Demographic dividend: Is India squandering the opportunity?

India’s demographic dividend refers to the economic growth potential that can result from shifts in a country’s age structure. This occurs mainly when the working-age population (15 to 64 years old) is larger than the non-working-age share of the population (under 15 and over 64 years old). This scenario provides a unique and potentially powerful boost to the economy, assuming it can be properly harnessed. Read here to learn more.

The demographic dividend is important for any country because it offers a potential economic boost facilitated by changes in the age structure of the population.

This demographic transition can yield powerful economic and social benefits if effectively managed and harnessed.

A large working-age population can lead to increased production, consumption, and overall economic growth.

India can position itself as a global hub for various industries due to its large English-speaking population and relatively lower labour costs.

Understanding the Demographic Dividend

The demographic dividend occurs in four key stages:

1. Decrease in the fertility rate: As a country develops, its fertility rate tends to decline.
2. Change in age structure: With fewer children per family, the youth dependency ratio (number of people 0-14 to those 15-64) decreases.
3. Increase in working-age population: A larger proportion of the population is in the working-age group, reducing the dependency ratio and potentially boosting the economy if jobs and effective policies are in place.
4. Increase in elderly population: Eventually, the working population ages, increasing the old-age dependency ratio, which can impact the demographic dividend.

Why the demographic dividend is critical for a country’s development?

The demographic dividend provides a unique and potentially powerful boost to the economy, assuming it can be properly harnessed.

Increased Labour Force

• A primary benefit of the demographic dividend is the expansion of the working-age population relative to dependents (children and elderly).
• With more people in the labour force and fewer dependents to support, a country can experience increased productivity and economic growth, assuming there are sufficient jobs to employ this growing workforce.

Economic Growth and GDP Increase

• With a larger segment of the population working, there is a higher aggregate output which boosts the Gross Domestic Product (GDP).
• Additionally, this productive workforce generates higher income, which can lead to increased consumption and investment, further stimulating economic growth.

Savings Rate

• A younger working population tends to save more, especially in preparation for retirement.
• Higher savings rates within a country can lead to increased available capital for investment in economic projects and infrastructure, contributing to further economic development.

Human Capital Development

• A demographic dividend provides the impetus for governments to invest in education and health, enhancing human capital.
• Well-educated and healthy individuals contribute more effectively to productivity, innovation, and entrepreneurship within the economy.

Technological Advancement and Innovation

• A younger population is often more receptive to adopting new technologies and innovating existing ones.
• This receptiveness can lead to faster technological advancements and heightened productivity, positioning a country as a competitive player in the global market.

Social and Economic Stability

• A well-employed working-age population contributes to social and economic stability.
• Employment reduces vulnerability to social vices, economic crises, and political instability, fostering a more stable and secure society.

Global Competitiveness

• Countries that successfully capitalize on their demographic dividend can enhance their competitiveness on the global stage.
• A productive, vibrant, and technologically adept workforce can attract foreign investment, boost exports, and enhance international economic relations.

Reduction in Poverty

• Economic growth spurred by a demographic dividend can significantly reduce poverty.
• Increased employment opportunities and higher wages enable more people to afford better living standards, healthcare, and education, contributing to overall economic and social well-being.

India’s Demographic Scenario

India is considered to be in the midst of its demographic dividend phase, which began in 2005-2006 and is expected to continue until 2055-2056.

The country has a large and growing youth population, which theoretically provides a vast labour pool for industries and services.

Key statistics and insights include:

• Youth population: India has one of the youngest populations in an ageing world, with a median age of 28 years, compared to 38 in China and the US, and 45 in Western Europe.
• Workforce potential: India adds approximately 12 million people to its workforce every year.
• Total fertility rate (TFR): The government’s projected Total Fertility Rate (TFR) for the period 2021-2025 (1.94) and 2031-2035 (1.73) is higher than estimates from The Lancet study (1.29) and NFHS 5 data.
• This suggests that India’s population may stabilise below 1.7 billion earlier than 2065.

Population growth in India has been slowing in recent decades from an annual growth rate of 2.5 per cent during 1971-81 to an estimated 1.3 per cent as of 2011-16.

• All major states have witnessed a marked deceleration in population growth during this period; the slowdown in states with historically high population growth such as Bihar, Uttar Pradesh, Rajasthan and Haryana is particularly noteworthy.
• Population is now growing below 1 per cent in the southern states as well as West Bengal, Punjab, Maharashtra, Odisha, Assam and Himachal Pradesh.

