India’s Demographic Dividend- Significance and Challenges- Explained Pointwise

The World Population Day which is observed on July 11 every year, was instituted in 1989 by the United Nations after the renowned demographer Dr. K.C. Zachariah proposed it. The day was instituted after the global population crossed the five billion mark and challenges such as poverty, health and gender inequality were plaguing the world, and developing countries in particular.

The population is now estimated to be 8.1 billion. India has become the most populous nation with ~1.44 billion population, which is slightly more than China. The exponentially increasing population levels in the 1970s, predicted a doom for India and the World. However, the Indian Population growth story has belied the prediction of doom. With drop fertility rates (which is now below the replacement levels today), significant reductions in maternal and child mortality rates, India’s demography has entered into a phase of ‘demographic dividend‘.

What is demographic Dividend? What is India’s Demographic Status? 

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. The demographic dividend leads to an increased labour supply that increase the production of goods and boost savings and investment. India has one of the youngest populations (62.5% of its population in the age group 15-59) in an aging world.

India’s Demographic Status

According to the State of World Population Report 2023, published by the UNFPA, India has surpassed China as the most populous country, with a population of 142.86 crores compared to China’s 142.57 crores.

Slowing population growth- India’s population growth has slowed down significantly in the past 10 years, with the total fertility rate (TFR) declining to 2 in 2020-2021 from about 3.4 in the early 1990s. A TFR of 2.1 is necessary for a country to attain population stability.

Population projections- India’s population is forecast to grow to 1.67 billion in 2050 and peak at 1.7 billion in 2064 before settling at 1.53 billion in 2100.

Potential demographic dividend- Two-thirds of India’s total population are between the ages of 15 and 64. It presents a potential demographic dividend if education, skill development, and opportunities are provided, particularly for youth from disadvantaged sections and women.

What factors have resulted in India’s demographic dividend phase?

Three factors which have played a pivotal role in shaping India’s demographic landscape are mentioned below-

What are the opportunities with demographic dividend in India?

1. Increased Supply of Labour- The rapidly rising young population results in the increased labour supply, as more people reach working age.

2. Economic growth- Demographic Dividend results in better economic growth brought about by increased economic activities due to higher working age population and lower dependent population. Demographic dividend has historically contributed up to 15 % of the overall growth in advanced economies.

3. Capital formation- The propensity of saving increases with the decrease in the number of dependents. This increases national savings rates, increases the stock of capital in developing countries and provides an opportunity for enhanced capital formation through investment.

4. Creation of Infrastructure- Increased fiscal space created by the demographic dividend enables the government to divert resources from spending on children to investing in physical and human infrastructure.

5. Increase in Female Human capital- Decrease in fertility rates result in healthier women and fewer economic pressures at home. This provides an opportunity to engage more women in the workforce and enhance human capital.

6. Innovation and entrepreneurship- A young population can lead to increased innovation and entrepreneurship, with more startups and unicorns emerging in various sectors like healthcare, education, agriculture, and financial services.

7. Climate action and sustainability- A young and educated population can drive sustainable development by prioritizing climate action and adopting environmentally friendly practices.

8. Increase in Global influence- India’s rising population, combined with its position as the world’s largest democracy and a major economy, can help it become a global manufacturing hub, startup capital, and exporter of skilled manpower.

What are the Challenges that can turn this Demographic Dividend into a Demographic Disaster?

1. Poor human capital- Poor human capital formation is reflected in low employability among India’s graduates and postgraduates. According to ASSOCHAM, only 20-30 % of engineers find a job suited to their skills. Thus, low human capital base and lack of skills is a big challenge.

2. Low human development- India ranks 134 out of 189 countries in UNDP’s Human Development Index. The Life expectancy at birth, and the mean years of schooling is much lower than other developing countries.

3. Hunger and Malnutrition- In the Global Hunger Index (2023), India was ranked at 111 out of 125 countries. The nutrition, stunting, wasting and underweight among children below five years and anaemia among women pose serious challenges. According to India’s epidemiological trajectory, India faces the double burden of communicable and non-communicable diseases (NCD).

4. Informal economy- Informal nature of economy in India is another challenge in reaping the benefits of demographic transition in India. The workers in the Informal economy are underpaid and devoid of social security benefits.

5. Jobless growth- 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%. This means that around half of the working age population is jobless. There are future concerns of further jobless growth due to deindustrialization, de-globalization, the fourth industrial revolution and technological progress.

6. Low Women workforce Participation rate- According to the latest Periodic Labour Force Survey (2022-23) female LFPR is around 37.0%. This poses a serious challenge in effectively reaping the demographic dividend.

What should be the Way Forward?

1. Building human capital- We must invest in healthcare, quality education, jobs and skills to build human capital. This is key to reaping demographic dividend which can in turn support economic growth, end extreme poverty, and create a more inclusive society.

2. Investment in Skilling- 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..

3. Investment in 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. Enhancing educational levels by properly investing in primary, secondary and higher education is the need of the hour.

4. Improvement of Health and Nutrition- Improvement in healthcare infrastructure would ensure higher number of productive days for young labour-force. This increases the productivity of the economy. Hence we must focus on the successful of schemes like Ayushman Bharat and Integrated Child Development (ICDS) programme.

5. 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 labour-force.