The issue of Demographic Dividend in India | Nov. 10th, 2020

In News: India can achieve the goal of self-reliance (Atma Nirbharta) by enhancing the capability of youth.

About Demographic Dividend:

• According to the United Nations Population Fund (UNFPA), demographic dividend meansthe economic growth potential that can result from shifts in a population’s age structure. The change in age structure is typically brought on by a decline in fertility and mortality rates.
• India has one of the youngest populations (62.5% of its population in the age group 15-59) in an aging world.
• The demographic dividend leads to an increased labor supply that will increase the production of goods and boost savings and investment on the other.
• The first demographic dividend occurs during the demographic transition process, when the working-age population increases as a share of the total population, and the percentage of both young and old dependents decreases.
• The second demographic dividend results from an increase in adult longevity, which causes individuals to save more in preparation for old age. This increase in savings can thus contribute to capital accumulation and economic growth.

Major findings of the United Nations Population Fund (UNFPA) on demographic dividend:

• Demographic dividend phase in India: Report says the availability of demographic dividend in India, started in 2005-06 and will last till 2055-56 based on the following facts:
  • India’s Population structure: Close to 30% of India’s population is in the age group 0-14 years. The elderly in the 60-plus age group is still a small proportion (8%) of the country’s population. The working-age group 15-59 years accounts for 62.5% of India’s population. The working-age population will reach the highest proportion of approximately 65% in 2036.
  • Regional variations in the degrees and timings of fertility decline: Reports also highlight that demographic dividend is not available in all the states at the same time because Northern states are predominantly youthful whereas southern and western states are maturing.

Steps to be taken 

• India has just a decade’s time to realize the youth demographic dividend. So, the country should launch an Indian Youth Guarantee (IYG) program.
  • The European Union Youth Guarantee (EU-YG) launched a similar programmein 2010 at a time when youth unemployment rates were soaring above 20%.
  • In order to ensure the gainful and productive engagement of youth, the functioning of an Indian youth Guarantee (IYG) initiative as an implementing framework with legal backing could help.
• Youth Component Plan: the plan could help in allocating budgetary resources under a separate head on the lines of the Special Component Plan for the Scheduled Castes and the Tribal Sub-Plan. 
• IYG’s goal: young people graduating from college or losing a job either find a good quality job suited to their education and experience or acquire skills required to find a job through an internship within a fixed time period.
  • The district administration and local bodies should be incorporated by IYG for more effective outcomes.
  •  Existing youth schemes and skilling infrastructure need to be merged and modernised.
• The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA)has been very effective in providing rural livelihood security and social protection yet only about 4% of youth in the labour force have been impacted by it.

• Implementation of rural youth employment program alongside MGNREGA: Even though an urban youth employment program will be a new involvement, the rural youth employment should be instituted alongside MGNREGA.

Demographic dividend can be a demographic disaster:

• The growth benefit of a demographic dividend is not automatic. Much depends on whether the increase in working population can be trained, and enough jobs created to employ the 10 million more people who will join the labour force every year.
• Substitute existing jobs: While digital technologies may enable the creation of new products and more productive jobs, they may also substitute existing jobs.
• Lack of skills: India may not be able to take advantage of these opportunities, due to a low human capital base and lack of skills.

• Lack of jobs combined with a demographic dividend will increase the share of the population that is dependent on the working population increasing the economic insecurity of the elderly, as there will be fewer people generating wealth.

Why India should focus on demographic dividend?

• Economic growth: Better economic growth brought about by increased economic activities due to a higher working-age population and lower dependent population. The demographic dividend has historically contributed up to 15 % of the overall growth in advanced economies.
• To become a super power globally: Demographic dividend has historically contributed up to 15% of the overall growth in advanced economies. For instance, Japan was among the first major economies to experience rapid growth because of the changing population structure and emerge as an economic superpower.
• Effective policymaking: Fine-tuning of the planning and implementation of schemes and programs by factoring in population dynamics is likely to yield greater socio-economic impact and larger benefits for people.
• Human capital of the world: With more than 65% of the working-age population, India will rise as an economic superpower, supplying more than half of Asia’s potential workforce over the coming decades.

Various opportunities related to the demographic dividend in India:

• Labour supply: The first benefit of the young population is the increased labour supply, as more people reach working age. However, the magnitude of this benefit depends on the ability of the economy to absorb and productively employ the extra workers.
• Capital formation: As the number of dependents decreases individuals save more. This increase in national savings rates increases the stock of capital in developing countries and provides an opportunity to create the country’s capital through investment.
• Female Human capital: A 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.
• Economic growth: Another opportunity is produced by increased domestic demand brought about by the increasing GDP per capita and the decreasing dependency ratio. This leads to demand-driven economic growth. Growth, education, better economic security, and a desire for more durable goods are the cause and consequence of young demographics.
• 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.
• Skilled workforce: Most sectors of the Indian economy would require a more skilled workforce than the present. It would be both a challenge and an opportunity for India to provide its workforce with the required skill sets and knowledge to enable them to contribute substantially to its economic growth.
• Migration:It presents some opportunities that can arise from having demographic changes, particularly the demographic dividend and interstate migration to overcome labor shortage in some parts.

Challenges of demographic dividend in India:

• Enhancing human capital: According to ASSOCHAM, only 20-30 % of engineers find a job suited to their skills. Thus, a low human capital base and lack of skills is a big challenge.
• Low human development: India ranks 130 out of 189 countries in UNDP’s Human Development Index, which is shocking. Life expectancy at birth in India (68 years) is much lower than in other developing countries.
• Informal economy: Informal nature of the economy in India is another challenge in reaping the benefits of demographic transition in India.
  • Nearly 216 million people are engaged in the agriculture sector, are in the informal economy where not only they earn lower wages, but with little social security and few days of employment in a year.
• Jobless growth: There is a mounting concern that future growth could turn out to be jobless due to deindustrialization, 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.
• 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.
• Issue of tilted sex ratio: Declining female labour force participation: According to data from the International Labour Organization and World Bank, India’s female labor force participation rates have fallen from 34.8% in 1990 to 27% in 2013. Without women’s participation, India can’t dream of reaping the demographic dividends.

Way Forward:

• For states with less scope:
  • UNFPA backs a differential approach in forward-looking policymaking and program planning to join the demographic dividend opportunity in those states where the windows for opportunity are closing soon.
  • The focus in the states where the demographic dividend window is yet to open will have to be threefold such as addressing harmful practices such as child marriage, access to quality sexual and reproductive health services and family planning services to all, and provisioning of health, education, life, and vocational skills to all the young people.
• Good governance: Effective avenues for citizen input, well-functioning institutions, respect for the rule of law, low level of corruption, respect for property rights, the sanctity of contracts, etc. are important aspects of good governance that enable the equal opportunity to all.
• 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.
• 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.
• Academic-industry collaboration: Will help to synchronize modern industry demands and learning levels in academics.
• Education: Enhancing educational levels by properly investing in primary, secondary, and higher education. India, which has almost 41% of the population below the age of 20 years, can reap the demographic dividend only if with a better education system.
• Health: Improvement in healthcare infrastructure would ensure a higher number of productive days for the young labor-force, thus increasing the productivity of the economy. The success of schemes like Ayushman Bharat and the National Health Protection Scheme (NHPS) is necessary. Also, the nutrition level in women and children needs special care with effective implementation of the Integrated Child Development (ICDS) program.
• 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 labor force.
• Urbanisation: Schemes such as Smart City Mission and AMRUT needs to be effectively and carefully implemented.