SHRINKONOMICS OF SOUTH NEEDS NATION'S FOCUS

Ageing populations will significantly affect public finance in the South before the rest of the country. The effects of this transition must be plotted on the federal fiscal map

- M A Oommen

The demographic transition of India from the Malthusian bogey of the 1960s to one of 'shrinkonomics'—a term used by IMF's Gee Hee Hong and Todd Schneider for an economy with more retirees and a falling labour-based tax pool—has passed variously through stages in different regions. Because the age structure of India's population exhibits wide heterogeneity, the country's demography is better understood in its regional settings.

In 2011, Kerala, Tamil Nadu, Karnataka, Andhra Pradesh and Telangana accounted for 20.7 percent of India's population. This declined to 19.9 percent in 2021 and is projected to go down to 18.51 percent by 2041. In 2041, the population of the southern states is estimated to be lower than in 2031.

In contrast, the population of Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Rajasthan and Uttar Pradesh increased from 41.59 percent in 2011 to 43.02 percent in 2021, and is expected to reach 45.58 percent of the country's total in 2041.

The economic implications of this demographic disadvantage can be seen through four related lenses: demographic dividend, ageing, change in political equations, and the need to revisit fiscal federalism.

While India can boast of the rich demographic dividend of a high working-age population, the southern states—notably Kerala and Tamil Nadu—have to reflect on a new strategy of shrinkonomics. They are probably paying the price for policy choices of the past.

A window of opportunity opens up during a demographic transition when the working-age population (15-64 years) is higher compared to that of dependents. In a rough reckoning, when the proportion of youth and children falls below 30 percent and that of the elderly below 15 percent, a country reaps a high demographic dividend.