The Moot Point

Indias Demographic Dividend has been a global talking point for

quite some time. While the whole world is aging, India has a
significant percentage of population in the young age category. This
has heightened the prospects for not just India but the entire world.
While India sees the demographic resource to aid its economic
development, the world sees it as a huge market and potentially
global workforce.
The critics however say that Indias demographic potential is highly
overemphasized. They point to the abysmal standards of education,
human development, and job creation in the country. According to
them, it is not demographic dividend but a demographic disaster
waiting to happen.
While the critics concerns may be genuine, none can discount the
potential of Indias demographic resources. Couple this with strong
urge of India and its current government to get over the ghosts of
past and make a new beginning, and we have Demographic
Dividend.
In this series of articles on Realizing Indias Demographic Dividend,
we are firstly discussing what Demographic Dividend is and the
challenges associated with it

The Cheatsheet
Demographic Dividend
Industrial countries have largely completed what is
called the "demographic transition"the transition from a
largely rural agrarian society with high fertility and
mortality rates to a predominantly urban industrial society
with low fertility and mortality rates.
At an early stage of this transition, fertility rates fall,
leading to fewer young mouths to feed. During this period,
the labor force temporarily grows more rapidly than the
population dependent on it, freeing up resources for
investment in economic development and family welfare.
Other things being equal, per capita income grows rapidly.
This is referred to as Demographic Dividend.
 This dividend period is quite long, lasting five decades
or more, but eventually lower fertility reduces the growth
rate of the labor force, while continuing improvements in
old-age mortality speed growth of the elderly population.
Now, other things being equal, per capita income grows
more slowly and the first dividend turns negative.
Demographic Dividend in India

Census 2011 data shows that Indias working age

population (15-64 years) is now 63.4% of the total
population, as against just short of 60% in 2001.
The numbers also show that the dependency ratio -
the ratio of children (0-14) and the elderly (65-100) to
those in the working age - has shrunk further to 0.55.
Indias median age has risen from around 22 years in
2001 to over 24 years in 2011.
India is poised to become the worlds youngest
country by 2020, with an average age of 29 years, and
account for around 28% of the worlds workforce.
In comparison, during the same period, the average
age is expected to be 37 years in China and the US and 45
years in Western Europe.
The International Labour Organisation (ILO) has
predicted that by 2020, India will have 116 million workers
in the work-starting age bracket of 20 to 24 years, as
compared to China's 94 million. In 20 years the labour force
 in the industrialised world will decline by 4%, in China by
5%, while in India it will increase by 32%.
IMF, in 2011, reported that India's demographic
dividend has the potential to add 2 percentage points per
annum to India's per capita GDP growth over the next two
decades.

The Critical Analysis

Demographic Dividend
During the course of the demographic dividend there are four
mechanisms through which the benefits are delivered.
The first is the increased labor supply. However, the
magnitude of this benefit appears to be dependent on the
ability of the economy to absorb and productively employ
the extra workers rather than be a pure demographic gift.
The second mechanism is the increase in savings. As
the number of dependents decreases individuals can save
more. This increase in national savings rates increases the
stock of capital in developing countries already facing
shortages of capital and leads to higher productivity as the
accumulated capital is invested.
The third mechanism is human capital. Decreases in
fertility rates result in healthier women and fewer economic
pressures at home. This also allows parents to invest more
resources per child, leading to better health and
educational outcomes.
The fourth mechanism for growth is the increasing
domestic demand brought about by the increasing GDP per
capita and the decreasing dependency ratio.
East Asia provides some of the most compelling evidence to date of
the demographic dividend. The demographic transition in East Asia
occurred over 40 years, from 1960s to 2000s. It has been argued
that the demographic dividend played a role in the "economic
miracles" of the East Asian Tigers. Ireland also provides a recent
example of the demographic dividend and transition. It has been
linked as a contributing factor to the economic boom of the 1990s
that was called the Celtic Tiger.
 Demographic Dividend
During the course of the demographic dividend there are four
mechanisms through which the benefits are delivered.
The first is the increased labor supply. However, the
magnitude of this benefit appears to be dependent on the
ability of the economy to absorb and productively employ
the extra workers rather than be a pure demographic gift.
The second mechanism is the increase in savings. As
the number of dependents decreases individuals can save
more. This increase in national savings rates increases the
stock of capital in developing countries already facing
shortages of capital and leads to higher productivity as the
accumulated capital is invested.
The third mechanism is human capital. Decreases in
fertility rates result in healthier women and fewer economic
pressures at home. This also allows parents to invest more
resources per child, leading to better health and
educational outcomes.
The fourth mechanism for growth is the increasing
domestic demand brought about by the increasing GDP per
capita and the decreasing dependency ratio.
Concerns for India
Demographic Dividend is a limited time window, in which all the
appropriate policy framework has to put in, to be able to utilize the
window. These policy frameworks related to job creation, education
and health standards, skill development, quality of jobs, social
security. The urgency to put in place appropriate policies is
magnified by the reality that what follows the demographic
dividend is a time when the dependency ratio begins to increase
again. With a disproportionate number of old people relying upon a
smaller generation following behind them the demographic
dividend becomes a liability. This is currently seen most
dramatically in Japan and other regions, notably Europe.

