ECONOMICS ASSIGNMENT

IMPACT OF POPULATION GROWTH ON

ECONOMIC DEVELOPMENT

Submitted by: Saima Gous

B.A-LL.B (H) Regular
1st Year, 2nd Semester
Roll No. – 51
Student Id - 201901961

Submitted to: BILAL KHAN

Ph.d Economics,
Guest Faculty (ECONOMICS), (F/O Law)
Jamia Millia Islamia

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INTRODUCTION

Effect of population growth on economic development is one of the most

debatable topic on earth. There are a lot of theories which show that rise in
population has negative effect on both economic growth and development of a
country. All these debates have started since Malthus proposed his theory in the
book “Essay on the Principle of Population”. He tried to find out the reason for
diminishing returns in most of the countries and he said that population growth is
the major reason. His theory goes in as follows:-

1. Population increases by compounding is the major problem with most of the

developing countries face.

2. Food production doesn't get compounded

3. The new population will not get sufficient amount of food.
4.Some adverse event(starvation, crisis etc.) causes decline in the population.
Then this leads to food production and population coming back to the equilibrium.
There are generally three different types of views on how population effects the
economic development of a nation. One, opposing the positive impact on
economic development. Two, supporting the negative effect of economic
development. Three, they believe that there is no relation between economic
development and population growth.

Malthusian population trap is the main example for the theories which support
negative impact. There are a few other theories which support the positive impact
stating the importance of human capital on economic development in a country.
This also rises from the fact that any growth in the economic development needs
human capital as its main weapon and the rise in population can act as a provider
of human capital. Both the stands of views present their arguments about
population growth and economic development. Each of the views is supported

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both theoretically and empirically.

Kothare investigated the relationships between population growth and economic

development of the Indian economy of 1988 to 1998 .He concluded that India is
one of the world's fastest growing economies, primarily due to the rise in
population growth creating a positive effect on its long run economic growth.
India is now ranked one of the top producers in agriculture and is a top nation in
terms of GDP in a developing country. In many cases, economists are correct in
saying that population growth has a positive effect on economic growth of a
nation. In reality, economists might say, ''If it weren't for its high populations India
would still be a suffering developing nation. But there is a possibility of other
way around too. This population rise can be a disaster if we don't use them
properly. This nation helps the improvement in division of labor in a country.

The impact of population growth on these factors:

It is important to note here that in the present day’s industrialized development

countries, in spite of Malthus’ view to the contrary, population growth was
beneficial for economic growth rather than retarding it. It has been argued by some
that population growth leads to the increase in labour force which is an essential
productive resource. By increasing the amount of labour force population growth
will help in producing more output. As someone has remarked, population growth
brings in more hands to work for production and therefore contributes to
economic growth.
Secondly, it has been pointed out that the increase in population leads to the
increase in demand for goods. Thus growing population means the growing
market for goods is enlarged, they can be produced on a large scale and thus
economies of large-scale production can be reaped. The economic history of the
USA and European countries shows that growth of population and labour force

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contributed a good deal to the increase in their national output.

Population growth in India retards economic development are

explained below:
1. Population Growth and Rate of Saving and Investment:

Economic growth requires increasing supplies of capital goods. A higher rate of

economic growth can be achieved by accelerating the rate of capital formation.
Increasing supplies in capital goods becomes possible only with higher rate of
investment. And a higher rate of investment, in turn, is possible if the rate of
savings is high. Now, increase in population by adding to the number of people
whose requirements of “feeding and clothing” have to be met tends to raise
consumption and, therefore, lowers both saving and investment.

Thus rapid growth of population by causing lower rate of savings and investment
tends to hold down the rate of capital formation and therefore the rate of economic
growth in developing countries like India. Under conditions like those in India
population growth therefore actually impedes economic development rather than
facilitates it.

Thus Enke writes, “The economic danger of rapid population growth lies in the
consequent inability of a country both to increase its stock of capital and to
improve its state of art rapidly enough for its per capita income not to be less than
it otherwise would be. If the rate of technological innovation cannot be forced and
is not advanced by faster population growth, a rapid proportionate growth in
population can cause an actual reduction in income per capita.

