Baba’s Explainer – Demographic Dividend

  • IASbaba
  • June 1, 2022
  • 0
Governance, Social Issues
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  • GS-1: Population & associated issues
  • GS-2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

Context: DEMOGRAPHY has, for some years now, been recognized as a driver of various key parameters of a nation.

  • Developing policies and investments to secure the future of citizens requires that governments know the size, sex, location and age structure of their present and future populations.
  • A country with rapid population growth, for example, could benefit for many years from a “demographic dividend”.

What is demographic dividend?
  • The demographic dividend is 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 non-working-age share of the population (14 and younger, and 65 and older)
    • For example, the late twentieth century saw a demographic dividend in Asia. Gross domestic product increased sevenfold, an economic boom described as the “Asian economic miracle.”
  • With more people in the labor force and fewer children to support, a country has a window of opportunity for economic growth if the right social and economic investments and policies are made in health, education, governance, and the economy.
  • However, with the passage of time, the share of the older population rises and that of the working age population begins to fall and hence the dividend is available for a period of time, ‘the window of demographic opportunity’.
  • the realisation of the benefits of demographic dividend is not automatic. Without proper policies, the increase in the working-age population may lead to rising unemployment, fueling economic and social risks. This calls for forward-looking policies incorporating population dynamics, education and skills, healthcare, gender sensitivity, and providing rights and choices to the younger generation.

