The Indian demographic transition and its socio-economic effects

6-Aug-2010    This paper by Chanana and Talwar (1987) focuses on the initial demographic trend of a rising India and its socio-economic and health implications.

The populations of many developing countries are aging. For reasons explained in this summary, elderly people in developing countries are often very poor and not covered for income security by a national pension plan. Indeed, a universal old-age income securtiy coverage is almost impossible, since the budget of governments of developing countries is often very limited. This results in an inability to implement a pension provision able to cover the entire population. In such a context, a fully-funded (defined contribution) pension provision seems to be more suitable to reduce the burden on the Governments' budgets.

However, the introduction of a voluntary pension scheme in developing countries often experiences hinderance from large parts of the population living in remote areas and working in the informal section. Indeed, the wages earned in the unorganized/informal sector are highly volatile and may not allow employees to pay fix and periodical contributions to a pension scheme. Moreover, in developing countries the joint family system1 is widespread, which makes individuals less aware of the importance of saving for retirement income. In this case, micro-pension products are the best solution, since they entail a pension provision (with low management and transaction costs) providing retirement income to elderly poor people, usually employed in the unorganized sector in developing countries, and aimed at creating awareness about the importance of saving for old age amongst the poor people. This argument is illustrated by the following example of India.

The Republic of India is one of the developing countries which has been experiencing a demographic transition from high birth and death rates to low birth and death rates since the 1950s. During these same years, the country developed from a pre-industrial to an industrialized economic system. This transition is not casual: a lower fertility rate (i.e. lower number of children) implies smaller families, therefore a smaller number of mouths to be fed and, eventually, more resources saved and invested in capital and education. More investments, then, contribute to boost the economic growth2.

This demographic transition has had several socio-economic and health implications. These are described in the paper by Chanana and Talwar (1987), that focuses on the initial demographic trend of a rising India.


By studying data from 1950 to 2001, the authors observe a sharp decline in the mortality rate in India since 1950, and a decline in the fertility rate since the 1980s, both of which have contributed to the process of population aging in India. In particular, India has been experiencing aging at the base and at the apex of the population distribution: the former results from a decline in the fertility rate, the latter is due to a mortality reduction among the elderly. The
Indian demographic trends show several characteristics:

 

  1. the segment of the population aged 60 years and over has grown steadily and faster than the total population;

  2. the share of the population aged 65 years and over as a percentage of the productive population, aged between 15 and 64 years (the dependency ratio) has increased;

  3. there has been an increase in the amount of women that are aged 70 years and over compared to the amount of men. Furthermore, the concentration of older women is higher in rural areas then in urban areas and most of them are without an income;

  4. a large proportion of the elderly population is single, owing to the death of their spouse. The number of widowhoods is greater among women than among men for two main reasons: a) higher expectation of life amongst the older women, b) taboos concerning remarriage, particularly of women;

  5. the percentage of illiteracy amongst the elderly has been higher than that of the total population and more prevalent amongst elderly women than elderly men;

  6. in rural and urban areas, more elderly males fell ill compared to the amount of elderly women;

All these features have several socio-economic consequences:

 

  1. the joint family system, which used to provide the most widespread form of social security wherein the youngest take care of the oldest, is disintegrating;

  2. the majority of the illiterate (working) population were engaged in the informal sector, either in agricultural pursuits in the rural areas or as unskilled or semi-skilled workers in urban areas. Many of them usually have little or no savings, and since they are employed in the informal sector, they are not covered by social insurance schemes;

  3. since the population is aging and the majority of the aging population is poor, most of the elderly aged 60 or over are still economically active, most likely because they work in sectors without a specific age of retirement.

To conclude, this paper by Chanana and Talwar (1987) well describes the beginning of the demographic transition process that India has been experiencing since 1950. An aging population, high illiteracy rate (especially amongst the elderly women citizens), high proportion of unorganized sector workers and urbanization and disintegration of the informal social security (the rural joint family) make the Republic of India one of the most suitable countries to be addressed by micro-pension programs. This paper offers valuable information and presents a good policy guideline for those micro-finance institutions which are willing to develop and to promote micro-pension products in India3.

 

About the author
Mr. Andrea Colombo worked as an intern for the Pension & Development Network between April and July 2010.
 

 

1 i.e. the most common “informal” social security of old age people, where children take care of their parents once they grow up. 

2 The industrialization of a country may have some effects on demographic trends, itself. Indeed, industrialization usually fuels the urbanization process which disintegrates the traditional rural family structure and forces individuals to have less children: kids are less useful in urban settlements as units of labor than in rural settings and they are more expensive to house and feed.

3 However, an update of the demographic trends is needed since the paper was published in 1987.

 

 
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