2. Investible Resources and Rising per Capita Income:

While, on the one hand, rapid growth in population reduces investible resources
for accelerating capital formation, it raises the requirements for investment to
achieve a given target increase in per capita income. Suppose population of

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country A is increasing at 1.5 per cent per annum and that of country B at 2.5 per
cent per annum. Given that capital-output ratio is 4: 1, then country A would have
to invest 6 per cent of its current income to maintain its per capita income, while
country B would have to invest 10 per cent of its current income even to maintain
its per capita output. This can be shown by using Harrod-Domar growth formula,
namely, g = I/ ν where g is growth rate in national income, / is rate of investment
as a ratio of national income and ν is capital-output ratio. The formula can be
restated as under –

I= ν.g

For country A with 1.5 per cent annual growth rate of population, its national
income must grow (g) at the rate of 1.5 per cent to keep per capita constant.

For this investment as per cent of national income required to keep per capita
constant is given by-

I=4 x 1.5 = 6 per cent

And for country B whose population is growing at the rate of 2.5 per cent per
annum, its national income must also grow at the rate of 2.5% to maintain its per
capita income.

I= 4 x 2.5 = 10 per cent

Thus, when the population is increasing at a rapid rate, comparatively larger

investment is needed to maintain the current level of income. Thus, given the
scarcity of investible resources, adequate resources are not left to raise per capita
income significantly.

3. Lower Growth of Per Capita Income:

Like a thief in the night, population growth robs us of most of the gains in national
income made from higher investment. Rapid population growth nullifies our
investment efforts to raise the living standards of our people. In other words, a

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high rate of increase in population swallows up a large part of the increase in
national income so that per capita income or living standards of the people does
not rise much. This is precisely what has happened during the planning era in
India. The population growth prevents the rapid rise in per capita income and
therefore rise in living standards of the people can be expressed by the following
growth formula-

g = Iα – r

Where, g stands for the rate of growth of per capita income, I represents rate of
investment, α stands for output-capital ratio (or productivity of capital) and r
represents rate of population growth.

4. Population Growth and Marketed Surplus of Food-grains:

Another way in which growth in population is impeding economic development

is its effect on marketed surplus of food-grains. The marketed surplus of food-
grains is a prerequisite for expansion in non-agricultural employment and output.
When a country grows and accelerates its pace of industrialization, it requires
food-grains to feed the workers who are employed in industries. If enough
surpluses of food-grains are not forthcoming this acts as an important constraint
on the industrial development. This prevents the living standards of the people to
rise rapidly. Now, marketed surplus of food-grains is the difference between the
output of food-grains by the agricultural population and their consumption of
them. Thus-

Marketed surplus of food-grains = (O – Cf).

Where, O stands for output of food-grains, and Cf for consumption of food-grains

by the farmers themselves. As about 50% of the population is engaged in
agriculture, the most of the increase in population also takes place there. This
increase in population in the agriculture raises the consumption of food-grains,
i.e., Cf in the above equation and therefore reduces the marketable surplus, if

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output remains the same.

Rapid growth in population in an already over-populated country also raises the

problem of food security in the country. The cause of food problem in India is the
rapid growth in population since 1951. In order to overcome the shortage of food-
grains and to prevent the occurrence of famines in the country, India was forced
to import food-grains and spend a good amount of valuable foreign exchange on
them. This worsened the balance of payments problem of the country. As a result,
sufficient amount of foreign exchange to import materials, machines and
equipment for our industries could not be made and this obstructed the growth of
industrial output. This also shows how rapid growth in population by causing food
shortage inhibits the rate of industrial development.

5. Population Growth and Unproductive Investment:

In his study of population growth and economic development in India, Coale and
Hoover focused on the adverse effect of population growth on the resources
available for productive investment. According to them, rapid population growth
forces the country to make non-productive investment, that is, to invest in
duplicating certain social welfare facilities such as the construction of parks,
houses, social buildings, sanitation works.

To the extent the Government has to increase its expenses on duplicating these
social welfare facilities, investment resources for productive type of capital such
as machines for industries, irrigation and fertilizers for agriculture, crucial basic
goods such as steal, coal, electricity generation etc. would be reduced. Thus, rapid
population growth obstructs economic development by reducing the growth of
productive capital.