Is India in a stage of reaping Demographic dividend?
  • India has the largest youth population in the world; around 66 per cent of the total population (more than 808 million) is below the age of 35.
  • In 2020, the median age of the population in India was 28, compared to 37 in the US and China, and 49 in Japan.
    • Japan reaped demographic dividend that lasted from 1964 to 2004.
  • Since 2018, India’s working-age population (people between 15 and 64 years of age) has grown larger than the dependant population. This bulge in the working-age population is going to last till 2055.
  • This transition happens largely because of a decrease in the total fertility rate (TFR, which is the number of births per woman) after the increase in life expectancy gets stabilised.
  • A study on demographic dividend in India by United Nations Population Fund (UNFPA) throws up two interesting facts.
    • The window of demographic dividend opportunity in India is available for five decades from 2005-06 to 2055-56, longer than any other country in the world.
    • This demographic dividend window is available at different times in different states because of differential behaviour of the population parameters.
  • With falling fertility (currently 2.0), rising median age (expected to be 36 years by 2036), a falling dependency ratio (expected to decrease from 65% to 54% in the coming decade taking 15-59 years as the working age population), India is in the middle of a demographic transition. This provides a window of opportunity towards faster economic growth.
What are the advantages associated with Demographic Dividend?
  • Better economic growth brought about by increased economic activities due to higher working age population and lower dependent population.
    • Demographic dividend has historically contributed up to 15 % of the overall growth in advanced economies.
  • Productive Labour Force in future: The smaller share of children in the population enables higher investment per child. Therefore, the future entrants in the labour force can have better productivity and thus boost income.
  • Increased fiscal space created by the demographic dividend to divert resources from spending on children to investing in physical and human infrastructure.
  • Women Empowerment: Smaller numbers of children per household generally lead to more freedom for women to enter the formal workforce, which again can be a new source of growth.
  • Increase in savings rate, as the working age also happens to be the prime period for saving. This will enable the economy to channelize the savings towards investments for expansion of economic activities thus creating a virtuous cycle.
  • Rise of New Class: If demographic potential is effectively reaped there will be massive shift towards a middle-class society, that is, the rise of aspirational class.
  • Rapid industrialisation and urbanisation because of higher number of employment seeking population that would force higher economic activities.
  • Boost to Innovation & Entrepreneurial spirit: A large youth population can also be a source of entrepreneurship and innovation, as the young are known to be less risk-averse and more likely to break new ground. Therefore, in the tech era, when start-up enterprises are a catalyst for economic growth and jobs, having so many youngsters is a huge advantage.
    • In India, we are already seeing the fruits of this through the upsurge in start-ups and the success of so many innovative ideas.
What are the challenges associated with Demographic Dividend?
  • Rising Unemployment: The demographic dividend will be fully realized only if India is able to create gainful employment opportunities for this working-age population. However, due to external & internal factors, there is growth of joblessness that makes the potential of youth go waste.
  • Lack of skills: Most of the new jobs that will be created in the future will be highly skilled and lack of skill in Indian workforce is a major challenge. India may not be able to take advantage of the opportunities, due to a low human capital base and lack of skills.
  • Low human development parameters: India ranks 130 out of 189 countries in UNDP’s Human Development Index, which is alarming. Therefore, health and education parameters need to be improved substantially to make the Indian workforce efficient and skilled.
  • Informal nature of economy in India is another hurdle in reaping the benefits of demographic transition in India.
  • Regionally imbalanced demographic transition: The growth in the working-age ratio is likely to be concentrated in some of India’s poorest states. All but five states have a below-replacement-level Total Fertility rate (2.1), the figures for Uttar Pradesh and Bihar are yet as high as 2.35 and 3, respectively. Already, the lack of livelihoods in most of the eastern states has led to large-scale labour migration — first to farms in Punjab, and now to urban job hubs (Delhi/NCR, Mumbai, Bengaluru, etc.)
What needs to be done to reap rich demographic dividends?
  • Job Creation: The nation needs to create ten million jobs per year to absorb the addition of young people into the workforce. Promoting businesses’ interests and entrepreneurship would help in job creation to provide employment to the large labour force.
  • Skill development to increase employability of young population. India’s labour force needs to be empowered with the right skills for the modern economy. Government has established the National Skill Development Corporation (NSDC) with the overall target of skilling/ up skilling 500 million people in India by 2022.
  • Updating National Transfer Accounts (NTA) assessment: India’s per capita consumption pattern is way lower than that of other Asian countries. A child in India consumes around 60% of the consumption by an adult aged between 20 and 64, while a child in China consumes about 85% of a prime-age adult’s consumption. The NTA data for India needs to be updated to capture the progress made on investments in education & health since 2011-12. State-specific NTAs need to be calculated every year and States need to be ranked for investing in the youth.
  • Invest more in children and adolescents: India ranks poorly in Asia in terms of private and public human capital spending. It needs to invest more in children and adolescents, particularly in nutrition and learning during early childhood. Given that India’s workforce starts at a younger age, a greater focus needs to be on transitioning from secondary education to universal skilling and entrepreneurship, as done in South Korea.
  • Health Investments: Health spending has not kept pace with India’s economic growth. The public spending on health has remained flat at around 1% of GDP. Evidence suggests that better health facilitates improved economic production. Hence, it is important to draft policies to promote health during the demographic dividend.
  • Make reproductive healthcare services accessible on a rights-based approach: The unmet need for family planning in India at 9.4% as per the latest National Family Health Survey-5 (2019-21) is high as compared to 3.3% in China and 6.6% in South Korea, which needs to be bridged.
  • Bridge Gender Inequality in Education: Education is an enabler to bridge gender differentials. The gender inequality of education is a concern. In India, boys are more likely to be enrolled in secondary and tertiary school than girls. In the Philippines, China and Thailand, it is the reverse.
  • Increase female workforce participation: As of 2019, 20.3% of women were working or looking for work, down from 34.1% in 2003-04. New skills and opportunities for women and girls befitting their participation in a $3 trillion economy is urgently needed. She will need safe transport to travel to work.
    • Finding work will likely delay her age of marriage and make her participate in the economy more productively, as also exercise her rights and choices.
    • South Korea’s female workforce participation rate of 50% has been built on i) legally compulsory gender budgeting to analyse gender disaggregated data and its impact on policies, ii) increasing childcare benefits, and iii) boosting tax incentives for part-time work.
  • Address the diversity between States: Southern States, which are advanced in demographic transition, already have a higher percentage of older people. However, eastern states are considered as reservoir of India’s workforce. Politics over migration has to be managed so that States work together on demographic transition.
  • Urbanisation: The large young and working population in the years to come will migrate to urban areas within their own and other States, leading to rapid and large-scale increase in urban population. How these migrating people can have access to basic amenities, health and social services in urban areas need to be the focus of urban policy planning.
  • Federal Cooperation: A new federal approach to governance reforms for demographic dividend will need to be put in place for policy coordination between States on various emerging population issues such as migration, ageing, skiling, female workforce participation and urbanisation. Inter-ministerial coordination for strategic planning, investment, monitoring and course correction should be an important feature of this governance arrangement.

Mains Practice Question – India is on the right side of demographic transition that provides golden opportunity for its rapid socio-economic development. What are the challenges associated with this transition? What measures needs to be taken to overcome those challenges?

Note: Write answers to this question in the comment section.




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