Demographic Dividend as an Opportunity for Economic Development in India
September 17, 2021
Human capital needs more and more skills and training to reap the benefits for a demographic dividend, else demographic disaster would be a nightmare for the country. — Dr. Subhash Kumar
India is having the second largest population in the world. There are various challenges on different fronts; be it current public health emergency, unemployment issues, slow growth rate, and mitigating climate change. But India is also having an advantage in the form of demographic dividends. India's demographic dividend is unique in two aspects; first, it is longer than any other country and second, it is available at a different time in different states because of demographic transition at a different pace in India.
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, mainly when the share of the working-age population (15 to 64) is larger than the nonworking-age share of the population (14 and younger, and 65 and older)". Indian population is characterized by a young population in the aging world. India is having a median age of 29 years by the end of 2020 which is very high in the world, as compared to 37 in China and the USA, 45 in Western Europe, 49 in Japan. Economic Survey 2018-19 stated that the availability of demographic dividends in India will last till 2055-56 which was started in 2005-06 or 37 years since its beginning. It will peak around 2041 when the share of the working-age population, i.e. 20-59 years, the population is expected to hit around 59%.
As the birth rate is declining, the working-age population will overpass the dependent population (children aged 14 and below as well as above 65 years). The more working-age population will be an asset for the country. It will spur economic growth if investments are made in the sectors of education, health, skill development, and innovation for accelerating economic growth and development.
United Nations Population Fund (UNFPA) has propounded that India is having two interesting characteristics of demographic dividend. First, the demographic dividend is available for five years starting from 2005-06 to 2055-56 in India which is longer than any other country. Second, this demographic dividend window is available at different times in different states because of the differential behavior of the population parameters.
The demographic dividend has historically contributed up to 15 percent of the overall growth in advanced economies, with several Asian nations- Japan, Thailand, South Korea, and more recently China. Japan was the first country in Asia to experience this demographic dividend which lasted from 1964-2004. Other Asian countries like Singapore and Hong Kong also witnessed a higher trajectory of growth rate.
India's backward states or least developed states like (Bihar, West Bengal, Odisha, Madhya Pradesh, Uttar Pradesh, and Rajasthan) will benefits most from the demographic dividend. Southern states which are already in the third stage of demographic transition are already taking advantage of demographic dividends be it Tamil Nadu, Kerala, Karnataka, and Andhra Pradesh. Northern states especially Bihar, Odisha, and Uttar Pradesh are having a comparatively higher share of the young population requires more attention and policy perspective to reap the benefits of demographic dividend.
There are various policy perspectives needed to take reap the benefits of demographic dividends:
1. A meager 3 percent of Indian workers are formally skilled. Significantly, in most of the labor force in India, about 93 percent who work in the unorganized sector are having no formal training, by way of comparison, 96 percent of the workers in South Korea receive formal skills training. This is 80 percent in Japan, 75 percent in Germany, and 68 percent in the United Kingdom. Schemes like Pradhan Mantri Kausal Vikas Yojana should be executed properly to impart skill training among youth.
2. Investment in health and education for creating a more healthy and skilled workforce is need of the hours. Employability is one of the biggest issues in the Indian workforce. Imparting skill training among the young workforce will increase employability skills. At the same time investment in physical infrastructure will create more job opportunities.
3. Policy focuses on social infrastructure and socio-economic development with inclusive growth make India more profound and strengthen its economic activity.
4. India needs to overcome the burden of overpopulation. Population stabilization is another important policy decision that should be taken earliest to stabilize population growth. More number of the working population will be an asset to the country.
5. Unemployment is another matter of concern. More unemployed people will be dependent on the working population which will slow the growth process. Hence, more and more job opportunities should be created through entrepreneurship, start-up, and innovation.
6. Better economic growth prospects will be there due to the higher workforce. A rise in the women's workforce will balance the gender parity in the workforce. Schemes like 'Beti Bachao Beti Padao' has already a right step in this direction. The demographic dividend will also increase the saving rate in the economy.
7. World Economic Forum (2016) in its study entitled "The Future of Skills and Workforce Strategy for the Fourth Industrial Revolution" conducted a comprehensive survey from leading experts, from academia, international organization, professional services firms, and heads of human resources of major organizations on current and future skills requirements. The report stated, 65 percent of children entering primary school today would ultimately end up working in completely new job types that don't exist. It further states that; “The driver of technological change is artificial intelligence and, machine learning, robotics, nanotechnology, 3D printing and genetics, and biotechnology are all building on and amplifying one another. In addition, mobile internet, cloud technology, processing power, big data, and new energy”. Therefore, India should also frame its policy in changing environment to get the benefits of IR 4.0.
8. Atmanirbhar Bharat (Self-Reliant) is another important policy that emphasized more export promotion and import substitution. Various schemes and programs like Make in India, Start-up India, Digital India, Skill India, and Mudra Yojana are already working in this direction. The focus should be to emphasize more on manufacturing in India and developing technological capability. Various initiatives on the different front while keeping demographic dividends at the center of policy, can make India the fastest growing and largest economy in coming years.
There are various challenges associated with the demographic dividend. Asymmetric demography needs to be balanced with employment generation in backward states. Low human capital formation is a matter of concern that should be mitigated through skill development and training before youth entering in the workforce. India needs to fair better in the human development index of UNDP where India ranked 131 of 189 countries in 2020. The informal nature of the Indian economy needs more formalization of economic activities.
NSSO Periodic Labour Force Survey 2017-18, India's labor force participation rate for the age group 15-59 years is around 53 percent. It indicates that around half of the workforce are unemployed. To resolve the unemployment problem, India needs to focus more on those sectors which have potentials for job creation in the economy. India needs to create 10 million jobs every year to provide job opportunities for the young workforce. Schemes like Start-up India and promotion of manufacturing through ‘Make in India’, and promotion of industrial development would bring the desired result in near future. Rapid industrialization and urbanization in our country will create more and more jobs in the market. Schemes like Smart city mission and AMRUT should be implemented properly to transform cities with infrastructure development and creating more jobs.
Therefore, to reap the benefits of demographic dividend, invest in education, health, human development, and socio-economic development, high economic growth with inclusion, infrastructure development, skill development and training, entrepreneurship, and innovation are the key policy perspective that must be promoted and encouraged. Human capital needs more and more skills and training to reap the benefits for a demographic dividend, else demographic disaster would be a nightmare for the country.
Dr. Subhash Kumar, Ph.D. Centre for Studies in Science Policy, School of Social Science, Jawaharlal Nehru University.