Job Creation
 India needs to create 1 million jobs every month to be
able to provide employment for the population entering
working age group and for those moving out of agriculture.
Further, the job creation has to be specific to the
needs to Indian population. As young people and
agriculturalists enter the workforce, they would need low
and medium skilled jobs. Indias relatively undeveloped
manufacturing sector has to create the jobs for this group.
The employment intensity in service sector is anyways
less as compared to manufacturing sector. The
manufacturing sector has to thus be the driver of job
creation.
Quality of Jobs
About 92% of India's are informal workers. Informal
employment is insecure, poorly paid and has no social
security. There's also a difference between wages of
regular workers and informal or contract workers.
Education
India's literacy rate, according to Census 2011, is
around 74 per cent; the level is well below the world
average literacy rate of 84%. Further, the 2011 census
indicated a 20012011 decadal literacy growth of 9.2%,
which is slower than the growth seen during the previous
decade. There is a wide gender disparity in the literacy rate
in India: effective literacy rates (age 7 and above) in 2011
were 82.14% for men and 65.46% for women.
There are huge concerns with respect to quality of
primary education in schools. ASER 2014 finds that in Std
III, only a fourth of all children can read a Std II text
fluently; 25.3% of Std III children could do a two digit
subtraction.
The situation in higher education is even more
problematic for India's participation in the global
knowledge economy. Firstly, the gross enrolments rate is
below 20%.
The overall quality of the higher education system is
well below global standards. High-tech employers complain
that a large majority of engineering and other graduates
 are unemployable. The large high-tech firms such as
IBM, Infosys and Wipro have set up their own in-house
academies to prepare employees for productive work.
The quality of vocational training is weak too. In last
decade, the number of private ITIs increased from 2,000 to
about 10,000 in 2013, but there are concerns about the
quality of its trainees.
Further, Only 16 per cent of Indian firms carry out any in-firm
training themselves, as against 80 per cent of Chinese firms. Most
of the 16 per cent are large firms; most of firms are micro, small and
medium size and do little training that is informal or no training.

Human Development
India ranks 135 on the global Human Development
Index rankings. The ranking is based on a collective index
of life expectancy, education and income standards of
population. India ranks lowest among the BRICS countries
and even lower than few of its neighbors like Sri Lanka.
Social Development
Dramatic social changes occur during the phase of
demographic dividend, such as increasing divorce rates,
postponement of marriage, and single-person households.

GPkaFunda
How much of the demographic dividend we are able to
realize ultimately depends on Indias performance on key
indicators like the number of quality jobs created, the
education levels, the social security net available. Thus, the
task is already cut out for India.
To achieve the outcomes on the ground however, we have
to go beyond the key indicators and look to work on certain
fundamental aspects. The economic fundamentals, the
quality of public service delivery, the governance of the
country are those fundamental aspects, which will
ultimately give us results on those key indicators.

