Demographic Transition and its Impact on Economic Development
Demography is the study of the human population’s size, density, and distribution. This area of study considers birth rates, death rates, and age distribution. The demographic transition is a phenomenon that relates minimal economic, technological, and social factors that influence the size and growth of populations to other societies with advancements in these areas. For instance, as a country develops economically from disorganized subsistence farming into increasingly sophisticated forms of industrialization, it has been observed that as a country’s standards of living increase, the population grows at a slower rate. In contrast, in countries with lower standards of living, the population grows more rapidly.
Four Stages of Demographic Transition
- Pre-industrial Stage: Stable population, with high death rates due to low living standards and high birth rates, which compensate for deaths. The economy is based on subsistence farming, hunting, gathering, and basic small-scale household production.
- Transitional Stage: Population increases due to high birth rates and declining death rates due to improvements in the standard of living. The division of labor and some artisan industry emerge, with little complex machinery used.
- Industrial Stage: Population birth rates are declining, but the population increases due to low death rates and social and technical advances. The economic division of labor and use of increasingly complex machinery spreads, and a professional class emerges.
- Post-industrial Stage: The population self-determines low numbers of children, while individual productivity has reduced the need for more people, and children are now expensive to educate and maintain. Technological and social advances continue to decrease mortality rates and increase longevity.
The concept of a demographic transition model attempts to describe a series of stages that a country goes through when transitioning from non-industrial to industrial. This model involves four stages based on economic, technological, and social development changes with population size and social behaviors.
The phases of the demographic transition model have been developed to describe the linear progression of Western countries from the Middle Ages to the current period. Additionally, this model has been applied as a prescriptive method to help other countries progress along these demographic transition stages; this was not the developers’ original intent. While this lesson uses the example of the United States to illustrate the model, it must be understood that many countries, such as some in Sub-Saharan Africa, have environmental or social impediments to such a linear progression. Other countries, such as a few wealthy countries on the Arabian Peninsula, have “leapfrogged” from one stage, skipping an intermediary stage.
To understand the variety of demographic regimes found across the world, it is necessary to understand the history of demographic change globally.
The demographic transition theory is a generalized description of the changing pattern of mortality, fertility, and growth rates as societies move from one demographic regime to another. The term was first coined by the American demographer Frank W. Notestein in the mid-twentieth century, but it has since been elaborated and expanded upon by many others. Demography is a science short on theory but rich in quantification. Nevertheless, demography has produced one of the best-documented generalizations in the social sciences: the demographic transition. What is the demographic transition? Stripped to its essentials, it is the theory that societies progress from a pre-modern regime of high fertility and high mortality to a post-modern regime of low fertility and low mortality. The cause of the transition has been sought in the reduction of the death rate by controlling epidemic and contagious diseases. Then, with modernization, children become more costly. Cultural changes weaken the importance of children. The increasing empowerment of women to make their own reproductive decisions leads to smaller families. Thus, there is a change in values, emphasizing the quality of children rather than their quantity. In short, the fertility transition is becoming a universal phenomenon, in which every country may be placed on a continuum of progress in the transition.
Labor Market Structure in India
The structure of the Labor Market in India is made up of multiple layers. As per Government laws, the classification of the labor sector is done on the basis of skill and area of operation, as given below.
Skills:
- Unskilled
- Semi-skilled
- Skilled
- Highly skilled
Area of Operation:
- Managerial personnel
- Workmen
Classification of the Labor Force in India
The labor force in India can be divided into organized and unorganized sectors.
Unorganized Sector
The Government of India is very keen on reforms in the Indian labor sector by providing legal and social protection to the unorganized and informal sector workers. However, the major problem is that no one is absolutely clear about the informal workforce in India.
- 93% of the total workforce is informal, as per the Economic Survey of 2018-19.
- As per the NITI Aayog report in 2018, 85% of the workforce in India is employed in the informal sector.
- As per the National Statistical Commission (NSC) 2012 report of the Committee on Unorganized Sector Statistics, the informal workforce is more than 90% of the total workforce.
The Ministry of Labour classified the Unorganized Sector into 4 types:
- Occupation: Includes fishermen, landless agricultural laborers, small & marginal farmers, construction workers, beedi rolling, weavers, workers in stone quarries, oil mills, brick kilns, sawmills, leather workers, packing & labeling, workers in animal husbandry, etc.
- Nature of Employment: Migrant workers, casual laborers, contract laborers, bonded and agricultural laborers.
- Specially Distressed Categories: Scavengers, toddy tappers, loaders, unloaders, etc.
- Service Categories: Domestic workers, vegetable vendors, fruit vendors, pavement vendors, newspaper vendors, hand cart operators.
Issues Facing the Labor Sector in India
There are many issues plaguing the labor market in India. Some of the issues are mentioned below.
