India’s Twin Dividends

HALFWAY THROUGH the 2024 Lok Sabha elec­tion, Indian democracy has proved remarkably re­silient. Nowhere else in the world could a country pull off an election with nearly one billion eligible voters.

The violence and booth capturing of the 1990s are long gone. Indian electronic voting machines (EVMs) count, collate, and declare the results of more than 600 million votes cast across 543 constituencies within a little over 12 hours. ‘Developed’ countries like the US take far longer, de­spite managing an electorate one-fifth India’s size.

India’s twin dividends—democratic and demograph­ic—stand out in stark contrast with other democracies. In the 2020 US presidential election, sup­porters of Republican candidate Donald Trump stormed Capitol Hill. They refused to accept Democratic candi­date Joe Biden’s electoral victory. The scenes of violent insurrection in January 2021 re­main a blot on American democracy.

Meanwhile, Trump is on trial in a hush money case over his liaison with adult star Stormy Daniels. But even if he is found guilty of bribing Daniels through his former accountant Michael Cohen to stay silent or is con­victed of complicity in the Capitol Hill ri­ots, his electoral prospects will not dwin­dle. In fact, they could rise as Republican voters coalesce around him. Even if Trump is jailed, he can still run for president. The US constitution explicitly allows it.

Indian democracy is more evolved. Legislation bars convicts from running for political office if their sentence exceeds two years, as Lalu Prasad discovered. The Manmohan Singh government wanted to bring Indian elec­toral democracy on par with America’s by passing an ordi­nance to allow all convicts to contest. In 2013, Rahul Gandhi, in a moment of fierce altruism, tore up the ordinance. Lalu stayed in jail. Eleven years later, all is forgiven. Lalu and his large family (Tejashwi Yadav, Tej Pratap Yadav, Rabri Devi, Misa Bharti, and others) have joined Congress in the omnibus opposition alliance.

Turn now to India’s much-maligned demographic dividend. The median age in India is 28 years. In China, the median age is approaching 40 years. China’s demographic dividend began around 1995. It picked up speed after 2005, reaching its peak in the 2010s.

There is a clear causal relationship between a country’s demographic dividend and GDP growth. In 1995, China’s GDP was $0.73 trillion. In 2005, it rose to $2.29 trillion. By 2015 (the peak of its demographic dividend), Chinese GDP had quintupled to $11.06 trillion, growing at an average annual rate of well over 10 per cent.

A country’s demographic dividend usually lasts for around 30 years. For China, the dividend ended in the early 2020s. Not surprisingly, its GDP growth rate has dipped to 5 per cent since and will likely slow to 3 per cent in the late 2020s as the median Chinese age rises.

Japan underwent a similar crest and trough in its demo­graphic dividend which began in 1960 and ended in 1990 when economic stagnation set in. The median age in Japan today is 50 years and the population is shrinking. So is China’s.

Some commentators in India talk darkly about a demographic disaster. They believe unless all young Indians get jobs, the large pool of 20-somethings, unskilled and unemployed, will fritter away India’s demographic advantage.

Their alarm is misconceived. India’s demographic dividend began in 2020 and will run through to 2050. India’s GDP at the end of calendar year 2024 is estimat­ed to be $4 trillion. By the late 2020s and early 2030s, when the demographic div­idend picks up speed as China’s did around 2005-15, India’s annual GDP growth rate will accelerate to over 9 per cent. At that rate of growth, when India peaks in the late 2030s, GDP could quadruple to $16 trillion, roughly on par with China’s GDP today.

Indian per capita income, with population plateauing at 1.50 billion, would then have risen to $11,000. By purchas­ing power parity (PPP), the true measure of living costs and wages, India’s per capita income would be around $25,000 in the late 2030s.

Obviously, upskilling and education are pivotal. But cur­rent unemployment figures of 7 per cent don’t take into ac­count the millions of self-employed people who are not reg­istered with employment and provident fund exchanges.

When per capita income rises to $25,000 and GDP to $16 trillion in the next 15 years, income inequality will fall. Redistribution of income will take place in the natu­ral economic course without being force-fed. India’s twin dividends—democratic and demographic—will underpin India’s ascent.

democracydemographic dividenteconomic growthIndiaIndian economy