Date: 22/12/2022

Relevance: GS-2: Issues relating to development and management of Social Sector/Services relating to Health, Education, Human Resources; Effect of policies and politics of developed and developing countries on India’s interests; Indian diaspora.

Key Phrases: Demographic transition, ‘Baby Boomer’ Phase, Economic benefits of demographic dividend, Global Population Trends, Demographic Dividend, Population projections, Replacement level fertility, and Dependency ratio.

Context:

• Going by the World Population Prospects (WPP) report 2022 the world's population has breached the eight billion mark.
• The economic value of the population is characterized by demographic transitions which provide economic opportunity or disadvantages to economies, depending on which phase of the demographic transition they are in.

Demographic transition and the ‘Baby Boomer’ Phase

• Baby boom phase and baby boomers
  • "Baby boomer" phase refers to a period marked by a significant increase of birth rate.
  • This demographic phenomenon has occurred in the aftermath of World War II in most certain geographical bounds of defined national and cultural populations.
  • People born during these periods are often called baby boomers.
• In advanced economies
  • The ‘baby boomer’ phase for advanced economies such as the US, Germany and Japan was around 1950-64.
  • Consequently in present times the share of the old-age dependency ratio in Japan, Germany, and the US is approximately 70, 54 and 52 per cent, respectively.
• In case of India
  • India had its baby boom experience during 1980-1994, which led to a gradual increase in its working-age population.
  • The share of population aged 20-60 years to the total was about 44 per cent in 1980, which will increase to about 55 per cent in 2022 and peak at around 58 per cent in 2032.
  • India entered the demographic dividend phase around 2010, when the share of the working-age population was about 51%.
  • India may continue to enjoy the benefits of its demographic dividend till 2056, with the ratio projected at 54 per cent.

The Dependency ratio has to be taken into consideration

• Dependency ratio
  • In General, the dependency ratio is the share of dependent members of population to the working age population.
  • It relates the number of children (0-14 years old) and older persons (65 years or over) to the working-age population (15-64 years old).
• In the transition phase, India’s old-age dependency ratio will rise to around 35 % in 2050 from the current 19%.
• The benefits from the demographic dividend will fade away when the country’s baby boomer generation starts retiring.
• The dependent population will need to be supported by the state, or we may see a decline in investment spending to compensate for it.

Limited time window and many opportunities

• The next 25-30 years are crucial for India to reap the economic benefits of demographic dividend, provided appropriate policies are put in place.
• Abundant supply of labour
  • The rise in the working-age population will provide India with an abundant supply of labour, which will have a bearing on investment and production capacities.
  • Domestic output will witness healthy growth if excess labour force is absorbed in productive sectors.
• Fall in inflation
  • A rising working-age population would imply more production than consumption in the next 25 years, and this could cause inflation to fall.
  • Also, it will also cause the wage rate to decline due to excess labour supply, leading to lower cost-push inflation.
• Increased tax revenue
  • A rising working-age population and a declining dependent population concomitantly would mean increased tax revenue due to higher economic output and, at the same time, less pressure on the government to support an aging population.
• Boost in income and investment
  • In the initial years of transition due to the low fertility, the ratio of the working-age population is higher than the dependent population thus such a workforce boosts income and investment and a higher level of savings in the economy.
• Lower pressure on land, water and other resources and would also contribute to achieving environmental goals.

Way Forward

• The benefits of demographic dividend are being reaped across countries at the same time the below replacement level fertility rate would mean a smaller dividend window than expected.
• Need of flexible labour market policies along with appropriate macroeconomic and financial reforms which will encourage savings and efficient allocation of capital.
• There is a need of push to policies and schemes for boosting skills among the youth, entrepreneurship, etc.
• Effective implementation is necessary to help the domestic manufacturing and services sectors absorb the excess labour force which will also help in fulfilling ambitious aims like ‘Atmanirbhar Bharat’ and ‘Make in India’.
• Substantial investment in higher education and research and development would be required to enhance the skills of the large cohort entering the labour market in the next three decades.

Conclusion

• Aggressive forward-looking policies, along with technology push, are imperative to take advantage of the demographic dividend.

Source: The Hindu BL

Mains Question:

Q. How could India leverage its demographic dividend to achieve its economic and political goals? (150 words)