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Demographic dividend versus demographic disaster in India.


Demographic dividend is defined as a rise in the rate of economic growth as a result of rising share of working age people in a population. According to James (2008), this phenomenon occurs with a falling birth rate and the consequent shift in the age structure of the population towards the adult working age. Some demographers are of the opinion that many Asian and non-Asian countries are expected to benefit from demographic dividend as there is a positive correlation between age structure and economic growth. This trend is expected to continue from a change in the working age population in coming years as the growth of the working population will be higher as compared to the growth of child population and aged population, leading to a low dependency ratio. The economic miracle in East Asia and the Chinese growth story are cited as examples of benefit from demographic dividend. On the other hand, the critics of the demographic dividend have argued that while age distribution changes create supply side potential, the utilization of this potential ultimately depends upon the policy environment in each country. In an underdeveloped country like India with a high incidence of unemployment, a growing working population may not find gainful employment, and in the absence of skill development of the working population, we may be heading towards what they call as 'demographic disaster'.

The aim of this paper is to present both these viewpoints and suggest areas that deserve urgent attention of the policy makers. The paper has been organized into three sections. Section one discusses the impact of demographic dividend on economic growth. Section two talks about demographic dividend in India by analyzing the age structure of the population. Section three gives the viewpoint of the critics of demographic dividend in India, which they describe as demographic nightmare or demographic disaster.

Demographic Dividend and its Impact on Economic Growth

Some demographers have pointed out that many Asian and non-Asian countries are expected to benefit from the change in the age structure of their population as growth of the working population will be higher as compared to the growth the child and aged population, leading to a lower dependency ratio. James (2008) has quoted some studies that show a strong positive correlation between demographic variables and economic growth. It would be worthwhile to mention some of those studies. For example, the study by Bloom and Williamson (1998) of 78 Asian and Non-Asian countries showed a powerful positive impact of growth of the working age population on economic growth. The results showed that nearly one-third of the economic miracle of East Asian countries could be attributed to demographic dividend. A study by Behrman et al. (1999), using panel data for several countries since 1950 found a strong positive association between the age pattern of population and economic outcome. Andersen's (2001) study of Scandinavian countries data since 1980 also found a positive association between the share of working age population and economic growth. Bloom et al. (2003) and Bloom et al. (2006), using panel data of countries from 1996 to 2000, established a positive correlation between age structure transition and economic growth in India and China.

The arguments put forward by these studies can be summarized as follows:

* The saving rate in a country is expected to increase during the age structure transition. The demographic dividend that accrues to a country will automatically generate capital resources that the country needs for investment purposes. This is due to the fact that the size of the surplus available for investment after current consumption depends upon the ratio of actual workforce to those who are outside the workforce. In other words, other things remaining the same, the higher the share of workers to non-workers in the population of a country, the larger is the surplus available for investment. Accordingly, the periods characterized by a low dependency ratio would be characterized by a higher economic growth. Conversely, the periods characterized by a high dependency ratio are expected to lead to a lower generation of surplus for investment, resulting in lower rate of economic growth.

* As fertility declines, more women are likely to enter the labour market resulting in increased economic activity. One of the major hurdles to women entering the labourmarket has been the high fertility and the time spent on childcare. A decline in fertility allows women to spend more time on economic activities and contribute towards nation's building. This is expected to give a boost to economic growth.

* People generally invest more on their own health when children are fewer in numbers. This would lead to more productivity and bring about economic benefits to the households.

* The government will also be in a position to spend and invest in more productive activities. With the decline in the number of children the public spending meant for education and health thus saved can be diverted to more productive activities.

Demographic Dividend in India

Demographic dividend in India can be better understood if we analyse the age structure of India's population. Table-1 presents the age distribution of the population by broad age groups for major States in India for the years 1961-2011.

