India’s Working Age Population In Decline, Says Ruchir Sharma
The global economy is likely to grow 1% slower due to slowing population growth, says Ruchir Sharma
Global investor and author Ruchir Sharma’s new book The 10 Rules Of Successful Nations lists population as its first one.
In this interview with BloombergQuint’s Menaka Doshi, Sharma talks about the population headwind to global growth and points to how India’s working age population growth rate is now slipping below 2% a year.
I want to discuss Population, the first rule in your book. You write that
- Global working age population growth is down from 1.9% to 1.2%.
- Countries with an over 2% growth in working age population are down from 17 to 2 and soon just one.
- That the success of the United States owes more to babies and immigrants than to big ideas coming out of Silicon Valley.
Your broad message in that chapter is that global growth for the next 5 to 10 years is going to come down considerably because of the population dynamic.
Yes. So, just look at the basics of economic growth in terms of what creates economic growth. There are two factors. One is the increase in the labour force which is the number of people showing up at work and two is how productive these people are. That's just a basic economic identity in terms of what determines economic growth. What I argue here is that both these factors contributed to an incredible global economic growth spell we had in the post-World War II era.
The global economy grew at an average pace of nearly 4% a year between 1950 and 2008. In the history of economic development going back hundreds of years if not centuries, we had never seen such a period where economic growth averaged nearly 4% a year for the global economy.
Why did that happen?
A big reason why that happened is because we had a huge demographic surge in the world following the end of the Second World War, the baby boom generation as it was called in the United States. Even in countries like India and China, in the 60s and 70s and 80s, you will recall we had such a huge increase in population growth rates -- driven both by high birth rates and falling mortality rates as medical facilities got much better and we saw significant strides in medical treatments.
So what I show now in this latest era is the fact that population growth rate around the world is slowing down very significantly over the last 15 years or so and that if population growth slows down very significantly, a major driver of economic growth goes into a very different mode here.
So, as you cited, the world's working population was growing at a pace of nearly 2% so much of post-World War II history, now that the rate is down to nearly 1%.
So the definition of what we call economic success has to naturally change, including in India.
In India's case, the working age population growth rate now has slowed down to less than 2%. This number in the 1960s and 70s was way higher -- when the average family in India was producing five or six kids. Now that number is down to basically two kids. So, I think this is a very significant change that has taken place in the world's working age population.
How do we reset our expectation of economic growth country-wise?
What I show in that chapter is that demographics is necessary but also not a sufficient condition for economic growth. If you have good demographics, you can end up getting very high economic growth but only one in four countries historically has been able to convert the demographic advantage into high economic growth and most of those countries were in East Asia. So I think this is the key point. Demographics or population growth is a necessary but not a sufficient condition for economic growth.
If you don’t have a big increase in population growth rates it’s virtually impossible to achieve high economic growth rates that are defined as growth rates of more than 6% a year.
So, now, what's the flip side of that?
The flip side of that really is that everywhere around the world if the population is not growing as quickly, you can't aspire for those growth rates anymore, including in India’s case. Our working age population growth rate is now slipping below 2% a year. Virtually, no country in the world has been able to grow at a very rapid pace with that sort of a population growth rate -- which is a working age population growing at less than 2% a year.
So in India's case also we need to think about what is the definition of economic success. And, another related factor that I point out here is the fact that the female participation in the labour force is very low just now in India. So, it is even more important in India to take measures such as increasing the female participation in the labour force to try and boost our economic growth rate.