Published on March 6, 2014
Structural Transformation in South India On point 2.0 CITY On point STRUCTURAL TRANSFORMATION IN SOUTH INDIA Source community + analytics clytics community + analytics
On point 2.0 CITY Structural Transformation in South India CONTEXT 2011 2011 2051 2051 Population DEMOGRAPHY 25 Cr 27 Cr Proportion of Indian Population 21% 17% Households Mean Age SOCIETAL Out of 10 persons Out of 10 persons 9 Cr 44 Years 6 Cr 31 Years 2.5 Aged below 15 1 Aged above 60 1 Aged below 15 years 2.5 Aged above 60 years Economic Growth Has been on par with the Indian economy growing on an average 8% over the last decade Will slow down to an average rate of 3.5 % per annum Sectoral Shift Primary sector accounts for 16% of the economy, while secondary and tertiary account for 23% and 61%, respectively of the economy Primary sector will shrink to a negligible 4%, secondary sector will remain at its current level, while the tertiary sector will increase to nearly three quarters of the economy ECONOMY Source clytics community + analytics
Structural Transformation in South India On point 2.0 CITY CONTENTS • End of the crest – – – – – • Agenda for future – – Source Retiring Baby Boomer Structural Change in the economy: Rise of Services Labor market forces Urbanization Benchmarking with South Asian Economies Comparative Advantage Economic Growth clytics community + analytics
On point 2.0 CITY Structural Transformation in South India END OF THE CREST RETIRING BABY BOOMER Life Expectancy at birth [Years] in 2011 INDIA M F KARNATAKA M F ANDHRA PRADESH M F TAMIL NADU M F KERALA Retiring Demographic Dividend M F 60 Female 2011 2051 65 70 75 Male 2011 2051 80 Total Fertility Rates 1980 -2050 INDIA 4.5 PROJECTIONS ANDHRA PRADESH KARNATAKA 3.5 TAMIL NADU Fertility rates had started falling in South India much ahead of the rest of the country. Kerala had been the first state to hit replacement fertility in the early 90’s followed by Tamil Nadu. KERALA 2.5 Replacement Fertility (2.1) 1.5 1980 2000 2020 2040 The demographic dividend stuck the southern states early compared to the rest of the country. This baby boomer population will retire from 2030’s and significantly increase the depended population Source Fertility & Life expectancy curves estimated using smoothed data from SRS. Clytics research clytics community + analytics
On point 2.0 CITY Structural Transformation in South India END OF THE CREST LABOR MARKET Labor Market Forces 1 Supply: Increase [Decrease] in the size of the native workforce during consecutive two decades 2011-31 6% TAMILNADU -10% 14% KARNATAKA -12% 8% ANDHRAPRADESH 2031-51 -18% 4% KERALA -14% 17% MAHARASHTRA -11% 21% GUJARAT 0% 44% UTTARPRADESH 28% 26% India 0% 2 As the demographic dividend winds out the size of the native workforce of South India shall decline significantly. 20% 3% 40% -20% 0% 20% Demand: Increase [Decrease] in estimated workforce demanded by the industry TAMILNADU 16% KERALA -11% 0% -18% KARNATAKA 13% ANDHRAPRADESH 3% 9% -2% India 28% 0% 20% Source Census, Clytics research This will pose a severe burden on economy; growth rates will decline post 2030. From about a quarter, the South will shrink to 15% of the Indian economy in the next four decades. In the last two decades, Kerala had negative real agricultural output growth. This trend is likely to afflict other states successively. Tamil Nadu will start slowing down from the next decade, while Andhra Pradesh will start to feel the pinch of dwindling demographic dividend from 2030 and Karnataka from early 2040. -1% 40% -20% 0% 20% clytics community + analytics
On point 2.0 CITY Structural Transformation in South India END OF CREST STRUCTURAL CHANGE IN THE ECONOMY: RISE OF SERVICES Primary Two fifth of the workforce in South India is engaged in the primary sector Andhra Pradesh and Karnataka have more than half of the workforce engaged in agriculture while Kerala has a quarter working in agriculture Secondary Secondary sector accounts for 60% of the Southern economy. And engages a quarter of its workforce Primary sector accounts for 15% of the Southern economy. Tertiary Growth in the tertiary sector has been comparatively consistent. It is much less sensitive to droughts, oil prices, exchange rates and other exogenous shocks. In terms of output, the tertiary sector accounts for 60% of the Southern economy. Close to three quarters of Kerala’s output comes from services. Jammu & Kashmir Himachal Pradesh Punjab Uttarakhand Haryana Rajasthan Uttar Pradesh Bihar Assam West Bengal Jharkhand Orissa Chhattisgarh Madhya Pradesh Gujarat Maharashtra Andhra Pradesh Karnataka Kerala Tamil Nadu JK HP PUN UK HY RJ UP BH AS WB JKH ORS CTG MP GJ MA AP KA KE TN Size of the bubble indicates the monthly per capita worker output Source Computed using the state account statistics published by the Central Statistical Organization and Employment statistics published by the National Sample Survey Clytics research clytics community + analytics
On point 2.0 CITY Structural Transformation in South India END OF THE CREST URBANIZATION South India will continue with the rapid pace of urbanization. In 2051 South India is estimated to be more than 60 % urban, considerably higher than the rest of India which is expected to be nearly 50 % urban. Karnataka and Kerala have to invest in the port infrastructure and connectivity to support industrial growth in the hinterland. Karnataka should also evaluate the giving more incentives in setting up Industrial SEZ along Mangalore port in preference over Bangalore. Vishakhapatnam Hyderabad Chennai Bangalore Cochin Transport Linkages have to be developed to enable clusters to spread outwards. Average highway speeds in India are half of that in the world, thus it takes over five hours to travel two hundred kilometres in India Trivandrum Northern and Eastern India, on the other hand, will be predominantly rural Source 2001 –11 Census of India 2016-51 Forecasted, Clytics research clytics community + analytics