Table-1 shows that for the country as a whole, there has been a drastic change in the age structure of the population. While the population in the age group 0-14 has declined from 41 percent in 1961 to 30.8 percent in 2011, the older population in the age group 60+ increased from 5.6 percent to 8.6 percent during the same period. The population in the working age group 15-59, has shown an increase from 53.3 percent in 1961 to 60.3 percent in 2011. It is the increase in population in this age group that constitutes the source of demographic dividend in India. As regards situation in the States, important trends are as follows:

* The States like Gujarat, Karnataka, Kerala, Tamil Nadu, Maharashtra and Punjab recorded a more than 14 percentage points decline among children of 0-14 age group between 1961-2011. As against this, the States like Bihar and Uttar Pradesh have registered declines of less than 5 percentage points. Rajasthan has registered a decline of 8.0 percentage points while Madhya Pradesh a decline of 7.4 percentage points.

* The population in the age group 60+ i.e., older population has increased on an average by 3 percentage points in all the States.

In the working age group of 15-59 years, a phenomenal increase of more than 12 percentage points was registered in the States like Kerala and Karnataka over the period 1961-2011. Other States recording significant increases in the proportion of the working age population include Gujarat, Andhra Pradesh, Punjab, Maharashtra, West Bengal and Tamil Nadu. As is clear from the Table, all these States have over 60 percent of the population in the working age group. In contrast, some heavily populated northern States like Uttar Pradesh, Bihar and Madhya Pradesh have registered small increases in the proportion of the working age population. In Rajasthan and Madhya Pradesh, about 58 percent of the population was in working age group in 2011, while in Uttar Pradesh and Bihar, the proportion of working age population was less at 56 percent and 52 percent respectively in 2011.

Thus, there are wide variations in the achievement of fertility transition in different States. The main benefits from demographic dividend in future will be obtained from the northern States which have been laggards in the past. This is due to the fact that southern and western States have already undergone a major part of their demographic transition while the northern States have not. This implies that a much larger number of people will enter the working age group in northern States vis-a-vis the southern and western States.

The age structure of the population presents an unprecedented opportunity to India and this has been called India's demographic dividend. It is argued that in 2020, the average Indian will be only 29 years old compared with 37 in China and United States, 45 in Western Europe and 48 in Japan. This implies that by the year 2020, India would manage to create a large and growing labour force which may deliver unexpected spin offs in terms of growth and prosperity.

Moreover, as argued by Navaneetham (2012), the demographic bonus is also likely to accrue from the change in the working age population structure. The share of youth segment (15-24 years) in India will decrease while that of mature population will increase. This indicates that there will be less pressure on the economy to generate new employment opportunities and that can lead to a possible reduction in unemployment, which can be described as another window of opportunity for India. This would increase the savings ratio as well as tax revenues, which may augment the capacity for investment and funding of social programmes. The increase in the share of mature working population (50-64 years) is also likely to push up the savings rate as it tends to have a greater propensity to save due to higher income and reduced consumption. This opportunity would continue even after 2030 and this can be exploited for economic growth.

The demographic dividend is also likely to accrue from increasing participation of women in the labour force as the reproductive span shrinks during demographic transition. According to Bhat (2001), the total bonus derived from the labour supply during the period 2001-51 is estimated to be 1 percent, out of which the labour supply effect would be 0.2 percent and the effect of the expected increase in the workforce participation of women would be 0.8 percent, keeping labour productivity constant.

A significant factor pointing to the demographic dividend is the declining dependency ratio in the country. Dependency ratio is defined as the percentage of the dependent population (014 and 60+ age groups) divided by the working population (15-59 age groups). The dependency ratio was more than 0.9 in 1971. It fell to 0.79 in 1991, 0.75 in 2001 and 0.65 in 2011. According to the Technical Group on Population Projections, this decline sharply contrasts with the demographic trend in the industrialized countries and also in China, where the dependency ratio is rising. Low dependency ratio gives India a comparative advantage and a progressively declining dependency ratio will result in improving our competitiveness.