And these aspects certainly go beyond the realm of government to

include the people, the civil society, the businesses and the
institutions of the country. Thus, realizing Indias demographic
dividend is the responsibility of each and every one of us. The
entire country has to raise itself and play its role in helping achieve
the desired outcomes.

Demographic Dividend
Demographic dividend refers to a period usually 20 to
30 years when fertility rates fall due to significant
reductions in child and infant mortality rates. This occurs
as a result of demographic transition. Falling birth rate
changes age distribution of the country so that fewer
investments are required to meet the needs of the younger
sector of the population. This fall is often accompanied by
an extension in average life expectancy that increases the
portion of the population that is in the working age-group.
This cuts spending on dependents and spurs economic
growth. Some countries that take advantage of the
released resources and use them effectively will receive
greater benefits than others. Those that dont capitalize on
the opportunity may in fact be in a weaker position and
faced with the problem of a youth bulge - a demographic
trend where the proportion of persons aged 15-24 in the
population increases significantly compared to other age
groups - which paired with limited employment
opportunities may contribute to increased poverty,
 hunger, malnutrition, poorer health, lower educational
outcomes, child labour, unsupervised and abandoned
children, and rising rates of domestic violence.
A Second Demographic Dividend
Unless the population with a large proportion of older
working age people who face longer periods of retirement
are assured that their needs are taken care by their
families or government, accumulate assets to support
themselves. These assets contribute to increase national
income resulting in second dividend.
While the first dividend produces a transitory bonus, the
second dividend converts into greater assets and
sustainable development.
Four mechanisms for delivering benefits from
demographic dividend
1) Increased labour supply
However magnitude of this benefit is dependent
on the ability of the economy to absorb and
productively employ the extra workers
2) Increase in savings
number of dependents decreases
leads to higher productivity
3) Human capital
decrease in fertility rates result in healthier
women and fewer economic pressure at home
this allows parents to invest more resources per
child, leading to better health and educational
outcomes
4) Increasing domestic demand brought about by the
increasing GDP per capita and the decreasing dependency
ratio
 In context with India
It is an advantage for India now because the country is
entering the demographic dividend phase while China is
exiting it, asserts Bikram Sen, a former Indian census
board director.
India is hoping by the time this dividend phase
ends around 2045, it would have achieved a stable and
balanced population.
A 2011 International Monetary Fund Working
Paper found that substantial portion of the growth
experienced by India since the 1980s is attributable to
the countrys age structure and changing
demographics.
Over the next two decades the continuing
demographic dividend in India could add about two
percentage points per annum to Indias per capita GDP
growth.
Challenges faced by India
There are many challeges faced by India which impacts
the demographic dividend.
1) Low sex ratio
In a country with a strong culture of son-
preference, mushrooming of neo-natal clinics has
made it easy for parents to detect the sex of their
unborn child and abort if the child is a girl.
2) Early marriage
contributes to high maternal mortality rates
Taking advantage of the demographic dividend
requires a healthy nation and a balanced population.
The low sex ratio and high maternal mortality pose a
challenge to the role of the youth in development of the
country in the years to come.
 3) Infant mortality rates
currently estimated to be around 60/1000 live
births per year
ground reality of vast majority of those who
survive is grim
4) Child labours, sexually abused children and HIV
India has the worlds largest number of sexually
abused children - 53 percent -according to a recent
study released by the government.

One of Indias competitive advantages is its demographic dividend.

Demographic dividend occurs when the proportion of working
people in the total population is high because this indicates that
more people have the potential to be productive and contribute to
growth of the economy. According to the United National population
research, during the last four decades the countries of Asia and
Latin America have been the main beneficiaries of the demographic
dividend. Advanced countries of Europe, Japan and USA have an
ageing population because of low birth rates and low mortality
rates. Neither the least developed countries nor the countries of
Africa have as yet experienced favourable demographic conditions
according to the research by UN population division. Chinas one
child policy has reversed the demographic dividend it enjoyed since
the mid 1960s according to a World Bank global development
report.

