Declining Fertility and Consequence:
- Global population could grow to around 8.5 billion in 2030
- Average global fertility has been consistently declining over the past 70 years.
- The average number of children per woman in the reproductive age group has declined from an average of five children per woman in 1951 to 2.4 children in 2020 (World Population Prospects 2022)
- Most advanced economies have their fertility rate below the replacement rate of 2.1, with South Korea reporting the lowest at 1.05 children per woman
Indian Scenario:
The current fertility rate for India in 2022 is 2.159 births per woman.
As reported by the NFHS 2021, only five States have a fertility rate above the replacement rate: Bihar (3), Meghalaya (2.9), Uttar Pradesh (2.4), Jharkhand (2.3), and Manipur (2.2).
Reasons for a steady decline in fertility rates in India:
- increased use of contraception
- more years of average schooling
- better health care, and an
- increase in the mean marriage age of women.
Lower fertility rates as a cause and consequence of economic development:
- Lower fertility impacts women’s education positively, which in turn lowers the fertility of the next generations.
- With better infrastructure development, better health care, and education, fertility drops, and income rises.
- The spiral of lower fertility leads to a window of time when the ratio of the working-age population is higher than that of the dependent age groups.
- This high proportion of people in the workforce boosts income and investment, given the higher level of saving due to lower dependence.
Negative implications of falling fertility rate:
- A fall in fertility rate beyond replacement level would have a negative effect on the proportion of the working population, which in turn will affect output in an economy.
- Japan was the first country to experience the implications of falling fertility rates.
- The increasing dependency ratio has led to near zero GDP growth since the 1990s.
- Some experts believe that falling fertility could diminish the creative capacity of humankind.
- An ageing population will also affect global interest rates negatively as the share of people over 50 years will form almost 40% of the population by 2100.
Solutions to deal with fertility decline:
- Reforms in the labour market to induce more flexibility in the labour market would encourage working women to have more children and non-working mothers to enter the labour market.
Policies to boost fertility acrosss the world:
- Germany allows more parental leave and benefits.
- Denmark offers state-funded IVF for women below 40 years
- Hungary recently nationalised IVF clinics.
- Poland gives out monthly cash payments to parents having more than two children
- Russia makes a one-time payment to parents when their second child is born
Conclusion:
Though the benefits of demographic dividends are being reaped, the below replacement level fertility rate would mean a smaller dividend window than expected for India.
Liberal labour reforms, encouraging higher female labour force participation rate, and a higher focus on nutrition and health would ensure sustained labour supply and output despite lower fertility.
Recent Posts
Petrol in India is cheaper than in countries like Hong Kong, Germany and the UK but costlier than in China, Brazil, Japan, the US, Russia, Pakistan and Sri Lanka, a Bank of Baroda Economics Research report showed.
Rising fuel prices in India have led to considerable debate on which government, state or central, should be lowering their taxes to keep prices under control.
The rise in fuel prices is mainly due to the global price of crude oil (raw material for making petrol and diesel) going up. Further, a stronger dollar has added to the cost of crude oil.
Amongst comparable countries (per capita wise), prices in India are higher than those in Vietnam, Kenya, Ukraine, Bangladesh, Nepal, Pakistan, Sri Lanka, and Venezuela. Countries that are major oil producers have much lower prices.
In the report, the Philippines has a comparable petrol price but has a per capita income higher than India by over 50 per cent.
Countries which have a lower per capita income like Kenya, Bangladesh, Nepal, Pakistan, and Venezuela have much lower prices of petrol and hence are impacted less than India.
“Therefore there is still a strong case for the government to consider lowering the taxes on fuel to protect the interest of the people,” the report argued.
India is the world’s third-biggest oil consuming and importing nation. It imports 85 per cent of its oil needs and so prices retail fuel at import parity rates.
With the global surge in energy prices, the cost of producing petrol, diesel and other petroleum products also went up for oil companies in India.
They raised petrol and diesel prices by Rs 10 a litre in just over a fortnight beginning March 22 but hit a pause button soon after as the move faced criticism and the opposition parties asked the government to cut taxes instead.
India imports most of its oil from a group of countries called the ‘OPEC +’ (i.e, Iran, Iraq, Saudi Arabia, Venezuela, Kuwait, United Arab Emirates, Russia, etc), which produces 40% of the world’s crude oil.
As they have the power to dictate fuel supply and prices, their decision of limiting the global supply reduces supply in India, thus raising prices
The government charges about 167% tax (excise) on petrol and 129% on diesel as compared to US (20%), UK (62%), Italy and Germany (65%).
The abominable excise duty is 2/3rd of the cost, and the base price, dealer commission and freight form the rest.
Here is an approximate break-up (in Rs):
a)Base Price | 39 |
b)Freight | 0.34 |
c) Price Charged to Dealers = (a+b) | 39.34 |
d) Excise Duty | 40.17 |
e) Dealer Commission | 4.68 |
f) VAT | 25.35 |
g) Retail Selling Price | 109.54 |
Looked closely, much of the cost of petrol and diesel is due to higher tax rate by govt, specifically excise duty.
So the question is why government is not reducing the prices ?
India, being a developing country, it does require gigantic amount of funding for its infrastructure projects as well as welfare schemes.
However, we as a society is yet to be tax-compliant. Many people evade the direct tax and that’s the reason why govt’s hands are tied. Govt. needs the money to fund various programs and at the same time it is not generating enough revenue from direct taxes.
That’s the reason why, govt is bumping up its revenue through higher indirect taxes such as GST or excise duty as in the case of petrol and diesel.
Direct taxes are progressive as it taxes according to an individuals’ income however indirect tax such as excise duty or GST are regressive in the sense that the poorest of the poor and richest of the rich have to pay the same amount.
Does not matter, if you are an auto-driver or owner of a Mercedes, end of the day both pay the same price for petrol/diesel-that’s why it is regressive in nature.
But unlike direct tax where tax evasion is rampant, indirect tax can not be evaded due to their very nature and as long as huge no of Indians keep evading direct taxes, indirect tax such as excise duty will be difficult for the govt to reduce, because it may reduce the revenue and hamper may programs of the govt.