A Shrinking World

The world is emptying. According to a United Nations study titled World Population Prospects, falling birth rates could transform the world. The economic and geopolitical implications could be disruptive.

Consider Japan. Its population has been shrinking for years. The country has nearly 2,000 municipalities. Of these 869 could “vanish” by 2040, warns the UN report.

Atul Thakur analysed the UN’s grim projections in The Times of India (5 June 2022): “By 2060, 80 per cent of municipalities in some prefectures may disappear altogether. In some rural settlements, known as genkai shuraku or marginal villages, the residents that remain are mostly senior citizens. Across Japan’s rural provinces, millions of homes and properties now lie abandoned.” 

Other countries at risk include South Korea, Singapore and Taiwan where the total fertility rate (TFR) is likely to fall below one by the end of the decade.  A TFR of 2.1 is required to maintain a stable, zero-growth population.

In Europe, Russia and Italy are in the danger zone. China’s population has already plateaued and begun shrinking and ageing. 

How about India? At present, India is in a sweet spot. The median age of an Indian is 28 compared to 40 for a Chinese. But India is not entirely immune to ageing. By 2050, India will be significantly older and greyer. The demographic dividend will peak in the 2030s and then begin to subside. 

The UN report takes a leap of faith by projecting population figures for different countries in 2100. Such long-term forecasts come with a health warning: parameters can change and disruptive factors may emerge. Nonetheless it is important to study these forecasts and plan for the changes that could impact India’s economic and societal challenges. 

By 2100, the UN report says, countries like India and China will witness a dramatic fall in population. China’s fall is projected as the steepest: from 1.439 billion today to just 684 million in 2100. If proved right, that could be catastrophic for Beijing’s ambitions to be a global hegemon. It simply won’t have the human resources.

India’s population decline by 2100 will be gentler but significant nonetheless. The UN report projects India’s total population by the end of this century to fall from 1.38 billion today to 911 million. This was India’s population in 1997.

Nigeria will be the most interesting outlier. Its population is projected to rise from 206 million today to 531 million in 2100, making it the third most populous country in the world after India and China. Growth will be centred around Africa.

Population matters; so does age. For example, in South Korea today 100 workers between the ages of 15 and 64 support through taxes the pensions of 22 retirees above 65.

By 2050, that proportion will change to 100 workers supporting 79 retirees. And by 2100 the number of South Korean retirees (117) will exceed the number of workers (100). The economic and social ramifications can’t be overstated.

Japan will fare equally badly with 111 retirees for 100 workers in 2100. ‘In Europe, Italy will be hardest hit with 103 retirees for 100 workers.

India is well protected till 2050. Today, we have just 9.8 retirees for every 100 workers. By 2050, that will climb slowly to 21.5 retirees for 100 workers – a level South Korea reached in 2020. By 2100, India will have 68 retirees for 100 workers.

That is what Indian policymakers have to keep in mind. The top priority is pension reform and a social security net as India becomes more prosperous.

India’s per capita income in purchasing power parity today is $6,500. Poverty levels have fallen but inequality persists. Those at the bottom of the pyramid still live hand to mouth, have no social security and face a difficult job market.

The good news is that India has time to plan its strategy. For the next 25 years or so, India will be the fastest growing large economy. It will also overtake China as the world’s most populous country by 2025.The task ahead is to provide jobs to India’s bulging youth demographic before the inevitable demographic decline sets in after the 2040s.

The world’s population, according to the UN study will peak in the next 30 years at 8.9 billion. The decline will start then and by 2100 there will be less people on earth (just over seven billion) than there are today (nearly eight billion).

China faces a double whammy: a shrinking population and an ageing population. Alarm bells have started ringing in Beijing.

Writing for the BBC’s Future platform, Xiujian Peng warned: “The Shanghai Academy of Social Sciences team predicts that China's total fertility rate slips from 1.15 to 1.1 between now and 2030, and remains there until 2100. The rapid decline will have a profound impact on China's economy. 

“China's working-age population peaked in 2014 and is projected to shrink to less than one-third of that peak by 2100. China's elderly population (aged 65 and above) is expected to continue to climb.  The annual average decline of 1.73 per cent in China's working-age population sets the scene for much lower economic growth, unless productivity advances rapidly. Higher labour costs, driven by the rapidly shrinking labour force, are set to push low-margin, labour-intensive manufacturing out of China to labour-abundant countries such as Vietnam, Bangladesh and India. 

“At the same time, China will be required to direct more of its productive resources to provision of health, medical and aged-care services to meet the demands of an increasingly elderly population. Modelling by the Centre of Policy Studies at Victoria University in Australia suggests that without changes to China's pension system, its pension payments will grow five-fold from 4 per cent of GDP in 2020 to 20 per cent of GDP in 2100.

“Despite forecasts that this will be ‘the Chinese century’, these population projections suggest influence might move elsewhere – including to neighbouring India, whose population is expected to overtake China within this coming decade.”

The geopolitical ramifications for China are severe. It has enjoyed a golden 40 years of extraordinary growth. That era is drawing to a close.

For India, in contrast, as the world’s fastest growing major economy, an era of extraordinary growth could be opening up.