Demographic Dividend and Skill Deficit: Demographic Disaster

Critics of the demographic dividend argument have pointed out that while the age distribution changes create supply side potential, the utilization of this potential ultimately depends upon the policy environment in a country. If such an environment is lacking then instead of demographic dividend the country may be facing demographic disaster. In the context of India the following arguments have been put forward:

* It is argued that India is facing a major deficit in the area of health and education. Under these circumstances, the conversion of a growing workforce into a quality workforce is difficult to achieve.

* Given the jobless growth in the liberalization phase in India, it has not been easy to utilize the population bulge. It is likely to result in more and more unemployment. According to Chandrasekhar (2006), the demographic dividend argument ignores the fact that available workers are not automatically absorbed to deliver growth. The strategies to exploit the opportunities offered by country's demographic transition must be adopted. But India's experience during the liberalization phase suggests that markets do not ensure that such policies would be adopted so that the country manages to take advantage of young population bulge vis-a-vis greying population of China, USA, Japan and other developed countries. Therefore, there is a possibility that India would miss an opportunities to grow faster due to population bulge. Most of the India's growing working population would be unskilled and unemployable and market can do nothing whereby this population becomes skilled and employed. Without training growing workforce in skills and making them employable, the potential resource that the demographic transition offers will go waste. The Eleventh Five Year Plan has rightly put it, "The criticality of skill development in our overall strategy is that if we get our skill development act right, we will be harnessing 'demographic dividend'; if we do not get there, we would be facing a 'demographic nightmare'.

* The UN Population Fund in its State of World Population Report 2005 asserts that India at present stands on the verge of a one-time window of opportunity. India has one of the youngest population in the world. However, the state of women in the country might prevent it from cashing in on this opportunity. Presently, India has been recording impressive economic growth which means that this country has enough resources to invest in areas like education and healthcare for this population which will make them skilled and employable. Resources are there to create jobs for this population. However, without employment avenues, this window of opportunity would be insignificant.

* The Human Capital Report (2013) of the World Economic Forum ranks 122 countries of the world on the global Human Capital Index. This index ranks countries on the basis of the economic potential of their labour force. The list measures countries on their ability to develop and deploy healthy, educated and able workers along four broad parameters-education, health and wellness, workforce and employment, and enabling environment. India's rank is a lowly 78. If benefits of demographic dividend are to be reaped, good quality of human capital is a precondition. India's poor rank on the basis of human capital index is an indication that it is not fully equipped to reap these benefits. The most important pillar as far as utilization of demographic dividend is concerned is clearly education followed by health and wellness. In terms of education, India's rank is 63, while in terms of health and wellness, its rank is as low as 112. According to the Report, India's poor ranking in terms of health and wellness is a result of India's higher prevalence of stunting and wasting, low scores in sanitation and hygiene and second-to-bottom rank on the health gender gap indicator. The Report also reveals vast gender gaps in practically all aspects related to human capital development. This means that almost half of the working population is not empowered to make a difference. This could waste the window of opportunity that the demographic dividend offers India. This point was emphatically brought out in the Report. The Report asserted that the lack of education and women empowerment was like a vicious circle that needed to be broken if the country wanted to benefit from the window.

Thus, the experience of India so far shows that the 'window of opportunity' has not been exploited although it has become available since the 1980s. As pointed out by the demographic experts, the demographic dividend is a one-time only opportunity and its length is determined by the speed of demographic transition. It has been argued that the demographic dividend in case of India is likely to continue till 2031 and would become negative thereafter. This would happen because of the ageing population. According to the Report on the Status of the Elderly in Select States of India, 2011 by the UNPF, India had 90 million elderly persons (above 60 years) in 2011. By 2026, this number will increase to 173 million and by 2050 to 315 million. While only 8.6 percent of the Indian population was above 60 years in 2011, as much as 20 percent of the population is expected to be above 60 years in 2050. This shows that India will move from being a young country to an old country over the next few decades. Thus, a demographic burden is awaiting India.


