The 6 channels of demographic dividend

Demographics can change the pace and pattern of economic growth. While China’s spectacular growth has already benefited from a demographic dividend, India is yet to do so. Demographic dividend can increase economic growth through six channels.

• The first channel is through the swelling of the labour force, as more people reach working age.
• The second channel is the increased fiscal space created by the demographic dividend to divert resources from spending on children to investing in physical and human infrastructure.
• The third channel is the rise in women’s workforce that naturally accompanies a decline in fertility, and which can be a new source of growth.
• The fourth is the increase in savings rate, as the working age also happens to be the prime period for saving.
• The fifth channel is an additional boost to savings that occurs as the incentive to save for longer periods of retirement increases with greater longevity.
• The sixth channel is a massive shift towards a middle-class society that is already in the making. Growth, education, home ownership, better economic security, and a desire for more durable goods are the cause and consequence of young demographics.

Indian Demographics

India has one of the youngest populations in an aging world. By 2020, the median age in India will be just 28, compared to 37 in China and the US, 45 in Western Europe, and 49 in Japan.

• India has 27% of its population in (15-29) years age group. It gives it a demographic advantage.
• Close to 30% of India’s population is in the age group 0-14 years.
• The elderly in the 60-plus age group are 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.

These population parameters indicate an availability of demographic dividend in India, which started in 2005-06 and will last till 2055-56.

Federal Distribution of Demographic Dividend

The demographic dividend is not available in all the states at the same time.

Dividend or curse?

• The growth benefit of a demographic dividend is not automatic.
• A lot depends on whether the bulge 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.
• There is mounting concern that future growth could turn out to be jobless due to de-industrialization, de-globalization, and the fourth industrial revolution and technological progress.
• While digital technologies may enable the creation of new products and more productive jobs, they may also substitute existing jobs. 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.
• This will increase the economic insecurity of the elderly, as there will be fewer people generating wealth.

Way Forward

• 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 more inclusive societies. There is a powerful link between these investments and economic growth, stability and security.
• Human capital is now the fastest-growing component of India’s wealth. It is already the largest component of global wealth and India needs to capture this trend.
• "Youth or Truth?" is the question that India's demographic dividend has to answer in the very near future. Human Capital is both the means and ends of this dividend value chain for the largest democracy in the world.