The entire population of four south Indian States will be three quarters of Uttar-Pradesh in 2051. Peninsular India will account for 6% of the population increase of India in the next four decades. From one elderly for every seven active age persons in 2011, support ratio will fall to one retiree for every two active age persons in 2051. The trigger for these demographic changes has been three factors: persistently contracting fertility ratios, increasing life expectancy and a retiring baby boomer generation.
Falling fertility and an urban life styles will result in the household size in south India to reduce from 4.1 to 3 over the next four decades. Though the population growth of the region will be negligible, smaller family size will result in the number of households to increase by 50% by the mid of this century.
As the demographic dividend winds out the size of the native workforce of South India shall decline significantly imposing a hurdle on future economic growth. Current trends suggests that growth rates will decline post 2030. The effect will be profound on agriculture and manufacturing. In the last two decades, Kerala had negative real agricultural output growth. This trend is likely to afflict the other states successively. Majority of the growth in the primary sector and secondary sector has to come out of productivity improvements and industrialization. The second aspect of declining workforce will result in Southern states to become dependent on the Northern labor pool to drive its economic engine. Migration into South India shall increase significantly post 2030. Finally as the economy bends its weight towards the tertiary sector more women to enter the workforce aided by relatively higher education levels and low fertility rates in South India.
We find future growth in South India can arise out of human capital improvement, productivity increase or by courting investments. Though literacy rates are much higher compared to rest of the country, South India has much lower levels of tertiary education when compared to middle income countries. To drive the growth agenda the gross enrollment level in tertiary education has to be raised to the level of middle income countries over the next decade from 2-3 % to 4-5 %. The primary barrier to seek higher education despite higher returns is access to finance. From a demand standpoint Southern states should evaluate the possibility of setting up a credit guarantee fund to ensure that the access to education is not hindered by access to finance. On the supply side private sector should be allowed to create viable business models in Higher education.
The major factor for low productivity in India has been low economies of scale across industrial sector. The structure of incentives restricts small scale industries to graduate to medium scale and then to large scale industries. Similarly within a geographic region industries are extremely dispersed. Regions produce multiple products rather than developing comparative advantage in a select few. The lack of specialization of workforce by trade and within region lowers the output significantly. The total factor productivity of the automobile sector has been growing at about 10% over the last decade. Most of the growth has resulted from rearranging work flow patterns in the shop floor, creating a more engaged and disciplined workforce, identifying and eliminating problems at their root cause. All of which do not require significant investment. Most of the other sectors: construction, metal production and textile will evolve by adopting standards from the Southern automobile sector.
The biggest threat to the economy of the region are externalities ranging from currency fluctuation to global economy and provinces have to make adequate adjustments over long term to protect themselves.