Demographic Dividend and its impact on Economic Growth

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Demographic Dividend: Introduction

The demographic dividend is the accelerated economic growth that may result from a decline in a country’s birth and death rates and the subsequent change in the age structure of the population. With fewer births each year, a country’s young dependent population declines in relation to the working-age population. With fewer people to support, a country has a window of opportunity for rapid economic growth if the right social and economic policies are developed and investments made.

Demographic Dividend: Definition

According to United Nations Population Fund (UNFPA), demographic dividend means, “the economic growth potential that can result from shifts in a population’s age structure, mainly 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)”.

Demographic Dividend in India

India has one of the youngest populations in an aging world. By 2020, the median age in India will be just 28, compared to 37 in China and the US, 45 in Western Europe, and 49 in Japan.
Since 2018, India’s working-age population (people between 15 and 64 years of age) has grown larger than the dependant population — 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.
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 stabilised.

A study on demographic dividend in India by United Nations Population Fund (UNFPA) throws up two interesting facts.
- The window of demographic dividend opportunity in India is available for five decades from 2005-06 to 2055-56, longer than any other country in the world.
- This demographic dividend window is available at different times in different states because of differential behaviour of the population parameters.

Demographic Dividend – Causes

Changes in population structure occur due to

Falling birth rate
Lower fertility rate
Increased longevity

Falling birth rate and lower fertility rate will contribute to a reduction in expenditure, increased longevity will lead to an increase in the size of the working-age population.

Fertility Must Decline for Countries to Attain the Demographic Dividend.

A common misperception among many leaders is that a large youth population itself is an indicator of a coming demographic dividend. While youth can be a great force for economic and political change, the key first step toward the demographic dividend is not a large youth population. The first step, in fact, is a transition from high birth and death rates to low birth rates and child death rates—a process referred to as the “demographic transition.” The following facts illustrate the challenge ahead but also what must be done:

While child survival has greatly improved in developing countries, birth rates remain high in many of them. To achieve the economic benefits of the demographic dividend, developing countries must substantially lower both birth and child death rates.
In the world’s least developed countries, where couples still have many children, more than 40 percent of the population is under age 15 and depends on financial support from working-age adults (defined as ages 15 to 64).
One in four women in developing countries wants to avoid becoming pregnant or delay or space their births but is not using a modern family planning method. These women account for almost 80 percent of unintended pregnancies. When women can choose when and how often to become pregnant, they are more likely to have fewer children.

Demographic Dividend – Opportunities for India

India will have the youngest workforce in the world with a median age much lower than China and other Developed countries.
The other countries will have a higher proportion of the population which is not in the working-age group which will result in a shortage of manpower to the tune of 56 million.
Indian workforce can fill this gap in India and abroad and result in greater economic growth.

During the period of demographic dividend, the personal savings will grow, which means greater purchasing power, which can lead to the growth of the economy.

Demographic Dividend – Latest Updates

India’s population is among the youngest in an aging world. By 2022, the median age in India will be 28 years; in comparison, it will be 37 in China and the United States, 45 in western Europe, and 49 in Japan.
At present, the working-age population in India is increasing because of rapidly declining birth rates, with our average annual population growth rates nearly half in the last decade, compared to what was seen in the 1970s. A key driver of this trend has been the steady decline in India’s total fertility rate (TFR), which is the number of births per woman or children likely to be born to a woman in her childbearing age.
India’s Total Fertility Rate (TFR) has declined from 2.2 to 2.0 as per the fifth round of the National Family Health Survey (NFHS-5).
There are now only five states that have a TFR above the replacement level of fertility of 2.1 children per woman: Bihar (2.98), Meghalaya (2.91), Uttar Pradesh (2.35), Jharkhand (2.26), and Manipur (2.17).
Given their Varying TFRs, the demographic dividend window is available at different times in different states; this calls for tailored policies, not an All-India approach.
The number of children per woman declines with women’s level of schooling. Women with no schooling have an average of 2.8 children, compared with 1.8 children for women with 12 or more years of schooling.
Recently a Minister in the Government of India mentioned about the potential of India’s demographic dividend to build an Atmanirbhar Bharat.
Bihar’s poverty rate continues to be stubbornly high compared to the all-India figures. According to the 2018 global multidimensional poverty index, shockingly, more than half of Bihar’s population is ‘multidimensionally poor’. Bihar is one of India’s youngest states, but for it to use its demographic advantage, it needs to get its basics right. Only a healthy and educated youth population can benefit from the much-touted demographic dividend.