6. Population Growth and Unemployment:

Economic development requires that employment should increase adequately so

that unemployment should decrease. Explosive growth in population causes

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serious unemployment and underemployment problem in a country. Due to
explosive growth in population in India labour force has been increasing rapidly
since 1951.

As a result of this explosive increase in labour force demographic pressure on the

economy has increased resulting in increase in backlog of unemployment and
under- unemployment at the beginning of each successive Five Year Plan. Since
production processes in modem organized industrial sector is highly-capital
intensive, much of the growing labour force cannot be employed there. As a result,
demographic pressure on land and agriculture increases resulting in the severe
drop in the net sown area per capita. Disguised unemployment means more
workers seem to be employed in it but quite a large number of additional workers
do not add to agricultural output, that is, marginal productivity of workers in
agriculture is zero or nearly zero. Since population growth reduces savings and
investable resources, it is very difficult to withdraw any significant number of
workers from agriculture so as to equip them with the required capital to provide
them productive employment outside agriculture.

7. Population Growth and Poverty:

The important consequence of rapid population growth is that it has made very
difficult to make a significant dent into the problem of mass poverty prevailing in
the country. This is clear from the fact that as large as about 18 million people
over and above 125 crore populations estimated on March 1, 2011, are being
added to our population every year as per 2011 population census. This gives rise
to a huge problem of properly feeding and clothing them. Further, as has been
explained in detail in the above sections such large increase in population and
consequently huge increment in labour force lowers our capacity to make
productive investment and thereby to increase productivity of labour to ensure
eradication of poverty.

Rapid population growth leads to lower productivity which causes poverty,

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poverty causes high infant mortality rate which in turn causes high population
growth. There is no wonder then, even after over 60 years of planned economic
development, 400 million people live below the poverty line in 2011-12 as per the
poverty criteria used by the Expert Committee headed by C. Rangarajan.

Demographic Changes in India and Population Dividend:

India is passing through a phase of unprecedented demographic changes. These

demographic changes are likely to contribute to a substantially increased labour
force in the country. The census projection report shows that the proportion of
working age population between 15 and 59 years is likely to increase from
approximately 58 per cent in 2001 to more than 64 per cent by 2021. In absolute
numbers there will be approximately 63.5 million new entrants to the working age
group between 2011 and 2016.

Thus it has been pointed out that demographics are in India’s favour because
working age population is growing faster than overall population. According to
the advocates of demographic dividend, the working age population will earn by
contributing to production and save more, thereby contributing to higher savings
and higher investment which will lead to higher growth.

According to National Sample Survey conducted between June 2011 and June
2012, the unemployment rate among youth (15-29 years) which made up a fourth
(285 million) of the 1210 million total population rose by a percentage point in
those two years while national rate of unemployment remained constant.

According to this survey data, as presented in Table 12.2 the rate of

unemployment among young Indians (15-29 years) was 8% for urban males and
13% for urban females and for both of them rate of unemployment in this survey
period went up. The rate of unemployment in both rural males and females was
found to be equal to 5 per cent in the two years of the survey period (2009-10 –
2011-12). Unemployment rate in this period for young women, however, fell.

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It follows from above that till 2011-12 no population dividend was accruing in
case of India. Thus unless adequate employment opportunities are generated in
the process of economic growth, benefits of population dividend will not be
reaped. If the advantage of population dividend is to be availed of, high priority
should be given to the generation of employment opportunities. For this the youth
should be properly educated and imparted right types of skills.

POPULATION CONTROL POLICY

Over-populated developing countries are currently facing the problem of

population explosion. The population growth is swallowing up a large part of the
gains in national income brought about by planned economic development. If we
want that future generations should have at least as much good prospects of living
as the present generation we must control population growth.

India’s population which is presently about 1250 million is increasing at a rate of

about 1.6 per cent per annum. If current trends continue, India may overtake China
in 2045 to become the most populous country in the world. At present about 50
per cent of India’s population is below 20 years of age. Hence, a large number of
our present population will live to see by the middle of the 21st century the

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disastrous consequences such as acute poverty conditions, widespread
unemployment a high degree of socio-economic tensions if current growth in
population is not checked.