On point 2.0 CITY Structural Transformation in South India END OF THE CREST BENCHMARKING WITH SOUTH ASIAN ECONOMIES Parameter KE Kerala JP Japan T N Tamil Nadu SK South Korea AP Andhra Pradesh TH Thailand KA Karnataka CH China Remarks 859 555 Population Density 484 335 KE JP 308 TN 91% Urbanization SK TH 319 KA 140 CH 83% 33% 48% 48% AP 135 34% 39% 51% Total Fertility Rate 1.8 Life Expectancy 74 1.3 1.4 1.7 83 70 30593 SDP (GDP) per capita 81 67 2.0 1.4 74 68 4528 4139 JP 1.7 75 25799 8858 7978 KE Source 1.8 TN 3426 SK AP 3338 TH KA CH Except for land locked regions, Indian states have significantly higher population densities and thus much higher demand at similar level of resources. Economic growth will increase the burden further. Urbanization has been significantly slow in India. China was 17 % urban in 1971 while during the same time Karnataka was 25 % urban. Four decades later Karnataka is 40 % urban while more than half of China resides urban areas. Total Fertility rates in South India have declined appreciably. Fertility is likely to decline further based on the experience on other Asian economies In the last four decades Life expectancy has improved by about 20 years. South India, though has significantly higher life expectancy, it still lags behind developed Asian economies. In a span of four decades South India will nearly triple its real Domestic product per capita. However it will take longer to catch up to output levels of developed economies of Asia clytics community + analytics
On point 2.0 CITY Structural Transformation in South India AGENDA FOR FUTURE TRACING THE GROWTH TRAJECTORY Comparison of Wage productivities amongst Industrial workers Growth will result from increasing productivity and capital infusion Net Value add. per worker 100 94 78 64 37 IN AP KA KE TN Andhra Pradesh Auto 9.9% Medical Instr Electronics 3.4% 85 113 76 90 AP KA KE TN Fixed Capital per worker 100 95 IN AP KA KE 57 Mining Quarrying IN Source 92 AP 84 KA 49 KE 70 TN -1.5% 0.6% 5.8% 5.1% -2.0% 1.2% 1.2% -0.1% 7.6% 2.7% 1.5% 2.9% -3.8% 2.2% 0.5% Total factor productivity[across industries, mining and quarrying, electronics, chemical products has been declining. Real value added per worker in the apparel sector in Karnataka has grown at a compounded rate of 3 %, while in Tamil Nadu the value added per worker in the textile sector has decreased marginally over the last decade. TN Value add. to wage ratio 100 10.5% -0.9% 18.8% Textile 29 -2.7% 8.4% -0.1% 0.1% Apparel 110 23.3% 8.2% 1.0% Paper Wood 9.2% -2.7% Petro Prod IN -5.5% -22.3% 12.2% Plastics Chem Prod 14.2% 16.0% 3.8% Basic Metal 100 Tamil Nadu 14.3% 17.9% Machines and Eqp. Wage per worker Kerala Karnataka IN India AP Andhra Pradesh KA Karnataka KE Kerala TN Tamil Nadu The major factor for low productivity 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 clytics community + analytics
On point 2.0 CITY Structural Transformation in South India AGENDA FOR FUTURE Kerala Publishing Karnataka High High COMPARATIVE ADVANTAGE Current Comparative Advantage Plastics Electronics Petroleum Prd Mining Low Ratio of Profitability Tamil Nadu Wood Products Machine Plastics Basic Metal Low High Petrochemicals Low Leather Computer Peripherals Textile Ratio of Profitability Future Prospects High Instead of policy promoting multiple sectors state governments have to focus on areas where they have a comparative advantage, and transform from a regional hub to global scale expertise. Andhra Pradesh Paper High Low High Ratio in Output Ratio in Output Wood Industrialization will be key for growth in the future. However the weghtage in different states for different sectors do not reflect their relative comparative advantage Textile Agro based Fabrication Paper Wood Non Metal Ratio in Output Ratio in Output Auto Machines Agriculture Low Low Metal Chemical Low Ratio of Profitability High Aparel Plastics Low Ratio of Profitability Electronics High Vertical Axis : Ratio of proportion output of Industry within a state to that proportion cross the country. Horizontal Axis: Ratio of the profitability of an Industry within a state to that across the country Source Computed using data from annual survey of industries clytics community + analytics
On point 2.0 CITY Structural Transformation in South India On point This a summary of the key findings drawn from our reports. The report explores the different forces of change in South India and their implication on the future of the region You can access the complete report available publicly from this link or send a mail to firstname.lastname@example.org . Source clytics community + analytics
Structural Transformation in South India On point 2.0 CITY CITY 2.0 is our commitment to urbanization in emerging markets. We believe technology data and innovation can be used to create disruptive solutions for providing access to basic services. With a focus on housing, energy and livelihood, CITY 2.0 integrates economics, operation research, and finance to create insights into these sectors. We work with our partners to create and support market based interventions. At clytics we put our faith behind what you measure you can improve. We are creating the next generation of knowledge platform to support decisions with data. Source clytics community + analytics
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