Falling birth rates reduce the overall expenditure required to provide

basic necessities for the under 14 age group (which is yet to be
productive) and increased longevity ensures that a large proportion
of the population are within the 15-59 age group (working
population). Dependency ratio refers to the proportion of non
-working poplation on the working population. In India this ratio is
around 0.6 according to the World Bank.
However, reaping the demographic dividend requires focused policy
action. A recent UNESCAP survey warns there are no guarantees
the "dividend" will automatically translate to economic growth.
Countries need to put in place the appropriate "social and economic
policies and institutions" to absorb the rapidly growing labour force.
Reforms in the health and education sector, financial inclusion and
adequate employment opportunities are essential pre-requisites to
ensure that Indias young population is truly an asset.

The Planning Commission of India, in its 12th Plan discussions,

indicates that while the demographic dividend accounts for India
having worlds youngest work force with a median age way below
that of China and OECD Countries, the global economy is expected
to witness a skilled man power shortage to the extent of around 56
million by 2020. Thus, the demographic dividend in India needs to
be exploited not only to expand the production possibility frontier
but also to meet the skilled manpower requirements of in India and
abroad. To reap the benefits of demographic dividend, the
Eleventh Five Year Plan had favored the creation of a
comprehensive National Skill Development Mission. Various
strategies for the 12th Plan improved access to quality education,
better preventive and curative health care, enhancing skills and
faster generation of employment are being finalized to ensure
greater productivity of Indian workers.

What is a 'Demographic Dividend'

A demographic dividend is the freeing up of resources for
a country's economic development and the future
prosperity of its populace as it switches from an agrarian
to an industrial economy. In the initial stages of this
transition, fertility rates fall, leading to a labor force that is
temporarily growing faster than the population dependent
on it. All else being equal, per capita income grows more
rapidly during this time too.

BREAKING DOWN 'Demographic

Dividend'
This dividend period generally lasts for a long time -
typically five decades or more. Eventually, however, the
reduced birth rate reduces the labor force growth.
Meanwhile, improvements in medicine and better health
practices leads to an ever-expanding elderly population,
sapping additional income and putting an end to the
demographic dividend.

Demographic dividend refers to a period usually 20 to 30

years when fertility rates fall due to significant reductions in
child and infant mortality rates. As women and families realize
that fewer children will die during infancy or childhood, they
will begin to have fewer children to reach their desired
number of offspring, further reducing the proportion of non-
productive dependents. This fall is often accompanied by an
extension in average life expectancy that increases the
portion of the population that is in the working age-group.
This cuts spending on dependents and spurs economic
growth.
Demographic dividend, as defined by the United Nations
Population Fund (UNFPA) means, the economic growth
potential that can result from shifts in a populations 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). [1] In other words, it is a boost in economic
productivity that occurs when there are growing numbers of
people in the workforce relative to the number of
dependents. [1] UNFPA stated that, A country with both
increasing numbers of young people and declining fertility has
the potential to reap a demographic dividend. [1]

Due to the dividend between young and old, many argue that
there is a great potential for economic gains, which has been
termed the "demographic gift".[2] In order for economic growth
to occur the younger population must have access to quality
education, adequate nutrition and health including access to
sexual and reproductive health.

However, this drop in fertility rates is not immediate. The lag

between produces a generational population bulge that
surges through society. For a period of time this bulge is a
burden on society and increases the dependency ratio.
Eventually this group begins to enter the productive labor
force. With fertility rates continuing to fall and older
generations having shorter life expectancies, the dependency
ratio declines dramatically. This demographic shift initiates
the demographic dividend. With fewer younger dependents,
due to declining fertility and child mortality rates, and fewer
older dependents, due to the older generations having shorter
life expectancies, and the largest segment of the population
 of productive working age, the dependency ratio declines
dramatically leading to the demographic dividend. Combined
with effective public policies this time period of the
demographic dividend can help facilitate more rapid
economic growth and puts less strain on families. This is also
a time period when many women enter the labor force for the
first time.[3] In many countries this time period has led to
increasingly smaller families, rising income, and rising life
expectancy rates.[3] However, dramatic social changes can
also occur during this time, such as increasing divorce rates,
postponement of marriage, and single-person households.[3]