Stressing the importance of controlling population, growth in India is

characterized by economic growth, the existence of mass poverty and
unemployment. Prof. PR. Brahmananda writes, “A stationary economy with an
open ended population expansion angle will be the greatest permanent disaster for
the country. The check on the growth of population is therefore absolutely
essential if we want to solve problems of mass poverty and widespread
unemployment. Further, if the economy is to be prevented from reaching the
stationary state, controlling population growth is essential to achieve this aim.

The various policies that may be adopted to control the growth of population
are as follows:

(a) Family Planning Programme,

(b) Sterilisation,

(c) Promotion of education,

(d) Social and economic development, especially of the poor sections of the
society.

a) Family Planning Programme:

This is an important policy measure that has been adopted by several developing
countries. India is the first country in the world to adopt family planning as a State
policy. Under family planning programme various contraceptive devices and
health services are provided to encourage the couples to adopt small family norm,
that is, to have fewer children.

Recently, policy of providing economic incentives and has been adopted in some
countries to discourage the people from having more children beyond a certain

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number which is generally fixed at two or three.

Some of the incentives and disincentives adopted to promote family

planning are:

(i) Elimination or reduction of maternity leave and benefits beyond a certain

number. This will discourage the employed women to bear more children.

(ii) The establishment of old-age social security provisions, such as old-age

pension. This greatly helps in motivating the people to have smaller number of
children. As is well known, in poor countries like India, people have a tendency
to bear more children so that in their old age security be ensured.

(iii) Money payments to those who opt for small families and voluntarily go in for
sterilization operation,

(iv)Allotment of scarce public houses, housing plots, flats etc. on the basis of
preference to those who have a small family. Besides this, several other incentives
and disincentives have been devised to encourage the small family norm.

(b) Compulsory and Forced Sterilisation:

As effective policy measure to check the growth of population, compulsory

sterilization has been suggested by many. According to this, it should be made
compulsory for the couples to undergo sterilization beyond a certain number of
children, say two or three. Those who violate this, either penalty may be imposed
or they are forced to undergo the operation. Admittedly, this is a drastic measure,
but is considered very effective in the context of the failure of voluntary family
planning programme.

(c) Promotion of Education:

Empirical studies conducted in several countries reveal that there is inverse

relation between the fertility rate and education, especially of women and girls.
Therefore, an important measure to reduce the birth rate is the promotion of

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education, especially among female population of the country. The educated men
and women accept small family norm and more readily take family planning
measures such as use of contraceptives. Moreover, when educated women are
employed, their tendency to bear and rear more children falls.

(d) Social and Economic Development:

It has been said that “development is the best contraceptive.” This implies that
with social and economic development, the birth rate will go down, as people with
higher levels of living prefer to have fewer children. First, people with a higher
level of living do not need children to supplement the family’s meagre income.
Secondly, they come to prefer “quality” of children rather than “quantity”.
Thirdly, their desire to further improve their level of living increases and this
induces them to practice family planning measures.

Accordingly, if population is to be effectively checked, not only the tempo of

economic development should be speeded up but strategy of development should
be such as will promote employment opportunities for the poor, especially
landless labour, marginal and small farmers. It should be ensured that fruits of
economic development should reach these poor people. For this land reform
measures and income redistribution policies should also be effectively
implemented. If the standards of living of the poor go up as a result of economic
development, they will readily adopt small family norm.

POPULATION AND POVERTY

Population growth leads to the increase in poverty in developing countries in more

than one way. First, rapid population growth swallows up a large part of annual
increments in national income brought about by increase in investment or capital
formation so that per capita income or level of welfare does not increase much.

That rapid population growth causes increase in poverty can also be known from
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its effect on agriculture. Increase in population raises population pressure on
arable land and reduces land-man ratio which causes lower productivity per
person and leads to disguised unemployment and poverty.