Advantages Associated with Demographic Dividend

Better economic growth brought about by increased economic activities due to higher working age population and lower dependent population. It will be channelised in following ways:
- Increased Labour Force that enhances the productivity of the economy.
- Increased fiscal space created by the demographic dividend to divert resources from spending on children to investing in physical and human infrastructure.
- Rise in women’s workforce that naturally accompanies a decline in fertility, and which can be a new source of growth.
- Increase in savings rate, as the working age also happens to be the prime period for saving.
- A massive shift towards a middle-class society, that is, the rise of aspirational class.
Demographic dividend has historically contributed up to 15 % of the overall growth in advanced economies.
- 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.

Rapid industrialisation and urbanisation because of higher number of employment seeking population that would force higher economic activities.
Rise in workforce: With more than 65% of working age population, India will rise as an economic superpower, supplying more than half of Asia’s potential workforce over the coming decades.
Effective policy making: Fine-tuning the planning and implementation of schemes and programmes by factoring in population dynamics is likely to yield greater socio-economic impact and larger benefits for people.

Challenges Associated with Demographic Dividend

Asymmetric demography: The growth in the working-age ratio is likely to be concentrated in some of India’s poorest states and the demographic dividend will be fully realized only if India is able to create gainful employment opportunities for this working-age population.
Lack of skills: Most of the new jobs that will be created in the future will be highly skilled and lack of skill in Indian workforce is a major challenge. India may not be able to take advantage of the opportunities, due to a low human capital base and lack of skills.

Low human development parameters: India ranks 130 out of 189 countries in UNDP’s Human Development Index, which is alarming.Therefore, health and education parameters need to be improved substantially to make the Indian workforce efficient and skilled.
Informal nature of economy in India is another hurdle in reaping the benefits of demographic transition in India.
Jobless growth- There is mounting concern that future growth could turn out to be jobless due to de-industrialization, de-globalization, the fourth industrial revolution and technological progress. As per the NSSO Periodic Labour Force Survey 2017-18, India’s labour force participation rate for the age-group 15-59 years is around 53%, that is, around half of the working age population is jobless.

What needs to be done?

Building human capital: Investing in people through healthcare, quality education, jobs and skills helps build human capital, which is key to supporting economic growth, ending extreme poverty, and creating a more inclusive society.
- Skill development to increase employability of young population. India’s labour force needs to be empowered with the right skills for the modern economy. Government has established the National Skill Development Corporation (NSDC) with the overall target of skilling/ up skilling 500 million people in India by 2022..
- Education: Enhancing educational levels by properly investing in primary, secondary and higher education. India, which has almost 41% of population below the age of 20 years, can reap the demographic dividend only if with a better education system. Also, academic-industry collaboration is necessary to synchronise modern industry demands and learning levels in academics.
  - Establishment of Higher Education Finance Agency (HEFA) is a welcome step in this direction.
- Health: Improvement in healthcare infrastructure would ensure higher number of productive days for young labourforce, thus increasing the productivity of the economy.
  - Success of schemes like Ayushman Bharat and National Health Protection scheme (NHPS) is necessary. Also nutrition level in women and children needs special care with effective implementation of Integrated Child Development (ICDS) programme.
- Job Creation: The nation needs to create ten million jobs per year to absorb the addition of young people into the workforce. Promoting businesses’ interests and entrepreneurship would help in job creation to provide employment to the large labourforce.
  - India’s improved ranking in the World Bank’s Ease of Doing Business Index is a good sign.
  - Schemes like Start-up India and Make in India , if implemented properly, would bring the desired result in the near future.
Urbanisation: The large young and working population in the years to come will migrate to urban areas within their own and other States, leading to rapid and large-scale increase in urban population. How these migrating people can have access to basic amenities, health and social services in urban areas need to be the focus of urban policy planning.
- Schemes such as Smart City Mission and AMRUT needs to be effectively and carefully implemented.

Way Forward

India is on the right side of demographic transition that provides golden opportunity for its rapid socio-economic development, if policymakers align the developmental policies with this demographic shift.
To reap the demographic dividend, proper investment in human capital is needed by focussing on education, skill development and healthcare facilities.
This demographic transition also brings complex challenges with it. If the increased workforce is not sufficiently skilled, educated and provided gainful employment, we would be facing demographic disaster instead.
By learning from global approaches from countries such as Japan and Korea and designing solutions considering the domestic complexities, we would be able to reap the benefits of demographic dividend.

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