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Rediff.com  » Business » The utopian myth of India's double dividend

The utopian myth of India's double dividend

December 06, 2007 10:13 IST

Sheila Dikshit, chief minister of the Indian capital territory of Delhi, looks neither fat nor nervous, but she was disarmingly frank this week about the difficulties of coping with an annual influx of half a million migrants into her metropolis of 16m.

"I've put on some weight merely because I want to drown my anxiety by eating," she told a conference of the World Economic Forum and the Confederation of Indian Industry. If her administration did not meet the needs of Delhi's inhabitants, she warned, one of the world's largest cities would slide downhill. "Each one of them when they live in Delhi, they want more water, more power, they want more wages, more oil."

Her honesty was refreshing. It is slowly dawning on Indian policymakers that the country's much-trumpeted "demographic dividend" - the population surge that will increase the workforce to 800m by 2016 and make India the world's most populous nation - may turn out to be more of a threat than an opportunity.

Who will create the jobs to absorb the net increase of 71m young people of working age over the next five years? Most are poorly educated and only a fraction will find regular work.

Who will feed them and supply them with water and fuel? India has 18 per cent of the world's population but only 4 per cent of its fresh water and just over 2 per cent of its land area. Many of the country's groundwater aquifers are already in critical condition. Available per capita water supply has declined since 1975 and water demand is set to exceed all usable sources of supply by 2050.

The bulge of young people today, furthermore, will in time become a bulge of pensioners in a country where only 11 per cent of the working-age population have formal pension arrangements. India will thus face the same problems of ageing and high dependency ratios as Japan and Europe today, only on a larger scale.

All six risks facing India identified by the WEF and the CIIĀ -- inequality within a rising population, water shortages, high oil prices, global protectionism, climate change and infectious diseases -- originate, at least in part, in the alarming growth of the Indian population.

Not to worry, say the optimists, for India enjoys a second dividend as important as the first: democracy. India, according to Kamal Nath, the ebullient minister of commerce and industry, is an "island of stability" in a region of turbulence and authoritarianism, "a large country with a large population functioning as a democracy, a country with a young workforce that is raring to go".

This is utopianism. While the national population explosion places nearly intolerable strains on India's physical and social infrastructure, the country's democracy is so dysfunctional that it is reasonable to ask whether it can rise to the looming economic and demographic challenges.

Hundreds of millions of ill-educated and underemployed Indians are easy prey for populist politicians with narrow ethnic or religious agendas, a trend that will contribute to the fragmentation already under way in Indian politics. (The current coalition government depends on two dozen political parties).

Outside formal politics, Naxalite rebels - home-grown Maoists - have exploited resentment over official corruption and the widening gap between rich and poor to extend their influence into large swaths of rural India.

The folly of Indian fuel subsidies is one example of how bad demographics and bad democracy jointly threaten the country's future. In this fiscal year, the Indian government - wary of popular discontent - will spend an estimated $17.5bn or 2 per cent of national output on fuel subsidies because it refuses to pass on the greatly increased world price of energy to its citizens.

In theory the subsidies go to the poor, but in reality they are often diverted to benefit the urban rich. Perversely, subsidies also counteract such feeble attempts as there are to improve energy efficiency, and they drain the budget of funds that could be used to improve India's woeful education and healthcare.

Such follies, it is true, are not unique to south Asia, and there is no plausible or desirable alternative to democracy as a political system for managing modern India. As Anand Mahindra of the eponymous industrial group phrased it this week when he advertised his country's "3D" advantages of democracy, demography and durability: "India seems to muddle through. By and large we remain a stable country."

Muddle, however, is the appropriate word. Sonia Gandhi, who leads the Congress party, and Manmohan Singh, the prime minister, have sensibly promised to pour money into education. Less sensibly, they are introducing necessary economic reforms only with the utmost caution and stealth for fear of a backlash. Neither India's 1.1bn people nor New Delhi's allies in Washington, Tokyo or Europe can take for granted the continued success of a country with such a fast-growing population and such a weak political system.

Intriguingly, members of the Indian elite have come to exactly the same political conclusion as the leaders of the Chinese Communist party. Both groups say that a continuation of rapid economic growth - in China's case about 10 per cent a year, and in India's perhaps 8 per cent - is essential to avert the threat of social upheaval and popular unrest.

An Indian economic slowdown, therefore, does not bear thinking about. If it happens, it would not just be bad for Ms Dikshit's waistline. It would be dangerous for India.

Victor Mallet