Introduction to Demographic Dividend
The demographic dividend is the benefit that can be reaped by an economy when the proportion of the working-age population (15 years to 64 years) is higher than the proportion of dependents (below 15 and above 64) in the economy.
If an economy has the above population age structure, more people are in the labour force and have the opportunity to contribute to the development of the economy. This could lead to a rise in per-capita income.
It also frees up an economy’s resources due to the decline in spending on dependents. Thus, the demographic dividend has the potential to improve the standard of living of the masses and lift a large proportion of the population out of poverty.
India’s Demographic Dividend
While the advanced economies like Japan and USA are ageing (have more population of dependents), approximately half of India’s population is under the age of 26. It has been estimated that by 2020, India will become the youngest country in the world with the median age of 29 (compared to 37 for China and 48 for Japan).
As per the United Nation’s projections mentioned in the Economic Survey, “Over the next three decades, China and Russia will each see their Working Age populations (15 to 64) fall by over 20 percent. India, however, seems to be in a demographic sweet spot with its working-age population projected to grow by a third over the same period.“
Every country passes through this phase of demographic transition when it transforms from an underdeveloped to a developed economy. Europe went through this phase between 1945 and 1975. China’s demographic dividend lasted since the mid-1960s to 2010. According to a WB report, China’s advantageous population age structure has contributed to 27 percent of economic growth. But, in the late 1970s, China started a one-child policy. This artificial measure reversed its demographic dividend and its working population (as well as growth) fell at an unprecedented rate. (1)
India’s distinct demography
As described in this year’s Economic Survey, India’s demography is distinctive from the other emerging economies in the following ways:
- India is lagging behind other emerging countries by 10-30 years when it comes to the demographic transition in the age structure of the population. The ratio of the working age population to the dependents peaked much earlier for China, South Korea, Brazil etc. But, India’s ratio of the working-age population to dependents will peak in the next 5 years.
- Also, India’s working age population to dependents ratio will peak (highest proportion of working age population in magnitude) at a lower level than that for other countries. It is likely to peak at 1.7, a much lower level than South Korea, Brazil and China. But, this low level will not be a disadvantage. In fact, due to this, India will remain close to its peak for a much longer period than other countries and will be able to sustain the benefits of the demographic dividend longer. Unlike China, India will not experience either sudden increase or decline in the working age population/ growth rate.
- Finally, there is a large heterogeneity among the states in India in their demographic pattern and transition. There is a clear divide between peninsular India (West Bengal, Kerala, Karnataka, Tamil Nadu and Andhra Pradesh) and the hinterland states (Madhya Pradesh, Rajasthan, Uttar Pradesh, and Bihar). The peninsular states exhibit a pattern that is closer to China and Korea, with sharp rises and declines in the working-age population. In contrast, the hinterland states will remain relatively young and dynamic, characterised by a rising working age population for some time. But, it will not pose a problem as the shortage of working population in peninsular India will be taken care of by the hinterland states via greater labour mobility.
Conclusion
If India fails to capitalise on this demographic dividend, it can easily turn into a demographic burden or a nightmare.
As reported by the Economist in an article, “In the 1980s Latin America and East Asia had a similar demographic pattern. But while East Asia experienced a long boom, Latin America endured its “lost decade”. “(3) Thus, India can go either way depending on the measures taken.
To prevent this, India must start focusing on providing productive employment to the people. Health, education, skill development and job creation should be a top priority for India to reap its ‘soon to recede demographic dividend’. The Government will also have to create an enabling environment that encourages investments in the manufacturing and the service industries.
References