Context: Recently, McKinsey Global Institute, in its report "Dependency and depopulation? Confronting the consequences of a new demographic reality", said India needs to increase the relatively low participation of its citizens in labour markets and sustain fast productivity growth to “get rich before it gets old”.

• The report provides comparative analysis of demographic dynamics of first wave (developed) and later wave (developing) countries.

• Note: According to the United Nations Population Fund, Demographic dividend is the economic growth potential when a country's working-age population (15-64 years) exceeds the dependent population (children and elderly), creating a "window of opportunity" for increased productivity and economic output. 

• India entered the demographic dividend opportunity window in 2005-06 and will remain there until 2055-56, according to the Economic Survey 2018-19. 

About Demographic Transition

• Demographic transition is a model that describes the changes in birth and death rates, along with shifts in population age structure, as societies develop economically and technologically. It typically involves several stages. 

• Stage 1: High birth and death rates result in a stable population. 

• Stage 2: Death rates decline due to improvements in healthcare, sanitation, and food production, while birth rates remain high. This leads to rapid population growth. 

• Stage 3: Birth rates begin to fall, slowing population growth. Factors include urbanization, lower child mortality, access to contraception, and societal shifts favoring smaller families. 

• Stage 4: Both birth and death rates are low, leading to a stable or aging population. This stage reflects higher living standards, advanced technology, and societal development. 

• India’s Demography: As per the 2011 Census, India is in stage three of the four stage model of demographic transition, moving from high to low mortality and fertility rates. 

• India’s Total Fertility Rate (TFR) stands at 2.0 as per National Family Health Survey-5 (2019–21), below the replacement rate of 2.1. 

• TFR is the average number of children a woman would have based on current fertility patterns throughout her reproductive years (15-49).  

• The replacement  rate of fertility is the average number of children per woman needed to keep a population stable, in the absence of migration. 

• The World Population Prospects 2024 report by the United Nations Department of Economic and Social Affairs (DESA), projects India’s population to peak at 1.7 billion in the early 2060s and decline by 12% thereafter, while remaining the world’s most populous country. 

Key Highlights of Demographic Transition 

• Depopulation: 2/3rd of humanity lives in countries with fertility below the replacement rate of 2.1 children per family. 

• Age structures are inverting from pyramids to obelisks as the number of older people grows and the number of younger people shrinks.

• By 2100, populations in some major economies will fall by 20%-50% (UN).

• Falling Support Ratios: Support ratios are falling (from 6.5 today to 3.9 in 2050).

• The support ratio is the number of people aged 15-64 years (working age), relative to the number 65 years and older.

• In advanced economies and China, retirement systems might need to channel 50% of labor income to fund a 1.5-time increase in the gap between the aggregate consumption and income of seniors.

India’s Diminishing Demographic Dividend

• India has 33 years to capitalize demographic dividend (as it reaches support ratios at par developed countries).

• The dividend added 0.7 percentage points per year to GDP per capita growth. Through 2050, it will shrink to just 0.2% points per year.

Challenges of the Aging population in India

• Declining Workforce Participation: With a decreasing proportion of working-age individuals, India’s economic growth could slow significantly. 

• For example, Japan, with 27% of its population over 65, faces labor shortages and strained social security. Sluggish growth and stagnating wages have led to reduced household spending. 

• Healthcare System Strain: Older populations typically experience higher rates of chronic illnesses, putting additional strain on India’s already stretched healthcare system.  

• A surge in healthcare needs, without adequate infrastructure, could exacerbate health disparities and reduce the quality of life for the elderly. 

• Lower productivity and innovation: An aging population may lead to reduced economic activity and innovation. 

• Impact on Family Structures:  With rising urbanization and nuclear families, the burden of eldercare on working-age adults may cause economic and emotional strain. An increasing dependency ratio could further strain social and economic resources. 

Key Suggestion

• Skill Development of Aging Workforce: Investing in education and training programs to equip the aging workforce with skills essential for the 21st-century economy, such as digital literacy, creativity and innovation, and technological proficiency. 

• Healthcare Infrastructure: Strengthening public healthcare systems to provide quality and affordable healthcare for the elderly. 

• Financial Inclusion: Ensuring financial security for the elderly through accessible and affordable pension schemes, social security programs, and financial literacy initiatives. 

• Innovation and Productivity Growth: Investing in research and development, promoting entrepreneurship, and leveraging technology to enhance productivity and address labor shortages. 

• Intergenerational Inclusion: Fostering intergenerational dialogue and social inclusion to address the concerns of both the young and the elderly. 

• Addressing Demographic Dividend: India's demographic dividend is hindered by poor education, gender inequality, skill mismatches, and jobless growth from the informal economy, with a 134th 2023- 24 Human Development Index ranking. 

• Addressing these challenges through improved education, healthcare, and  increased female workforce participation is crucial.