India’s Demographic Dividend: Challenges and Opportunities

The composition of a nation’s population is pivotal in shaping its economic growth and development. The "demographic dividend," as defined by the United Nations Population Fund, represents the economic growth potential that arises when a shift in a population's age structure results in a higher proportion of working-age individuals (15 to 64 years old) compared to the non-working-age population (those 14 and younger, and 65 and older).

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This demographic shift is believed to lower labour costs, thereby enhancing the competitiveness of the manufacturing sector in global markets—an essential factor for nations aiming to transition from developing to developed status. Additionally, the unified growth theory proposed by Galor and Weil underscores that population growth and demographic transition are crucial in the evolution of a country’s economic development.

Building on this discussion, this article will explore the period of demographic dividend in India and its implications, examining whether India has effectively harnessed this opportunity and highlighting areas of concern.

DEMOGRAPHIC DIVIDEND IN INDIA

The period from 2011 to 2041 has been identified as a time of demographic dividend for India, presenting a strategic opportunity to capitalise on the growing young labour force. This demographic advantage is expected to contribute an additional 43 per cent to per capita GDP growth beyond the usual rates.

By 2030, India is projected to have 1.04 billion individuals of working age, with a dependency ratio at an all-time low of 31.2 per cent. However, while the future appears promising for a nation with a dynamic youth demographic, policymakers and scholars have expressed concerns over a range of issues that must be addressed to realise this potential fully.

CHALLENGES AND OPPORTUNITIES

Scholars advocating for a direct correlation between the demographic dividend and a country's economic growth emphasise that a reduced dependency ratio can lead to increased savings and investment. Foley notes that this correlation can be realised if the favourable age structure is effectively leveraged through robust economic and social policies that enhance employment opportunities for the working-age population.

However, this opportunity is constrained by the relatively brief period of demographic transition characterised by low youth dependency. If this window is missed, the large working-age population may eventually age, leading to a higher dependency ratio once again.

Realising the full potential of the demographic dividend requires swift policy actions aimed at increasing capital investment, expanding employment opportunities, fostering productivity growth, and ensuring sound healthcare services.

Chen et al. argue that regardless of a country’s stage in the demographic transition, adopting a multisectoral and integrated approach is essential for a smooth transition and sustained economic growth. Similarly, Bloom and Canning argued that the demographic dividend is not a guarantee of growth by natural changes in population composition but is dependent on the policy ecosystem and macroeconomic features.

EDUCATION AND EMPLOYMENT

India stands at a crossroads in harnessing the demographic dividend. While the share of youth in the total population increased from 26.5 percent during 2004-05 to 27.2 percent in 2018-19, their share in the total workforce declined from 29 percent during 2011-12 to 24.3 percent during 2018-19.

The India Employment Report of 2024, published by the International Labour Organization and the Institute of Human Development, reported an alarming 83 percent unemployment rate among the labour force, particularly among young people with secondary and higher educational qualifications. The report also highlighted a joblessness rate of 29.1 percent among the youth. This issue is exacerbated by a significant digital divide and low female labour force participation compared to other countries. According to the Periodic Labour Force Survey, only 32.7 percent of women were part of the workforce in 2023.

Despite various initiatives launched by consecutive governments, such as Pradhan Mantri Kaushal Vikas Yojana, vocational training programs for women, the Apprenticeship Act of 1961, the National Skill Development Corporation, the National Education Policy 2020, and Rojgar Melas, the India Graduate Skill Index of 2023 revealed that only 40 to 50 percent of Indian graduates are employable by industry standards. This underscores the need to address youth unemployment from the perspective of demand-supply mismatch.

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The International Labour Organization defines employability as possessing portable competencies and qualifications that enable individuals to secure, maintain, and retain decent livelihoods, advance in their careers, and adapt to changing labour markets and technological landscapes. This situation suggests that unemployment in India results not only from a lack of skills among the youth but also from inadequate environments and social conditions to absorb skilled labour.

Scholarship on globalisation and employment highlights the importance of information, innovation, and investment as key drivers in expanding and diversifying employment opportunities in India. Vocational education and training programs, along with school curricula, require a revamped framework that identifies skill gaps and implements strategies to enhance youth productivity and employability.

Consistent and systematic policy changes in the manufacturing and investment sectors: such as increasing infrastructure investment, land reforms, labour law reforms, investment in micro and medium-sized enterprises, and reducing protectionist policies—have been repeatedly emphasised in various reports on employment generation.

Parida and Madheshwaran underscore the critical need for India to adopt a robust National Employment Policy, structured around comprehensive reforms.

This policy should integrate a Labour Market Information System, targeted efforts to reduce gender disparities in the workforce, and strategies to foster equitable growth across all sections of society. Moreover, it should address the challenges of the extensive informal sector by ensuring stable employment conditions and providing living wages that support a dignified livelihood and human development.

Addressing the evolving nature of labour markets and trade flows is also essential in this context. Labour mobility from agriculture to the manufacturing sector is crucial for enhancing productivity and mitigating the impacts of climate change. According to NITI Aayog, the number of gig and platform workers is expected to rise from 7 million to 20 million by 2030. This increase, driven by internet penetration and digital literacy, has created significant employment opportunities but also introduced new challenges regarding workers' rights, job security, and social protection.

Gig workers face precarious earnings and lack certain benefits associated with traditional employment, necessitating careful consideration of their social security framework. Additionally, there should be a strong emphasis on increasing domestic savings while ensuring healthy reliance on foreign investment, especially in light of global economic volatility and goals of reducing dependence on external debt.

HEALTHCARE AND NUTRITION

Becker advocated for a holistic approach to human capital development to fully benefit from the demographic dividend. He emphasised that policies should focus on improving schooling, healthcare, governance, nutrition, political rights, and workforce safety as essential preconditions for leveraging the period of population transformation.

Investment in healthcare services is crucial for navigating the second and third phases of the demographic dividend. The World Health Organisation highlights the pivotal role of health, social protection, and active participation of the aging population in fostering economic growth and advancing human capital. According to the India Ageing Report of 2023, over 20 percent of India's population will be elderly by 2050, placing substantial pressure on the healthcare and social security sectors to provide adequate support and services.

Strategic investments in family planning, maternal healthcare, access to healthcare services, and the management of multi-morbidity are imperative for India to fully capitalise on the demographic dividend and ensure a smooth transition to subsequent stages.

The National Health Policy of 2017 set forth a comprehensive blueprint for achieving universal healthcare access for all age groups, laying the foundation for the Government of India’s flagship initiative, Ayushman Bharat, which aims to realise the vision of Universal Health Coverage.

However, the quest for a robust healthcare system remains a work in progress, requiring urgent attention to several critical challenges.

These include enhancing the competency and accountability of healthcare professionals, addressing pervasive understaffing, and remedying infrastructural deficiencies within the healthcare sector. Additionally, there is a pressing need to strengthen pharmaceutical research and integrate food and nutrition policies more effectively with health outcomes, thereby fortifying the overall resilience and efficacy of India’s healthcare system.

WHAT LIES AHEAD?

Based on the discussion, it is clear that a nuanced approach is required to capitalise on India's demographic dividend. This approach must extend beyond traditional economic reforms to address the complexities of globalisation and market transformations. The real challenge for policymakers and economists will be to craft solutions that integrate technological advancements with labour market changes, foster innovation, and promote inclusive growth.

India must transition from merely addressing short-term employment needs to building a sustainable economic system that supports a skilled and resilient workforce capable of adapting to the ever-evolving job market. This also requires a careful examination of health, education, and training programs to identify potential areas for improvement.

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BY MANISHA KHOKHAR

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