According to a report published by the United Nations, India is projected to add nearly 273 million people by the year 2050, and surpass China to become the world’s most populous country. Moreover, it is likely to have a lower dependency ratio too. The dependency ratio indicates the ratio of the number of dependents aged zero to 14 and over the age of 65 to the total population aged 15 to 64. Thus, India may benefit from the Demographic divided in the next few decades.
A high total dependency ratio usually implies that there will be greater burden on the working-age population and the overall economy for providing adequate support for social services for the youth and elderly persons, who are often economically dependent. By 2050, one in six people in the world will be over age 65 (16%), up from one in 11 in 2019 (9%). The share of the population aged 65 years or over is projected to double between 2019 and 2050 in many countries in Africa, Asia and Latin America and the Caribbean Regions. If the proportion of the working-age people is decreases, there could be severe repercussions of population ageing syndrome on factor and product markets and the affected countries may find it difficult to manage fiscal equations in an optimum manner. One such country is Japan where this ratio dependency ratio is considered very high. Contrary to this, the countries where the dependency ration is relatively low, there may be demographic dividend accruing to them. Such a ratio simply indicates that there will be more people adding up to the workforce than to the number of dependents. This also suggests that such an economy may grow at a higher rate of growth.
Comparative Advantage for India
The low dependency ration is likely to place India in an advantage over many other countries which are grappling with very high number of dependent population in comparison to the working-age population. A study on demographic dividend in India by United Nations Population Fund (UNFPA) brings out two pertinent facts. First, the window of demographic dividend opportunity in India is available for five decades from 2005-06 to 2055-56, which is longer than any other country in the world. Second, this demographic dividend window is available at different times in different states because of differential behaviour of the population parameters.
With a low dependency ratio, there is less pressure on the government in a welfare state like India to provide for their health and wellbeing through various social security schemes. This fiscal space will pave way for more investment in the productive activities which will further improve the growth rate of the economy. India shall benefit from the demographic dividend in many ways.
Promoting Gender Equity
Demographic changes are often followed by the changes in the socio-cultural ethos of the society. There may be changes in the fertility patterns and smaller family may become a new norm. There may be an increase in labour force due to increase in the number of women in the workforce resulting from smaller family sizes being less taxing on women’s time. Lower dependency ratio naturally implies that more women may move out of their comfort zones as care givers and be inclined to participate in productive pursuits. This will add to the aggregate income.
Breaking vicious circles of poverty
Increase in aggregate income may induce larger savings as the young people have fewer children and old people to take care of. It is also likely that a part of their savings may be invested for retirement planning also giving a boost to the economic activity in the country. Also the quality of the future stock of human capital may improve as working parents may be able to invest larger amount of resources in education and health of a relatively smaller number of children. Such positive investment cycles may eventually pull the country out of vicious circles of poverty.
Self-propelling growth
As the second most populous country in the world, India has not only large percentage working age population, but also has them in great numbers. Here, in a developing country which has not yet reached the full employment level, creating adequate employment opportunities for the increased labour force may in fact increase both consumption and savings. Thus if enough employment opportunities are created for the new entrants to job market every year, it will create a growth rate which can pull the Indian economy to a higher trajectory.
Need for Pragmatic Approach
However, India shall be able to reap the benefits of Demographic dividend, subject to certain conditions some of which are discussed below:
Creation of sufficient job opportunities
India has been the world’s fastest growing economy in the recent times. According to the Union Budget, 2019, FDI inflows into India have remained robust despite global headwinds. Global Foreign Direct Investment (FDI) flows slid by 13% in 2018, to US$ 1.3 trillion from US$ 1.5 trillion the previous year – the third consecutive annual decline, according to UNCTAD’s World Investment Report 2019. India’s FDI inflows in 2018-19 remained strong at US$ 64.375 billion marking a 6% growth over the previous year. Besides, the government is keen to increase the number of productive jobs by encouraging start-ups in India through a plethora of incentives being offered to them. India is doing remarkably well in the Global Innovation Index where it jumped five places to reach 52nd position this year, and this is a very positive sign in the sense that more jobs can be created for the employable youth in technical and creative fields for which increased efforts are required in the field of skill development of the youth.
Increased Participation of Women in productive pursuits
Women have traditionally been participating in economic activities in the in the rural economy. In addition, there are signs of socio-economic transformation making inroads since about a decade, which have enhanced Indian women’s role and leadership. The government is showing commitment to going beyond just women-centric-policy making to building women-led initiatives and movements. In particular, women entrepreneurship is encouraged through various schemes such as MUDRA, Stand UP India and the Self Help Group (SHG) movement. They are given financial assistance at lower rate of interest for specified purposes. This may increase participation of women in both the rural and urban areas but there is a need to give them support for marketing of their products to the potential consumers.
Balanced regional growth
There is a need to develop those States in India where the Demographic dividend is relatively larger so that their full potential is utilised. If the average growth rate of such states is lower than the national average, it not only suggests that the youth is not productively employed there but also indicates that there is a scope for increasing their participation in the productive pursuits. Thus more employment opportunities need to be generated in relatively under-developed regions in India in order to unleash the fruits of demographic development.
Parity between job designs and skill sets of available workforce
The specific skill development programmes in India have created opportunities for about 10 million youth to take up industry-relevant skill training. This way a large pool of skilled manpower with speed and high standards is being created. Demographic trends worldwide are projecting that major economies may face severe labour shortages in the times to come. The objective is to impart skills that are at par with international standards so that the youth in India can get employment not only in the domestic market but also worldwide. To make it more effective as a strategy, skill development schemes also provide for language training particularly in the field of new-age skills like Artificial Intelligence (AI), Internet of Things, Big Data, 3D Printing, Virtual Reality and Robotics, which are valued highly both within and outside the country, and offer much higher remuneration. Make in India and digital India are two other initiatives, the success of which will mean more jobs for the youth.
Ease of doing business
It is remarkable that FDI inflows into India have remained robust despite global headwinds. And this trend may further continue as the Union Budget envisages opening up the aviation, media (animation, AVGC) and insurance sectors further for FDI in consultation with all stakeholders, allow 100% Foreign Direct Investment (FDI) for insurance intermediaries and further easing of local sourcing norms for FDI in Single Brand Retail sector.
To conclude, the demographic dividend in India could be considered as a blessing or advantage compared to most other countries in the world. However, there are conditions that determine whether the demographic dividend would prove to be a boon or bane. The key to unleash the benefits of demographic dividend is to achieve balanced growth across sectors, regions and parity in rural and urban India.