Contents
[hide]

1Recent Education Dividend Theory

2Statistical Overview

3Examples

o 3.1East Asia

o 3.2Ireland

o 3.3Africa

o 3.4India

o 3.5Middle East

4Four mechanisms for growth in the demographic dividend

5After the demographic dividend, demographic tax

6See also
 7References
Recent Education Dividend Theory[edit source]

Recent research shows that the Demographic Dividend is an

Education-triggered Dividend[4]
Statistical Overview[edit source]

Approximately 1.8 billion people between 10 and 24 years old

exist in the world today; the highest total number of young
people than ever before.[1] According to the UN Population
Fund (UNFPA), this number is expected to increase until
2070.[1] Much of the increase has derived from the least
developed countries who have experienced rapid and large
growth in their youth populations. Within least developed
countries populations roughly 60% are under 24 years old.
[1]
The large proportion of young people in least developed
countries creates an opportunity to realize a demographic
dividend. However, this realization comes with challenges.

UNFPA stated that,[1]

By the middle of this century, the population of the least

developed countries will have doubled in size, adding 14
million young people to the working-age population each
year. Creating conditions for decent livelihoods will be an
enormous task, especially given that, currently, about 80 per
cent of the people who work in these countries are
unemployed, underemployed or irregularly employed.
Additionally, the shortage of financial resources will make it
difficult to maintain, let alone increase, spending on health,
education and nutrition.
Therefore, in order to reap the benefits of a demographic
dividend, countries must recognize and cultivate the potential
of young people and close the gap between the demands
placed on young people and the opportunities provided to
them.[5]
Examples[edit source]
East Asia[edit source]

East Asia provides some of the most compelling evidence to

date of the demographic dividend. The demographic
transition in East Asia occurred over 515 years during the
1950s and 1960s, a shorter time period than anywhere
previously. During this time, East Asian countries invested in
their youth and expanded access to family planning allowing
people to start families later and have fewer children. More
resources began to become available, investment in
infrastructure began and productive investments were made
as fertility rates fell resulting in unprecedented economic
growth. For example, UNFPA stated that, The Republic of
Korea, saw its per-capita gross domestic product grow about
2,200 per cent between 1950 and 2008 and Thailands GDP
grew 970 per cent." [1]

East Asia was able to benefit from knowledge, experience,

and technology of other countries that had already passed
through the demographic transition.[6] It has been argued that
the demographic dividend played a role in the "economic
miracles" of the East Asian Tigers and accounts for between
one fourth and two fifths of the miracle.[7][8]
Ireland[edit source]

Ireland also provides a recent example of the demographic

dividend and transition. Faced with a high birth rate, the Irish
government legalized contraception in 1979. This policy led to
a decline in the fertility rate and a decrease in
the dependency ratio. It has been linked as a contributing
factor to the economic boom of the 1990s that was called
the Celtic Tiger.[9] During this time the dependency ratio also
improved as a result of increased female labor market
participation and a reversal from outward migration of working
age population to a net inflow.

Africa[edit source]

Africa, on the other hand has been unique demographically

because fertility rates have remained relatively high, even as
significant progress has been made decreasing the mortality
rates. This has led to a continuing population explosion rather
than a population boom and has contributed to the economic
stagnation in much of Sub-Saharan Africa.[10] The magnitude
of the demographic dividend appears to be dependent on the
ability of the economy to absorb and productively employ the
extra workers,[11] rather than be a pure demographic gift.
According to the UN Population Fund, If sub-Saharan African
countries are able to repeat the East Asian experience, the
region could realize a demographic dividend amounting to as
much as $500 billion a year for 30 years.[1]

India[edit source]

