China’s one child policy and aging population may just wipe out its biggest competitive advantage – cheap labour. It is the most populous country in the world with 1.35 bn people. But its populace is graying at a fast pace and there are too few babies born. According to government statistics, the proportion of the population aged between 15 and 64 fell to 74.4% in 2011. This was the first fall in ten tears. This Asian giant may face economic stagnation akin to Japan if it fails to adopt certain reforms to compensate for its shrinking workforce. Japan’s demographic dividend disappeared in 1990, and its economy stagnated ever since.
Wages in China have been steadily rising over the years, even rising in double digits. Now they seem to be on a permanent upward trajectory. The standard of living has improved in many parts of the country. An aging population also calls for increased wages to pay for healthcare and other allied expenses. Possibly the only answer to this predicament is for China’s growth engine to completely turn on its head. Rather than simply focusing on a cost advantage it needs to bring something else to the table. It needs to focus on innovation and productivity. Or can another country win the race?
On the other side of the Himalayas, India has a big advantage. India is one of the few countries in the world having a positive birth rate and a huge demographic dividend. Its working-age population mainly consists of youth (15-34 years). As a result its economy has the potential to grow more quickly than many others. But, it may not be doing enough to leverage on this potential.
Currently only about 2% of the Indian workforce has formal training as against an average of 75% in Europe. To bridge this divide the government needs to earnestly focus on skill development. The Prime Minister’s National Council on Skill Development has endorsed a vision to create 500 m skilled people by 2022. But, will this be another target India fails to achieve? Measuring the quality of the training given is another matter altogether.