A combination of skewed gender ratio, economic destitution and a large population of unemployed youth has resulted in social unrest and, consequently, explicit economic losses in the northern belt, says a research report from Ambit Capital
India’s rapid economic progress masks its abysmal progress on social indicators. Worryingly, this imbalance between rapid economic progress and stagnant-cum-awful social metrics is particularly glaring in India’s Northern Belt (INB), the region spanning Rajasthan in the west to Bihar in the east, warns a report.
"Despite the fact that INB is the youngest region in India, the region runs the risk of exploding as millions of barely literate men face a lifetime without jobs and without women. These risks could come to the fore particularly in the run-up to second half of FY2017 as Uttar Pradesh and Punjab are scheduled for state elections in first half of 2017," says Ambit Capital in a research note.
Economic theory suggests that when the proportion of young people in a region increases, a significant boost to economic growth should materialise. The post-World War II years saw the West in general and the US in specific benefit from this dynamic as the baby boomers delivered record productivity.
However, the report says such demographic dividend is no likely to accrue in India anytime soon. "We highlight that even as India’s demographic profile today is similar to that of the US in 1960 (see exhibit A & B on the right hand margin), contrary to popular belief - a demographic dividend is very unlikely to accrue to India anytime soon. This is mainly because a large share of India’s youth today lacks education as well as jobs to deliver this productivity. To add to the imbalance, India’s gender ratio is skewed significantly in favour of men," the report added.
India as a whole is significantly better off on economic as well as social indicators than INB, however, a demographic bomb is ticking away in the northern belt, Ambit Capital says.
It said, "Whilst these problems are well known, the noughties have seen the adverse social conditions are acting as a binding constraint to economic growth and the political situation becoming more fraught because politicians and riots are now in a symbiotic relationship. With three States of this region, Uttar Pradesh, Uttarakhand and Punjab scheduled for elections in first half of 2017 (see exhibit C in the right hand margin) we highlight that violence and social unrest related risks could come to the fore particularly in the run up to second half of FY2017."
"In contrast, the south is almost like a middle-income country with superior performance and improving on a range of socio-economic parameters. Superior literacy levels means that even the southern states’ labour markets are in better shape as compared to INB, which suffers from an over-supply of under-skilled labour," the report added.
Talking about India's progress on social indicators front, Ambit Capital says, whilst only six countries today have economies that are larger than that of India’s, our country is at the bottom of the league tables on social indicators with only 58 countries having an human development index (HDI) rank worse than that of India’s (see exhibit below). Emerging market peers like Russia, Turkey and Mexico have significantly superior HDI scores compared with India, it added.
Ambit Capital says this imbalance between rapid economic progress and stagnant-cum-awful social metrics has arisen mainly owing to the drag created by the Northern Belt -INB, which comprises the region spanning Rajasthan in the west to Bihar in the east.
"Even as INB is the youngest region in India demographically speaking, the State Governments in the region have almost completely failed in providing healthcare, education and jobs to this region, which accounts for 45% of India’s population," the research note added.
According to the research report from Ambit Capital, India excluding INB is better off than the northern belt on both economic and social indicators.
An average person in INB earns a per capita income of US$1,183 (which is less than that earned by an average citizen of Pakistan or Bangladesh). This average person survived the infant mortality rate of 45 and is now expected to live for 67 years, which is less than the life expectancy of an average citizen of Bangladesh or Nepal.
Of every 100 people in INB, 36 are in the age group of 15-35 years and hence comprise the youth.
Of these 36 young persons, only 66% or 24 number of persons are literate which is defined in India to mean any person who can read or write his/her name.
Of these 36 young persons, only 46% or 17 persons have jobs.
Of these 36 young persons, only 47% or 17 are women.
On the contrary,
An average person in South India earns a per capita income of US$2,014. This average person survived a much lower infant mortality rate of 28 and is now expected to live for 69 years.
Of every 100 people in South, 34 are in the age group of 15-35 years and hence comprise the youth.
Of these 34 young persons, only 72% or 25 numbers of persons are literate which is defined in India to mean any person who can read or write his/her name.
Of these 34 young persons, only 57% or 19 numbers of persons have jobs.
Of these 34 young persons, only 50% or 17 are women.
"Whilst the above stated problems are well known," Ambit Capital says, "the noughties have seen the adverse social conditions acting as a binding constraint to economic growth and the political situation becoming more fraught because politicians and riots are now in a symbiotic relationship. This turn has meant an increasing incidence of social unrest and violence in INB, which has often threatened the smooth functioning of the regional economies (see exhibit below).
From a geographic perspective, in a globalised age where sweatshop type unskilled labour is no longer required, North India's destitute and poorly educated people would become increasingly irrelevant. Given that India’s competitive advantage in the global export market lies in producing ‘light industrial products’ that are capital-light but knowledge-intensive, the South would be able to produce the same effectively, making the North increasingly irrelevant to the global exports market. The North would not be able to produce these efficiently owing to the under-skilled nature of labour and rising risks of conflicts.
The report says, "As INB continues to grapple with its socio-economic problems, resulting in low economic growth and high social unrest, the companies which have either operations located in INB or depend on demand from the region are likely to see limited growth opportunities in the future. This is because the underdeveloped human capital due lack of proper education and training and poor health facilities, will become a binding constraint on growth. This will result in fewer job opportunities for people in INB and, hence, reduce demand in the region.
"On the other hand, South India, with its improved social environment and better human capital, will be capable of increasing demand and, hence, economic growth. Improved social indicators and a well-managed political system will result in fewer social tensions, providing a conducive environment for growth," the report concluded.