Moody’s: Population growth not enough to reap economic gains

Even as India is hoping to reap economic benefits from its demographic dividend, Moody’s Investor Service has cautioned that fast-growing populations in South and Southeast Asia offer scope for economic gains but other conditions such as strong education and quality infrastructure are also important.

Six large developing Asian sovereigns—Bangladesh, India, Indonesia, Pakistan, the Philippines and Vietnam—will account for about one-third of the global population increase over the next 20 years, as well as 40 per cent of the rise in the working-age population, noted the agency on Monday.

According to the UN, India’s population reached 1.4 billion people in April 2023, surpassing China as the world's most populous nation: whereas the UN has estimated that China’s population peaked in 2022 at around India’s current level, it expects that India will do so only in 2063, it further said.

“Population growth can be a major driver of economic expansion, boosting labour inputs on the supply side and consumption on the demand side,” the agency said.

However, it highlighted that better education and higher workforce participation can support inclusive growth and boost contribution of labour to economic expansion. “The quality of human capital, which is correlated with the presence of quality education, will be important in facilitating shifts from agriculture and resource-based activities, as well as informal and unskilled services, to higher-value-added manufacturing and services,” it said.

It also noted that there remains a considerable gap in the quality of education between Pakistan, Bangladesh and India compared with China and other peers in Southeast Asia, which contributes to labour-force participation imbalances. The difference in the proportion of the male and female population that has completed an upper secondary education is most pronounced in India and Bangladesh, it further noted.

“Enhanced educational outcomes will also mitigate potential job losses from automation, digitalization and artificial intelligence over the long run, especially for certain segments of the services industry, such as call centres and other business process outsourcing activities in India and the Philippines,” it said, adding that the development of relevant engineering and programming expertise may help in higher value added manufacturing such as smartphones in India.

India ranks a weak four out of five on Moody’s social issuer profile scores (S-IPS), under our environmental, social and governance(ESG) framework, which indicates that the country’s population is exposed to a range of social risks.

The report however highlighted India’s efforts to build infrastructure and higher capital expenditure towards it. “Weak infrastructure and governance act as additional constraints for Bangladesh and Pakistan,” it said.

In contrast, the policy emphasis on infrastructure development has been most evident in recent years in India and the Philippines, whose respective rankings for infrastructure quality in the World Bank's Logistics Performance Index rose tangibly between 2014 and 2023. “Allocations for capital expenditure in the Indian central government’s budget for the current fiscal year starting in April 2023 exceeded 20 per cent of GDP for the first time, up from as low as around 12 per cent in fiscal 2020,”it further said.

The report also noted that governance also helps attract investments for growth. “Compared with China in 2001—the year it acceded to the WTO and was able to start to fully take advantage of its demographic strengths—India, Indonesia, the Philippines and Vietnam in 2023 have stronger regulatory quality and government effectiveness,” it noted.