India’s demographic dividend

What is demographic dividend?

Demographic dividend, as defined by the United Nations Population Fund, is "the economic growth potential that can result from shifts in a population’s age structure, mainly when the share of the working-age population is larger than the non-working-age share of the population".

• According to the Economic Survey 2018-19, India’s demographic dividend will peak around 2041, when the share of working-age,i.e. 20-59 years, the population is expected to hit 59%.
• India’s population pyramid reveals that over two-thirds of the population is of working age, with the elderly comprising less than 7 percent. 
• This advantage can create the resources needed to increase investments in enhancing human capabilities, which, in turn, can have a positive influence on the growth and development of the society and the country.

India’s Population Pyramid-2022

https://www.unfpa.org/data/demographic-dividend/IN

 

What are the features of India’s demographic dividend?

Some features of India’s demographic dividend are:

• Large and growing working-age population: The working-age population (15-64 years old)  in India, has surpassed the dependent population (consisting of children aged 14 or below and individuals above 65 years old) since 2018. 
  • This demographic shift is expected to last for 37 years, until 2055, owing to a decline in the total fertility rate after the increase in life expectancy has stabilized.
• Uniqueness: A study conducted by the United Nations Population Fund (UNFPA) on India's demographic dividend highlights two intriguing facts: 
  • The window of opportunity for India's demographic dividend spans five decades from 2005-06 to 2055-56, which is longer than any other country in the world.
  • This demographic dividend window is available at different times in different states due to variations in population parameters.
• Increasing education levels: Education levels in India are rising, with an increasing number of individuals completing secondary and tertiary education. This trend will continue, providing a more skilled and productive workforce.
• Increasing Gender equality: While gender inequality remains an issue in many parts of India, there has been significant progress in recent years toward gender equality. This includes increasing levels of education and workforce participation among women, which can help to further increase the size and productivity of the workforce.

 

What is the importance of India’s demographic dividend?

Various opportunities related to the demographic dividend in India are

• Labour supply: The first benefit of the young population is the increased labour supply, as more people reach working age.
• Capital formation: As the number of dependents decreases, individuals save more. This increase in national savings rates increases the capital stock in the country and provides an opportunity to create the country’s capital through investment.
• Economic growth: Increased domestic demand brought about by the increasing GDP per capita and the decreasing dependency ratio. This leads to demand-driven economic growth. For instance, in advanced economies, the demographic dividend has contributed as much as 15% towards overall growth in the past.
• Boost to Innovation & Entrepreneurial spirit: A large youth population can also be a source of entrepreneurship and innovation, as the young are less risk-averse and more likely to break new ground.
  • Example: India has the third largest startup ecosystem after the USA and China.
• Female Human capital: Decreased fertility rates result in healthier women and fewer economic pressures at home. This provides an opportunity to engage more women in the workforce and enhance human capital.

 

What are the challenges associated with harnessing the benefits of demographic dividend in India?

The demographic window of opportunity has several challenges.

• Lack of job creation: India's rapidly growing population needs to be employed, but the economy is not creating enough jobs to meet the demand.
  • Example: As per Periodic labour Force Survey (2020-2021), Labour Force Participation Rate (LFPR) was 41.6% during 2020-21.
• Lack of quality education and skilling: The education system in India does not adequately prepare young people for the job market, leading to a mismatch between the skills of the workforce and the needs of employers.
  • Example: According to the 2018 report by the National Council of Applied Economic Research (NCAER), out of more than 5 lakh final year bachelor's students aged 18–29 who were surveyed, around 54% were found to be “unemployable”.
• Poor health and nutrition: A large proportion of the population suffers from malnutrition, poor health, and lack of access to basic healthcare, reducing their ability to work and contribute to the economy.
  • Example: With a Human Development Index (HDI) value of 0.633, India was ranked 132 out of 191 countries in the 2021 HDI, which is alarming.
• Infrastructure constraints: A lack of adequate infrastructure in rural and semi-urban areas, such as electricity, transportation, and communication systems, is limiting the growth of industries and hindering job creation.
• Social and cultural barriers: India's patriarchal society often restricts women from participating in the workforce, reducing the potential for a demographic dividend.
  • Example: According to the World Bank report (June 2022) Indian women’s labour force participation has steadily declined since 2005 and was at a low of 19 percent in 2021.
• Environmental Issues: The rapid urbanization and growth of industrial production had a major impact on environmental quality. 

 

What measures can help India reap its rich demographic dividend?

Reaping the benefits of demographic dividend requires favorable policies and institutions along with good governance. Some of the steps that can be taken are:

• Invest more in children and adolescents: India ranks poorly in Asia in terms of human capital spending. It needs to invest more in children and adolescents, particularly in nutrition and learning during early childhood.
• Health investments: Health spending has not kept pace with India’s economic growth. Adequate investment in health can provide a productive workforce.
  • The public spending on health has remained flat at around 1% of GDP. 
• Education: Education is an enabler in bridging gender differentials. Gender inequality in education is a concern. This needs to be reversed.
• Creating Employment: Certain policy actions that can be advocated in this regard are:
  • Social infrastructure also comprises education and health services that must be improved considerably. 
  • Small Scale Industries: The major problem with SSI units is credit and the upgradation of technology. The government’s initiatives in providing higher amounts of credit through schemes like  MUDRA etc., should be further enhanced.
  • Reformed Outlook towards Informal Sector: Around 93 percent of the workforce is absorbed in the informal or unorganized sector. Hence it is important to make it easier and more accessible for job seekers to find self-employment in productive work during the transformation of the economic structure into an organized system.
• Increase female workforce participation: As of 2019, 20.3% of women were working or looking for work, down from 34.1% in 2003-04. 
  • New skills and opportunities for women need to be made a policy priority to increase their participation in the economy.
• Fostering a favourable business environment: A favourable business environment, including stable and predictable policies, can encourage investment and create jobs.
• Investing in the latest Technologies: By boosting research and development efforts and supporting startups in areas like Quantum Technology, Blockchain, and the Internet of Things, India can leverage these emerging technologies to its advantage and equip its young people with the skills and expertise to become leaders on a global scale.
• Address the diversity between States: Southern States, which are advanced in demographic transition, already have a higher percentage of older people. This also offers boundless opportunities for States to work together, especially on demographic transition, with the north-central region as the reservoir of India’s workforce.
• Constitute a high-level task force: A High-Level Task Force on the demographic dividend under the direct leadership of the Prime Minister, with members from the population, health, education, and development fields, and representatives of key ministries and corporates can be created.

If India has to reap the benefits of the ‘demographic dividend’ in the years ahead, it is imperative that investments in social infrastructure by way of education, skill development, training, and provision of healthcare facilities are made to enhance the productivity of the workforce and welfare of the population.