The demographic dividend has provided India a 'window of opportunity' and she must grab it as it is a one-time only opportunity. For this we need to invest more in sectors like education, health and sanitation. At the same time more emphasis must be given on generating employment opportunities and skill development of our working population so as to transform our growing labour force into a quality labour force that delivers growth. To reduce the gender gaps in our human capital, empowerment of women must be given a top priority. This would give women, who constitute almost half of the working population, an opportunity to enter the formal labour market and contribute to country's economic growth. If all these steps are earnestly taken we shall be making the most of this golden opportunity. Otherwise, instead of harnessing 'demographic dividend' we could be facing a 'demographic disaster' for the country.


Chandrasekhar, C.P. (2006): "Does Demography Advantage India", Frontline, January 14-27. Government of India, (2008): Planning Commission, Eleventh Five Year Plan, 2007-12, New Delhi.

James, K.S.(2008): "Glorifying Malthus: Current Debate on Demographic Dividend in India", Economic and Political Weekly, June 21.

Navaneetham, K., "Demographic Dividend", in Kaushik Basu and Annemie Maertens (ed.), The New Oxford Companion to Economics in India, New Delhi, 2012, Volume I.

Puri, V.K. and S.K. Misra (2015): "Indian Economy-Its Development Experience", Himalaya Publishing House, New Delhi.

UNPF(2012): Report on the Status of the Elderly in Select States of India, 2011, New Delhi.
Table 1: Percentage Distribution of Population by Broad
Age Groups, major States (1961, 2001 and 2011)

State         0-14                       15-59

              1961     2001     2011     1961     2001     2011

A.P.          39.54    32.07    25.76    54.23    60.32    63.54
Bihar         42.32    41.54    40.08    52.07    52.01    52.13
Gujarat       42.89    32.84    28.86    52.17    60.25    62.82
Haryana         N.A    35.99    29.70      N.A    56.49    61.52
Karnataka     42.16    31.91    26.23    52.11    60.40    64.22
Kerala        42.64    26.08    23.44    51.53    63.44    63.90
M.P.          40.82    38.21    33.46    54.02    54.66    58.56
Maharashtra   40.67    32.14    26.62    54.07    59.12    63.13
Odisha        39.10    32.23    28.77    55.23    58.50    61.45
Punjab        43.57    31.39    25.54    49.87    59.57    63.98
Rajasthan     42.66    40.10    34.61    52.19    53.12    57.54
Tamil Nadu    37.61    26.96    23.57    56.79    64.15    65.92
U.P.          40.50    40.83    35.69    53.22    52.10    55.77
West          40.93    33.28    27.10    54.06    59.60    64.29
All India     41.00    35.40    30.80    53.30    57.10    60.30

State         60+

              1961     2001     2011

A.P.           6.23     7.61     9.79
Bihar          5.62     6.45     7.40
Gujarat        4.94     6.91     7.92
Haryana        N.A.     7.52     8.65
Karnataka      5.73     7.69     9.48
Kerala         5.84    10.48    12.55
M.P.           5.16     7.14     7.87
Maharashtra    5.27     8.74     9.88
Odisha         5.67     8.27     9.49
Punjab         6.56     9.03    10.32
Rajasthan      5.14     6.78     7.46
Tamil Nadu     5.60     8.89    10.41
U.P.           6.29     7.07     7.73
West           5.01     7.12     8.48
All India      5.60     7.50     8.60

Source: K. S. James, "Glorifying Malthus: Current Debate on
'Demographic Dividend' in India", Economic and Political Weekly,
June 21, 2008, Table-1, p. 66, and GOI, Economic Survey 2014-15
(Delhi 2015), Volume II, Statistical Appendix, Table -9.7, p. A135
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Author:Kumar, Vinod
Publication:Political Economy Journal of India
Geographic Code:9INDI
Date:Jan 1, 2016
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