Let us understand the concept of demographic dividend. In the population of a country, when the young population component of 15-64 rises more than the component of dependents, say children under 15 and elderly, over 64, a demographic dividend sets in leading to an economic growth. Thus, a country can take advantage of its young population when birth rates fall (less children to support), health care improves (people live longer and heathier). A country reaps benefits from large young working population as productivity improves, there is more saving and investment and the government earns more revenues from taxes.
However, demographic dividend is not automatic. A country must create enough jobs, focus on education and practice good governance. If not managed well, there is higher unemployment, poverty and social unrest. Thus, it is an opportunity that can lead to prosperity but if wasted, it turns into a liability.
Countries like South Korea between 1960s and 1990s, Ireland between 1990s and 2000s and China between 1980s and 2010s used the opportunity well. The countries who missed the opportunity are sub-Saharan African nations and some middle eastern and north African countries.
The key lessons are that a large workforce that is unskilled is a liability. Another lesson is that economic policies should be so designed as to generate jobs. Most importantly, the governance matters most — corruption, instability and poor planning is wastage of demographic advantage.
India’s demographic dividend period started around 2005-2006 and will reach its peak between 2025-2040. By 2030, most Indians (68 per cent) will be of working age. Every month 1 million young people will enter the workplace. The GDP of the country could reach 7-8 per cent. Country could become global hub for manufacturing and services. Indian can experience consumption boom.
If India does not manage its demographic dividend well, there could be mass unemployment, skill mismatch and economic disparity.
By 2050, India will show a demographic shift towards an older population. The fertility rate is declining. The ideal fertility rate for replacement should be 2.1, whereas India has a lower rate of 1.9. By 2050, the elderly will make up over 20 per cent of population (as compared to 10 per cent today). The working age population will plateau.
At this stage, India should make smart investments in health, skills, education and livelihoods.
In future, when the proportion of elderly individuals rises, there will be greater demand for age-related services such as elderly care, assisted living facilities and other support services. Consequently, there will be decline in demand for child-related services.
China and India currently have the highest working age populations between 16 and 59 years of age. Both will see a projected decline by 2050
Every year, nearly one million Indians turn 18 and they add to the workforce. Over 65 per cent of Indian population is under 35, creating a median age of 28. The world is greying, and India is bursting with youth. Indians are a decade younger than China, where median age is 38. India is two decades younger than Japan, where median age is 48. This demographic dividend is once-in-a-life-time opportunity. It means working age population far outnumbers dependents. If harnessed well, it could power India’s economy for decades.
The working age population will surge to one billion by 2047. It could take the annual GDP growth to an increase of 2-3 percentage points. India could maintain this growth upto 2055. Thus it is a three decade runway. The population surge also increases domestic demand. India’s talent pool will be a good resource for global business.
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