Realising demographic dividend

Realising demographic dividend

Demographic dividends are realised when labour productivity and per-capita income increases in the country

 Representative Image. Credit: PTI Photo

According to the Population Foundation of India, the median age of India’s population is between 28 to 29 years, and over 62 per cent of the population is between 15 and 59 years of age. Demographic dividend is the potential economic growth from such a population structure. Another mechanism enabling it is the prevalence of declining fertility rates, seen in the middle stages of demographic transition of nations. In the first stage, fertility and mortality rates are high and they gradually begin to decline in latter stages, bolstering the increasing workforce numbers. Demographic dividends are realised when labour productivity and per-capita income increases in the country. 

Consider Japan, which had a Total Fertility Rate (TFR) below 1.5 in 2020, not unlike most first-world nations in the final stages of their demographic transition. High fertility rates in Japan in the 1930s led to an expansion of labour force in the 1960s resulting in increased wealth. Japan reaped the benefits of its demographic dividend in the 1980’s, when it became a major tech and financial centre with the largest per-capita GNP and was the second largest economy in the world.  

India has a TFR of around 2.2, which is projected to decline in the near future, and is currently in the middle stage of demographic transition. Lower TFR allows people to invest in advancing their human capital, which can increase personal incomes. If appropriate policies are in place to support productive employment, individual workers can be more productive than in the past, boosting per-capita income.

Not having had a distinct industrial revolution in its history, the distribution of India’s workforce presents another variable. More than 88 per cent of workers are in the informal sector, most of whom are employed in the agriculture sector, which engages around 49 per cent of the total workforce. While India is known for its engineers and entrepreneurs, the majority of the country's young workforce is unprepared to participate in a services sector-led revolution. Only a quarter of the workforce between the ages of 18 and 24 has completed secondary or high school, and even then job-related skills are typically lacking (according to the National Sample Survey). For a workforce characterised by low skill intensity and informal jobs, there is an urgent need to create productive avenues for work with good security.

Studies suggest workforce absorption is slow in India and can take more than five years to produce an impact (according to the Institute of Economic Growth, Delhi University). Also, India lacks the institutional capacity to sustain a virtuous cycle of accumulating dividends. This means that an initial investment in the economy must bring real growth in terms of better education, higher salaries, more jobs etc., which in turn will enable additional investments. For this to occur, policy reforms need to arrive at a faster pace— property rights, tax laws, restructuring of corporate laws etc. are needed to derive maximum benefits of the demographic dividend. Regulations are volatile when concerning the digital economy and thus need to be revised.

Our population is set to overtake China by the end of the current decade and the implications of overpopulation and accruing dividends to the emerging productive populace are complicated. There is a need for an appropriate population policy tailor-made to suit each state. Uttar Pradesh’s new population control policy has drawn criticism, because history has shown that enforced one or two-child norms have ended in failure (According to UNFPA). However, India’s population is set to stabilise in a few decades and the end of this century might even witness a population decline in the country (according to The Lancet). This is why the demographic dividend needs to be actively realised because the window of opportunity is limited. Keeping in mind these factors and the losses in human capital formation due to Covid-19, we must brace for the possibility that the economy will only reach a middle-income status and the full benefit of a demographic dividend will not arrive in the future.

(The writer is a student of Economics at BASE University, Bengaluru)

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