- Migrant Laborers: There are 2 types in this section: domestic migrant workers and overseas migrant workers. Overseas migrant workers are predominantly located in Middle Eastern countries. In some cases, they face labor issues such as unsafe working conditions, poor living conditions, and unpaid salaries.
- Bonded Labor: This is a form of employment in which an employee is forced to work with an employer due to the inability to repay the debt due to high-interest rates. Bonded labor lasts for an indefinite time period. Sectors that employ bonded laborers are in agriculture, illegal mining, brick kilns, stone quarries, etc. India enacted the Bonded Labour System Abolition Act 1976 that prohibits and criminalizes bonded labor practices.
- Child Labor: A large number of children were forced into labor activities due to a lack of school education and poverty. India passed the Child Labour Prohibition and Abolition Act 1986 to stop child labor in India.
- Complex Law System: Under the Constitution of India, Labor is a subject in the concurrent list where both the Central and State Governments are competent to enact legislation. As a result, a large number of labor laws have been enacted catering to different aspects of labor, e.g., occupational health, safety, employment, etc. As a result, it created a lot of redundancy and loopholes in the legal system, which paves the way for the exploitation of labor. The implementation of this complex system of laws has also become a challenge to the limited number of Labor Enforcement Officers in India.
- Labor Exploitation: Because of the predominantly heavy-handed labor regulations (also called Inspector Raj) with exploitable gaps, the MNCs and domestic organizations have resorted to alternate ways, i.e., employing contract labor at less than half the payroll of a permanent employee. India has 94% of its workforce in its unorganized sector. This huge workforce getting trapped in the unorganized sector is largely attributed to our stringent labor laws. Thus, labor reforms are needed.
- Impact of Delay of Labor Reforms: If Labor Reforms are not implemented soon, it would take a gross hit on India as an investment destination. Also, it would incur a huge loss to the economy due to undervalued GDP production. This reflects the dire need for reforms. The data shows that 94% of the Labor force in India is in the unorganized sector, and that shows how grossly Indian GDP is undervalued. This is so because the income of these people in the workforce is much less than the permanent workforce for the same output. The improper regulations coupled with complexity have led to the misuse of the vast Labor of India.
Types of Economic Sectors in India
The three dominant sectors of the Indian economy are the primary sector, the secondary sector, and the tertiary sector. When we talk about the style of activity, the Indian economy can be separated into two areas or sectors that are the unorganized sector and the organized sector. Again, as far as proprietorship or ownership is concerned, the Indian economy can be separated into two areas or sectors: the private sector and the public sector.
Order of the Indian Economy:
- The Primary Sector
- The Secondary Sector
- The Tertiary Sector
Primary Sector
The essential or primary sector of the Indian economy is principally founded on the availability of natural resources or assets. The products produced by this sector are additionally generally dependent on the availability of normal assets or natural resources. Natural assets are likewise needed for the execution of certain processes in this area or sector. Every service of this area is totally subject to the presence of adequate regular or natural assets just to maintain the necessary everyday tasks.
To further outline this point, a fitting model is that of the agricultural sector. This sector or area of farming requires water for its everyday activities. Without water, no plant will grow. Additionally, it needs land resources to establish crops, etc. Some different models can be that of fishing, where the anglers or the fishermen are subject to the availability of water bodies and amphibian life to support the sector. However, agriculture is the largest sector of this part.
One issue that can be noted in working in this area is underemployment and disguised employment. Underemployment, on the other hand, implies that the workers are not attempting to meet their best capacities. Disguised employment implies that the workers of this area are to work enough to meet their actual potential.
To lessen this issue, the public authority should go to severe lengths. For instance, the public authority, both at the state level and at the national level, can expand the number of assets assigned for the water system offices and furthermore give advances to the ranchers, which can empower them to purchase more excellent seeds and compost.
Secondary Sector
The secondary sector is the area of the Indian economy that is subject to natural ingredients. These normal or natural ingredients are utilized to produce the services or products that are offered to the consumers. These items are dated for utilization toward the end. This sector is the best sector as far as worth or value-added products and services. The most unmistakable illustration of this area is transportation and assembling.
Both the manufacturing and transportation areas’ final products are consumed by individuals. As much as 14% of the whole labor force of the nation is in work under these areas. This sector is an enormous supporter of the GDP; as much as 28% of the GDP is contributed by this area. The secondary area is the foundation of the Indian economy. There is a promising future for this area with growth and development in the near future.
Tertiary Sector
The Tertiary area or sector is like the secondary area or sector with the expression that it also adds to the value of the products or services offered to the consumers. This area is related to the downstream processing of natural products. Assuming that we talk about the GDP of India, this area is the biggest supporter of the GDP of the country. As much as 59% of the GDP is contributed by this area. The Tertiary area is significant for the improvement of the other two areas or sectors. As much as 23% of the total working residents of the nation are working in this area.