In near future India will be the largest individual contributor to

the global demographic transition. A 2011 International
Monetary Fund Working Paper found that substantial portion
of the growth experienced by India since the 1980s is
attributable to the countrys age structure and changing
demographics.[12] The U.S. Census Bureau predicts that India
will surpass China as the worlds largest country by 2025,
with a large proportion of those in the working age category.
[13]
Over the next two decades the continuing demographic
dividend in India could add about two percentage points per
annum to Indias per capita GDP growth.[14] Extreme actions
are needed to take care of future basic minimum living
standards including food, water and energy.[15] As
per Population Reference Bureau India's population in 2050
is projected to be 1.692 billion people.[16]

Middle East[edit source]

The Middle East and North Africa recently experienced

a youth bulge in the Middle East and North Africa in which 15-
to 29-year-olds comprise around 30% of the total population.
[17]
It is believed that, through educational and employment,
the current youth population in the Middle East could fuel
economic growth and development as young East Asians
were able to for the Asian Tigers.
Four mechanisms for growth in the demographic dividend[edit source]

During the course of the demographic dividend there are four

mechanisms through which the benefits are delivered.

1. The first is the increased labor supply. However, the

magnitude of this benefit appears to be dependent on
the ability of the economy to absorb and productively
employ the extra workers rather than be a
pure demographic gift.
 2. The second mechanism is the increase in savings. As
the number of dependents decreases individuals can
save more. This increase in national savings rates
increases the stock of capital in developing countries
already facing shortages of capital and leads to higher
productivity as the accumulated capital is invested.

3. The third mechanism is human capital. Decreases in

fertility rates result in healthier women and fewer
economic pressures at home. This also allows parents
to invest more resources per child, leading to better
health and educational outcomes.

4. The fourth mechanism for growth is the increasing

domestic demand brought about by the increasing GDP
per capita and the decreasing dependency ratio.[18]

Low fertility initially leads to low youth dependency and a high

ratio of working age to total population. However, as the
relatively large working age cohort grows older, population
aging sets in. The graph shows the ratio of working age to
dependent population (those 15 to 64 years old, divided by
those above or below this age range - the inverse of
the dependency ratio) based on data and projections from
the United Nations.

There is a strategic urgency to put in place policies which

take advantage of the demographic dividend for most
countries.[19] This urgency stems from the relatively small
window of opportunity countries have to plan for the
demographic dividend when many in their population are still
young, prior to entering the work force.[19]During this short
opportunity, countries traditionally try to promote investments
which will help these young people be more productive during
their working years.[19] Failure to provide opportunities to the
growing young population will result in rising unemployment
and an increased risk of social upheaval.[19][20]
After the demographic dividend, demographic tax[edit source]

The urgency to put in place appropriate policies is magnified

by the reality that what follows the demographic dividend is
a time when the dependency ratio begins to increase again.
Inevitably the population bubble that made its way through
the most productive working years creating the demographic
dividend grows old and retires. With a disproportionate
number of old people relying upon a smaller generation
following behind them the demographic dividend becomes a
liability. With each generation having fewer children
population growth slows, stops, or even goes into reverse,
this trend may be deemed a demographic
tax[21] or demographic burden[22] This is currently seen most
dramatically in Japan with younger generations essentially
abandoning many parts of the country.[23] Other regions,
notably Europe and North America, will face similar situations
in the near future with East Asia to follow after that.

Chinas current independence ratio of 38 is unprecedentedly

low. This represents the number of dependents, children, and
people over 65, per 100 working adults.[23]This implies that
there are nearly twice as many working age people as the
rest of the entire population combined. This historically low
dependency ratio has been extremely beneficial for Chinas
unprecedented period of economic growth. This dramatic shift
was brought about largely in part due to Chinas one-child
policy. As a result, China is currently aging at an
unprecedented rate.[23] China will be older than the United
States by 2020 and by Europe by 2030.[23] Combined with the
sex-selective abortions widely practiced as a result of
the one-child policy China will have 96.5 million men in their
20s in 2025 but only 80.3 million young women Chinas
future demography holds many challenges for the Chinese
government.