POPULATION AND ENVIRONMENT

Population growth raises concern over environment issues because it is thought

that basic needs of growing population may not be adequately met by earth’s
natural resources resulting in fall in living standards of the people. This is because
increasing population causes environmental degradation by making forest
encroachment, deforestation and depletion of firewood. Increases in population
cause over-exploitation of natural resources such as forests, water, fisheries and
minerals at a rate far greater than their capacity to regenerate.

Thus the population impacts on environment primarily through the use and
depletion of natural resources and is associated with environmental problems such
as air and water pollution and loss of biodiversity and increased pressure on arable
land.

THE OBJECTIVES OF ECONOMIC DEVELOPMENT:

1. To Achieve a Higher Rate of GDP Growth:

The first and foremost objective of development is to achieve a higher rate of GDP
growth so as to raise the living standards of our people. Rapid growth of total
GDP or per capita income is considered necessary because it ensures an expansion
in the productive capacity of the economy without which broad based
improvement in living standards of the people is not possible. However, it should
be recognized that faster economic growth, though necessary, is not a sufficient
condition for raising the living standards of our teeming millions. This is because
one can easily imagine a growth process which may not be sufficiently inclusive
to ensure a spread of benefits to the mass of our population.

2. To Eradicate Poverty and Unemployment:

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The second important objective of development is to eradicate poverty. In
Amartya Sen’s approach to development, poverty should be viewed as deprivation
of basic capabilities rather than merely as low income. The existence of poverty
or deprivation of basic capabilities is reflected in hunger, significant
undernourishment especially of children premature mortality, permanent
morbidity, widespread illness, and lack of basic education and other failures.
Though economic growth is necessary for elimination of poverty but is not a
sufficient condition for it because it is related to income distribution in a society
as well.

3. Evolution of Economic Development:

The study of development economics as a separate discipline is relatively new as

about 65 years ago in 1950s the study of the problem of economic development
of poor developing countries did not constitute an important distinct branch of
economics. This is despite the fact that classical economists such as Adam Smith,
Ricardo, Malthus, and Marx extensively dealt with the study of development of
the economies. However, with the appearance of neoclassical economics
propounded among others by Alfred Marshall and A.C. Pigou who were mainly
concerned with explaining efficient allocation of resources in a free market
economy, development economics dealing with the developing economies found
no place in their works.

Obstacles to Economic Development:

1. Lack of Infrastructure:

Economic growth in the developing countries has been impeded by inadequate

availability of infrastructure. Infrastructure includes power, irrigation, transport
and communication. It may also include credit facilities available from banks and
other financial institutions and also the facilities for the education and training of
labour.

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2. Demonstration Effect and Economic Growth:

In raising rate of capital formation, the developing countries have to contend

against one problem which arises from demonstration effect on consumption.
Demonstration effect leads to initiation and imitation of superior consumption
standards stimulates consumption among the middle and upper middle class
which increases their propensity to consume and consequently reduce their
capacity to save.

A man finds some of his friends using colour televisions, luxury cars, costly
mobiles, refrigerators, air-conditioners, electric hot plates, and electric washing
machines and so on and experiences a sort of restlessness and a craving is
generated in his mind to enjoy these amenities some immediately and others some
later days. These desires for conspicuous consumption generally outrun the
consumer’s means. Thus consumption behaviour of individuals depends not on
absolute real income but on relative levels of real incomes. It does not depend on
what we can afford but what the others afford and enjoy. This is what Duesenberry
calls ‘demonstration effect’.

CONCLUSION

Thus effect of population growth on economic development is one of the most

debatable topic on earth. All these debates have started since Malthus proposed
his theory. To Malthusian population traps is the main example for the theories
which support negative impact. Kolthare investigated the relationships between
population growth and economic development of the Indian economy. He
concluded that India is one of the world's fastest growing economies, primarily
due to the rise in population growth creating a positive effect on its long run
economic population. Growth in India retards economic development as
population growth and rate of saving investment, investible resources and rising

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per capita income, lower growth per capita income, population growth and
unproductive investment, population growth and unemployment, population
growth and poverty etc. Economic growth in the developing countries has been
impeded by in adequate availability of infrastructure. Thus consumption
behaviour of individual depends not on absolute real income but on relative levels
of real incomes.

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