and superior tax-collection abilities.
India could get stuck in a 'low-income trap' if its North fails to improve its abysmal standing on socio-economic parameters. Economic theory as well as cross-country evidence suggest that: (1) unequal societies are unlikely to deliver sustainable growth; and (2) high youth unemployment limits consumption growth.
Furthermore, in a globalised age, where sweat-shop-type unskilled labour is no longer required, North India's destitute and poorly educated people run the risk of becoming increasingly irrelevant. Given that India's competitive advantage in the global export market lies in producing 'light industrial products' that are capital-light but knowledge-intensive, the South would be able to produce the same effectively, making the North increasingly less relevant as an economic growth driver in the decades to come.
Saurabh Mukherjea is CEO - Institutional Equities at Ambit Capital and the author of Gurus of Chaos: Modern India's Money Masters.
This column appeared in the May 2016 Issue of Wealth Insight.
This article was originally published on June 03, 2016.
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