India needs to move quickly to utilise most of the working-age people and maximise its opportunity for accelerated economic growth
By Tej Singh Kardam
The United Nations Funds for Population Activities (UNFPA), ‘State of the World Population Report 2023’ pegs India’s mid-year population at 142.86 crore surpassing China by 29 lakh. The report says that in the absence of the 2021 Indian census, India in recent years has been adding about 1.6 crore annually to its population, it has either already crept ahead or would do so by June end.
There has been continuous population growth in India and depopulation in China. This means India is now assuming the throne as the most populous country. From population size alone, not much can be inferred about India’s future, but looking at the demographic dynamics, the country needs to move quickly to utilise most of the working-age people and maximise the country’s opportunity for accelerated economic growth.
Opportunities, and Cost
The question arises, what could be the opportunities and costs of being the most populous country? Population control is widely seen as a panacea to avoid a grim future. But there is a need to look deeper into the issue from an empirical and scientific perspective. The major issue, therefore, is whether it is a dividend or a disaster. As such demographic dividend is the economic growth potential that can result from shifts in the population’s age structure, mainly when the share of the working-age population (15-64 years) is larger than the non-working share (14 and younger and 65 and older) of the population.
Over 80 countries worldwide suffer from shrinking and ageing populations due to low fertility and over 50 countries have encouraged couples to have more children
In this context, let us look at the demographic dividend in India — whether the population is a resource or a burden depends on its growth, size and composition. India has one of the youngest populations in an ageing world. One of the major consequences of the demographic transition for India is the transformation of its age structure of population towards the working-age group relative to the dependent group. Since 2018, India’s working-age population has grown larger than the dependent population. This bulge in the working-age population is going to last till 2055.
According to UNFPA’s recent report, India’s age composition of the population is 0-14 years — 25%, 15-64 years — 68% and above 65 years — 7%. This transition happens largely because of a decrease in Total Fertility Rate (TFR) — that is, children likely to be born to a woman in her childbearing age, which was 5.9 children per woman in 1950 to 2.0 children per woman at present. That means on average two children are replacing parents (replacement level fertility), an ideal condition for population stabilisation.
The window of demographic dividend opportunity in India is available till 2055-56, larger than any other country in the world. The demographic window of opportunity is a period when the proportion of children aged less than 15 years and the proportion of people 65 years and older fall below 30% and 15% of the population respectively. But this window is available at different times in different States because of differential behaviour of the population parameters like southern States which are advanced in demographic transition already have a higher percentage of older people.
As per official population estimates, after a decade or so from now, there will be a generational divide between India’s North and South. As the developed southern States age rapidly, the average Tamil man will be about 10 years older than the average Bihari man. Meanwhile, as fertility falls slowly in the North, the average Bihari woman will have more children than a woman from Kerala did 40 years earlier. As per new census indicators, over one-third of the total increase in India’s population between 2011-2036 will come from two States — Uttar Pradesh and Bihar, while all the southern States will see their share in the population decline. Further, Tamil Nadu will be the oldest State by 2036 with a median age of 40 and Bihar will be the youngest with a median age under 30. The median Indian will be 34.7 years in 2036.
Demographic Dividend
It is known that a high population makes it difficult to reduce poverty and diminish inequality. Yet, if we look at it in a progressive aspect, more Indians would mean more production, consumption and higher growth. Studies show economic growth, historically and even recently, is largely attributable to the demographic dividend. The demographic dividend has contributed to the overall growth of 15% in advanced economies. Japan is one of the first major economies to witness accelerated growth due to the change in the population structure.
In India, a demographic dividend will bring better economic growth and a rapid increase in economic activities owing to a large working-age population. It will contribute to an increase in the labour force that increases the economy’s overall productivity. It will give rise to an increased women’s workforce, which can be a new source of economic growth. It will increase the savings rate during the period of working age when most of the savings are done. It is likely to create increased fiscal space for investment in human and physical infrastructure. It will facilitate expansion in urbanisation — rapid urbanisation will contribute to economic growth due to plenty of work opportunities, greater availability of healthcare facilities etc; and industrialisation due to a more significant number of people seeking employment with an increase in economic activities.
With a working-age population of 68% of the total population, India will supply more than half of Asia’s potential workforce during the coming decades
With a working-age population of 68% of the total population, India will supply more than half of Asia’s potential workforce during the coming decades. A large working-age population makes India attractive not just in terms of labour market perspective but also because the country could act as a large market for goods and services. Therefore, it is necessarily required to tap the country’s demographic window and translate it into economic dividends. To translate demographic dividend to economic growth, it will require to generate sufficient employment, investment in education and skill development, thrust on a healthy society among others.
Though India’s GDP is above $3 trillion, it has not generated sufficient employment. There is also a need for good governance and collaboration between the Centre and States for accelerated manufacturing activities and to harness the full potential of the country’s working-age population. It has to be reckoned that the shift in the age structure of the population towards the working-age group will increase the potential labour supply.
The country’s two-thirds of the population is under 35 years of age and this advantage may continue for a decade. A growing middle-class consuming market also becomes attractive for the rest of the world in terms of trade and investment interaction.
The World Bank has mentioned that the demographic dividend is supposed to accrue from most population of the north and central Indian States. The southern States have begun mirroring the developed world demographics. It is desirable to have foreign direct investment – an important source of job creation. The country has a substantial demographic bonus of having a large working-age population at least for the next three decades or so. Therefore, the country has an opportunity to emerge as a global production and consumption market with relatively lesser production costs due to lower labour costs.
How the World looks like
Over 80 countries worldwide suffer from shrinking and ageing populations due to low fertility and over 50 countries have encouraged couples to have more children, for example, Japan, South Korea, China, and the US. But this has proved ineffective because once fertility tends to decline, it is hard to reverse it. China has managed to create a much larger educated and healthy workforce than India.
The effective demographic window of opportunity for India is available up to 2041. It is the period when the maximum of the first demographic dividend can be reaped before the ageing burden starts
China became the factory of the world due to its significant population of young educated and healthy people. But now it is looking at an ageing population which would not be able to support its enormous manufacturing activities. Because China followed the one-child policy for three-and-a-half decades, it led to a rise in elderly people, then it relaxed to two children in 2016 and in 2021 to three children. According to the United Nations, by the end of the century, the Chinese population is expected to shrink by 45%, provided it maintains the current fertility rate of 1.3 children per couple.
If India’s total fertility rate becomes less than 1.8, though higher than that of China’s 1.3, it will not be economically advantageous. In such a scenario, population control measures will lead to an ageing population and may result in the country getting old before getting rich. But India, at present, is in a better position with a 2.0 fertility rate and having remarkable working-age population.
The effective demographic window of opportunity for India is available up to 2041. It is the period when the maximum of the first demographic dividend can be reaped before the ageing burden starts. The favourable demographic changes alone have the potential to provide a demographic dividend in terms of GDP per capita over Rs 1,65,000 which is equivalent to an additional 43 per cent for the ‘demographic-emphasis scenario’ (Rs 5,48,600) as compared with the ‘demographic as-usual scenario’ (Rs 3,82,750) in 2061, says a study.
There is a need for policy intervention to provide quality education, good healthcare and better employment to reap rich demographic dividends and achieve faster economic growth. If the country fails in these aspects, the demographic dividend may become a demographic disaster.
(The author is a retired IFS officer)