India enters 37-year period of demographic dividend

Context

  • Since 2018, India’s working-age population (people between 15 and 64 years of age) has grown larger than the dependant population (defined as children aged 14 or below as well as people above 65 years of age).
  • This bulge in the working-age population is going to last till 2055, or 37 years from its beginning.

Why it matters?

  • In many ways, India’s demographics are the envy of the world.
  • As populations in countries such as China, US, and Japan is getting older, India’s population is getting younger.

What is demographic dividend?

  • Demographic dividend, as defined by the United Nations Population Fund (UNFPA) means the economic growth potential that can result from shifts in a population’s age structure.
  • This happens when the share of the working-age population (15 to 64) is larger than the non-working-age share of the population (14 and younger, and 65 and older).
  • In other words it is a boost in economic productivity that occurs when there are growing numbers of people in the workforce relative to the number of dependents.
  • It indicates that more people have the potential to be productive and contribute to growth of the economy for a longer period of time.

When this happens?

  • This transition happens largely because of a decrease in the total fertility rate (TFR, which is the number of births per woman) after the increase in life expectancy gets stabilized.

Global Examples

Japan’s Case

  • Japan was among the first major economies to experience rapid growth because of changing population structure.
  • The country’s demographic-dividend phase lasted from 1964 to 2004.
  • An analysis of the first 10 years since this phase shows how such a shift in the population structure can propel growth.
  • In five of these years, Japan grew in double digits; the growth rate was above 8% in two years, and a little less than 6% in one.

China’s Case

  • China entered this stage in 1994 — 16 years after Deng Xiaoping’s economic reforms started in December 1978.
  • Although its growth accelerated immediately after the reforms, the years of demographic dividend helped sustain this rate for a very long period.
  • In the 16 years between 1978 and 1994 (post-reform, pre-dividend) China saw eight years of double-digit growth.
  • In the 18 years since 1994 there have been only two years when China could not cross the 8% growth mark.

Indian Case

  • In near future India will be the largest individual contributor to the global demographic transition.
  • A 2011 IMF Working Paper found that substantial portion of the growth experienced by India since the 1980s is attributable to the country’s age structure and changing demographics.
  • By 2026 India’s average age would be 29 which is least among the global average.
  • The U.S. Census Bureau recently predicted that India will surpass China as the world’s largest country by 2025, with a large proportion of those in the working age category.
  • Over the next two decades the continuing demographic dividend in India could add about two percentage points per annum to India’s per capita GDP growth.

What next?

  • It is however important to note that this change in population structure alone cannot push growth. There are many other factors.
  • According to research by the RBI this will depend on India addressing its declining labour force participation rate.
  • The UNFPA states that countries can only harness the economic potential of the youth bulge if they are able to provide good health, quality education and decent employment to its entire population.

Harnessing a golden opportunity

  • India’s working-age population is now increasing because of rapidly declining birth and death rates.
  • India’s age dependency ratio, the ratio of dependents (children and the elderly) to the working-age population (14- to 65-year-olds), is expected to only start rising in 2040, as per UN estimates.
  • This presents a golden opportunity for economic growth that could be reaped through higher growth.

Health and edu key for growth 

  • In Singapore the dividend years started in 1979 and in the next 10 years there were only two years when its economy grew at less than 7%.
  • The island country saw double-digit growth in four of these 10 years. South Korea entered this phase in 1987 and in the next 10 years there were only two years when its growth rate fell below 7%.
  • In Hong Kong, it was 1979 when the dividend years kicked in, and the growth rate dipped below 7%. In Hong Kong, it was 1979 when the dividend years kicked in, and the growth rate dipped below 8% in only two of the next 10 years. 

Way Forward

  • India needs to pay  special  attention  to  skilling  and  reskilling  its  workforce,  keeping  in  view  the  changing  nature  of  today’s  job
  • There are  serious  gaps  between  what  the  skill  development  institutions  currently  do  and what the industry requires.
  • Improving education and health infrastructure, in terms of both quality and access and  timely  action  in  a  co-ordinated  manner  by  the  Government,  private  sector  and  researchers  is  necessary  to  harness  the  window  of  opportunity  provided by a favourable demography.
  • It is, however, important to note that this change in population structure alone cannot push growth. There are many other factors. In the late 20th century demographic dividend in Asia resulted in a seven-fold increase in the GDP of many countries. In Latin America the growth was only two-fold, the UNFPA points out in its explanatory note on demographic dividend. The UN agency further states that countries can only harness the economic potential of the youth bulge if they are able to provide good health, quality education and decent employment to its entire population. 

Source:Economic Times