Challenges

• Employment: Creating enough quality jobs is a significant challenge. The Indian economy needs to grow robustly and inclusively to employ its growing workforce adequately.
• Education and skill development: Providing quality education and vocational training to equip its youth with the necessary skills to be employable in a rapidly changing global economy.
• Healthcare: Ensuring that the population remains healthy and productive through improved healthcare infrastructure and services.
• Social and infrastructure services: Developing sufficient infrastructure, such as urban housing, transportation, and sanitation, to support its growing population.

Policy Implications

To harness the demographic dividend effectively, India needs to implement several strategic policies:

• Education and Training: Policies that promote not just universal education but also focus on higher education and skill development tailored to meet the needs of various sectors.
• Job Creation: Economic reforms that encourage investment and job creation across sectors, including manufacturing, services, and agriculture.
• Healthcare Investment: Strengthening healthcare services to improve the quality of life and productivity of the workforce.
• Inclusive Growth: Ensuring that the benefits of economic growth are widely distributed to include all regions and communities, especially marginalized groups.

Is India going through a demographic transition?

Yes, India is currently experiencing a demographic transition.

This transition refers to the shift from high birth and death rates to low birth and death rates, resulting in changes to the age structure of the population that can potentially lead to economic and social benefits.

Declining Fertility Rates

• India has seen a significant decline in its fertility rate over the last few decades.
• From an average of about 5.9 children per woman in the 1950s, the fertility rate has dropped to about 2.0 children per woman as of recent estimates, which is around the replacement level fertility rate of 2.1.
• This decline is due to a variety of factors, including increased educational opportunities for women, improved access to healthcare, and more widespread use of contraceptives.

Declining Mortality Rates

• Advancements in healthcare, improved sanitation, better access to clean drinking water, and increased public health initiatives have contributed to a decline in mortality rates, particularly infant and child mortality rates.
• Life expectancy in India has also increased as a result, with people living longer than ever before.

Change in Age Structure

• The decline in both fertility and mortality rates has begun to alter the age structure of India’s population.
• There is a growing proportion of the population within the working-age group (15-64 years), which is larger than the non-working-age groups (children under 15 and adults over 64).
• This shift creates a potential demographic dividend, where economic benefits can arise from having a larger workforce supporting fewer dependents.

Urbanization

• India has also been undergoing rapid urbanization. More people are moving to cities in search of better job opportunities, education, and healthcare.
• Urban areas tend to have lower fertility rates than rural areas, further influencing the demographic transition.

Socioeconomic Changes

• Economic growth, increased educational attainment, and greater gender equality have also played significant roles in India’s demographic transition.
• These factors influence family size preferences, economic activities, and overall population dynamics.

The demographic transition presents both opportunities and challenges for India:

• Opportunity for Economic Growth: The increasing share of working-age individuals provides an opportunity for substantial economic growth if they can be effectively integrated into the workforce.
• Challenge of Employment: The key challenge is creating enough quality jobs to employ this growing workforce, which requires robust economic policies, investment in infrastructure, and fostering industries that can absorb large numbers of workers.
• Need for Investment in Healthcare and Education: To maximize the potential of its demographic dividend, India needs to invest heavily in healthcare and education to ensure a healthy, skilled workforce ready to meet the demands of a modern economy.

Why in the news?

The World Bank has warned that the South Asia region including India was not making use of its demographic dividend as the pace of job creation in the region fell well short of the growth in the working-age population, even as it projected a strong 6.0-6.1% growth for 2024-25 for the region in its South Asia regional update, Jobs for Resilience.

• Between 2000-2022, India’s employment ratio fell by more than in any other South Asian country except Nepal.
• India’s robust economic expansion has, however, kept the region’s output growth stronger than in other emerging markets and developing economies.
• The weak employment trends in the region were concentrated in non-agricultural sectors, the World Bank said, reflecting challenges in the institutional and economic climate, which had stifled the growth of businesses.
• Among its recommendations to encourage the growth of employment were supporting the participation of women in the economy, increasing access to finance, increasing openness to trade, easing financial sector regulations and improving education.

Conclusion

India’s demographic dividend presents a significant opportunity, but it also poses substantial challenges.

The extent to which India can benefit from this demographic shift depends on how effectively it can implement policies that address employment, education, healthcare, and inequality.

If successful, the demographic dividend could significantly boost India’s economic performance over the coming decades.

India’s demographic transition is a critical phase in its development trajectory. Effective management of this transition through policy and governance will determine how well India can capitalize on its demographic dividend to achieve sustained economic growth and development.

Also read: China’s Population Decline

-Article by Swathi Satish