An illustration of this area can be its areas of counseling, IT services, and so forth. An issue confronting this area is that employment with low pay rates doesn’t draw in numerous workers. This is an issue that places the Indian economy in muddy waters as the country keeps on developing.
Liberalization in India
Meaning of Liberalization
Liberalization is the process or means of the elimination of control of the state over economic activities. It provides greater autonomy to the business enterprises in decision-making and eliminates government interference.
Liberalization in India
Since the adoption of the New Economic Strategy in 1991, there has been a drastic change in the Indian economy. With the arrival of liberalization, the government has regulated the private sector organizations to conduct business transactions with fewer restrictions.
For developing countries, liberalization has opened economic borders to foreign companies and investments. Earlier, investors had to encounter difficulties in entering countries with many barriers.
These barriers included tax laws, foreign investment restrictions, accounting regulations, and legal issues. Economic liberalization reduced all these obstacles and waived a few restrictions over the control of the economy to the private sector.
Objectives of Liberalization
- To boost competition between domestic businesses
- To promote foreign trade and regulate imports and exports
- To improve technology and foreign capital
- To develop a global market for a country
- To reduce the debt burden of a country
- To unlock the economic potential of the country by encouraging the private sector and multinational corporations to invest and expand
- To encourage the private sector to take an active part in the development process
- To reduce the role of the public sector in future industrial development
- To introduce more competition into the economy with the aim of increasing efficiency
Reforms under Liberalization
- Deregulation of the Industrial Sector
- Financial Sector Reforms
- Tax Reforms
- Foreign Exchange Reforms
- Trade and Investment Policy Reforms
- External Sector Reforms
- Foreign Exchange Reforms
- Foreign Trade Policy Reforms
Privatization in India
Meaning of Privatization
It means the transfer of ownership, management, and control of the public sector enterprises to the private sector.
Privatization can suggest several things, including the migration of something from the public sector to the private sector. It is also used as a metonym for deregulation when a massively regulated private firm or industry becomes less organized. Government services and operations may also be (denationalized) privatized. In these circumstances, private entities are tasked with the application of government plans or the execution of government assistance that had earlier been the vision of state-run companies. Some instances involve law enforcement, revenue collection, and prison management.
Privatization of the public sector companies by selling off parts of the equity of PSEs to the public is known as disinvestment.
Objectives of Privatization
- Providing strong momentum for the inflow of FDI
- Privatization aims at providing a strong base for the inflow of FDI.
- The increased inflow of FDI improves the financial strength of the economy.
- Improving the efficiency of public sector undertakings (PSUs)
- The efficiency of PSUs is improved by giving them the autonomy to make decisions.
- Some companies were given special categories of Navratna and Miniratna.
Ways of Privatization
Government companies are transformed into private companies in two ways.
Transfer of Ownership
Government companies can be converted into private companies in the following two ways:
- By the withdrawal of the government from the ownership and management of public sector companies
- By the outright sale of public sector companies.
Disinvestment
Privatization of the public sector undertakings by selling off parts of the equity of PSUs to the private sector is known as disinvestment.
The purpose of the sale is mainly to improve financial discipline and facilitate modernization.
However, there are six methods of privatization.
- Public sale of shares
Types of Foreign Investment in India
Any investment that is made in India with the source of funding that is from outside of India is a foreign investment. By this definition, the investments that are made by Foreign Corporates, Foreign Nationals, as well as Non-Resident Indians, would fall into the category of Foreign Investment.
Types of Foreign Investments
Funds from a foreign country could be invested in shares, properties, ownership/management, or collaboration. Based on this, Foreign Investments are classified as below.
- Foreign Direct Investment (FDI)
- Foreign Portfolio Investment (FPI)
- Foreign Institutional Investment (FII)
Details on each of the foreign investment types can be found below:
Foreign Direct Investment (FDI)
FDI is an investment made by a company or individual who is an entity in one country in the form of controlling ownership in business interests in another country. FDI could be in the form of either establishing business operations or by entering into joint ventures by mergers and acquisitions, building new facilities, etc. Know more about FDI in a Company and FDI in LLP.
Foreign Portfolio Investment (FPI)
Foreign Portfolio Investment (FPI) is an investment by foreign entities and non-residents in Indian securities, including shares, government bonds, corporate bonds, convertible securities, infrastructure securities, etc. The intention is to ensure a controlling interest in India at an investment that is lower than FDI, with flexibility for entry and exit.
Foreign Institutional Investment (FII)
Foreign Portfolio Investment (FPI) is an investment by foreign entities in securities, real property, and other investment assets. Investors include mutual fund companies, hedge fund companies, etc. The intention is not to take controlling interest but to diversify the portfolio, ensuring hedging and gaining high returns with quick entry and exit. The differences in FPI and FII are mostly in the type of investors, and hence the terms FPI and FII are used interchangeably. The Securities Market in India is regulated by the Securities and Exchange Board of India (SEBI). Refer to the article on SEBI to get more information on this topic.