The Concept of the Demographic Dividend in India


A demographic dividend occurs when the rate of economic growth is increased due to a change in the age structure of a population that favours the presence of more working age people than that of a dependent population. A demographic dividend thus is the result of a changing age structure of the population.

Basic Concepts

A higher percentage of the working-age population can raise the economic output in a country as well as increase its per capita income. A high demographic dividend requires an enhanced income-employment situation. It also requires that the working-age population is competent enough to achieve substantial income levels. However, this phase can be transitory and dependent populations can increase in proportion or the productive capacity of the working-age population can fall below the adequate levels. These pressures can bring down output and productivity and also a decline in the per capita income and standard of living in the economy.

There can be diverse factors that can influence such fluctuations. For example, many a time the birth rate can increase or the mortality rate of the aged population can decrease, increasing the proportion of dependent people in the population. Similarly, increase in the production requirements can also influence the productive capacities of a given economy if the skill levels of the workers are inadequate.

Economies must be in a position therefore to harness the benefits gained from a high demographic dividend when the situation arises. This would mean that the working-age population is imbued with the abilities to increase productivity as well as the per capita income in the economy at the same time. This would also involve the training of the young people so that they can contribute productively to the economy. Prior and continuous training of the working-age population are thus necessities if a country is to achieve the benefits of a high demographic dividend.

There can be various approaches in terms of methods of increasing production in economies as a result of the demographic dividend. For example, in some cases investments in healthcare might also be necessary as also in employment opportunities and education. In many underdeveloped or developing countries, infant mortality can palpably negate the birth rate. In other instances, a focus would need to be placed on the health and educational accessibility of low-income populations. Every country must adopt an appropriate approach in maximizing the benefits accrued from its demographic dividend in terms of increased economic productivity.

Demographic Dividend in India

India has always been a significant talking point in terms of population because the country has the second-highest population in the world after China. Moreover, according to the United Nations (UN), India is projected to overtake China to become the world’s most populous nation by 2024 (The Indian Express, 2017).

However, India is undergoing a major demographic transition. The working-age ratio in India’s population is projected to increase from 64 per cent in 2013 to 69 per cent in 2040 – an addition of more than 300 million adults of working-age population! In terms of pure numbers, India would thus become the largest contributor to the addition in the global workforce. The question is whether India can increase its rate of economic growth and economic production as a result of this increase (Majumder, 2013). Although the absolute numbers in working-age population in India may increase, there can still be many hick-ups as far as the demographic dividend is concerned, particularly when linked up with economic growth.

The demographic transition might also have fewer than expected working-age people joining the workforce. Although the number of working-age people might increase in absolute terms, but that would not necessarily translate into more workers. For example, the participation of women in India in the workforce is quite low. According to the World Bank’s study based on the period between 2004-05 and 2011-12, the female labour force participation (FLFP) rate in India was 27 per cent as compared to China’s 63.9 per cent (Bhandare, 2017). Given that the females make up for almost 50 per cent of India’s population, their extremely low proportion joining the workforce is having a drastic negative impact on the overall proportions of labour force in the country. Thus it cannot be assumed that a simple increase in working-age population might mean more workers. Other than gender equity, other factors might also influence the working-age population such as underdeveloped labour markets, uneven sectoral growth and low cost of living etc.

Even if there is a cumulative and substantial increase in the workforce, workers are also required to be more productive if production is to increase. This would require corresponding increases in educational and training facilities. However, the World Bank reports that at present only 2.3 per cent of the workforce in India has formal skills training (World Bank, 2017). Much more expansive skill development initiatives are needed if India is to convert an increasing working-age population into productive members of India’s economy. Another problem that can be posed in terms of the demographic dividend is that the numbers of working-age people might increase but employment opportunities in terms of productive jobs might be limited. According to the India Skills Report 2018, a growth of 10-15 per cent is expected in hiring in 2018 (Business Standard, 2018). Although this is a significant growth as far as employment opportunities are concerned, such growth rates would need to be sustained if India is to keep pace with its demographic dividend on a continuous basis.

Employment opportunities also depend on the training and qualifications of the prospective employees and a lag in India in this aspect might place gaps in the availability of employment and actual hiring in the future, such that a continuous rate of assimilation might become difficult to maintain.

The optimistic aspect of India’s demographic dividend is that with time a mature workforce with experience would emerge. Learning on the job might become an increasingly important aspect of employability as time progresses although this must not discount that fact that training in basic skills is a must which is usually provided by institutions to youths. The key to bridging the gap between the demographic dividend and an increasing rate of economic growth is to enhance the productivity of the working population.

Ways to Look Forward

The demographic dividend itself might be affected by many macro processes. For example, a substantial decline in fertility for a population might act to increase the demographic dividend. Also, improved healthcare conditions along with declining mortality rates for adults might also preserve the pool of working-age population. Greater gender equity in terms of women in the workplace might also act to increase the participation of women in the workplace, thus increasing the overall contribution to labour market. Economic investments that create additional jobs can also act to upsurge production in the economy as well as increase the number of working people. However, India’s demographic dividend needs to be supported by other supportive steps that can allow India’s demographic dividend to be optimally used. For example, India must look to upgrade educational and training facilities to bridge the gap in India’s skill deficit. The productivity of its working-age population can be tapped early on such that education and training can be supplemented early on for progressive change. India must also develop its healthcare facilities and make them more accessible.

Although India is blessed with an increasing demographic dividend, looking at the concept of the demographic dividend might make us rethink whether we are using the opportunity to its prime limit. There are a great many areas in which we can improve if we are to sustain the benefits that our increasing demographic dividend is providing us.

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