Demographic dividend has challenges to overcome

By Neha Betai

In the recent years, India’s demography has been undergoing a certain noticeable change. It is estimated that by the end of the next century, India will have a young population with an average age of 29 years. The declining birth rates and death rates have contributed to turning the country into one of the youngest countries there exists and India is, thus, blessed with a huge working-age population. It is predicted that there would soon be a ‘bulge’ in the working age category (15-60 years). This ‘bulge’ is generally known as the demographic dividend.

What is the demographic dividend about?

The demographic dividend, or the period of demographic dividend, is a phase in the demographic transition of a country wherein there is a gradual increase in the working age population and the growth rate of this population is much higher than that of the dependent population (Below 15 and above 60) due to the falling birth and death rates. In other words, the dependency ratio, that is, the ratio of the dependent population to the independent population is at an all-time low.

A demographic dividend is a once-in-a-lifetime event in the development process of a country which creates a huge potential for the rapid growth of the economy. During this phase, the size of the working population in the economy is huge, which leads to increased savings and investment as well as a reduction in the unproductive consumption. It is hypothesized that when the ‘demographic dividend’ is realised by an economy, it will undergo a period of accelerated growth and prosperity. This has been observed in the case of several economies, especially the four Asian Tigers- Hong Kong, Thailand, Singapore and South Korea. In the period following the Second World War, these newly independent countries experienced a change in their demographics and attained their demographic dividend faster than other economies did. They witnessed a period of high growth coupled with an increase in productivity. The increased workforce size enabled them to expand their manufacturing and industrial sector through properly channelled investment.

Importance of policy intervention

Although policies and other efforts of the government played an important role in the growth of these economies, it is important to acknowledge the contribution of the dividend and the potential it created. Thus, if we look at the past experiences of our fellow Asian countries, we can be hopeful that the realisation of the dividend in India can bring about fruitful results for the economy too.

However, as Bloom and Canning have rightly said, “Both empirically and theoretically, there is nothing automatic about the link between demographic changes and economic growth. Age distribution changes merely create the potential for economic growth. Whether or not this potential is captured depends on the policy environment.” Here is where the main question arises, ‘Will India with its huge population, extensive inequalities, growing unemployment, extremely low rates of literacy, and other socio-economic problems be able to take the advantage of its once in a lifetime dividend or will it turn out to be a demographic nightmare?’

As of now, the future seems very dreary. India’s death rates and birth rates, and consequently the dependency ratio, have been declining rapidly for the last five decades which an indication that the demographic dividend is soon approaching. However, the efforts made by successive governments have not been enough to ensure that the nation will be able to harness the full potential of this dividend. There are three major reasons behind this.

Period of jobless growth

First, there is a huge working-age population that already exists in the economy which is not absorbed even now. In a study conducted by Bombay Stock Exchange (BSE) in collaboration with Centre for Monitoring Indian Economy (CMIE), it was found that at the end of 2017, the unemployment rate in rural India was 4.59%, whereas that of urban India was as high as 5.47%. There is a slowdown in job creation and India is said to be going through a period of jobless growth. At the same time, the efforts of the government to boost employment especially among the youth through policies like ‘Make in India’ and ‘Start-up India’ have failed to deliver results. According to the Asia-Pacific Human Development Report 2016, India will face a severe shortage of jobs in the next 35 years. This is problematic because, in the coming years, India’s working age population is going to be higher than ever before. If the shortage continues to persist, the country will not be in a position to take advantage of its dividend. Instead, it will be burdened by a huge young and jobless population leading to a lot of political and economic unrest.

Another factor is low female force participation rates, which is one of the lowest in Asia. Generally, during the demographic transition when the fertility rates decline, women are more inclined to join the labour force. However, in spite of declining fertility rates, the women in the country have refrained from joining the workforce due to cultural and socio-economic constraints. This is a crucial cause that needs to be tackled mainly because a country cannot hope to achieve high levels of growth if nearly half of its population is actively excluded from the labour force.

Dismal development indicators

Secondly, India does not boast of good, healthy development indicators. According to the United Nations Development Programme report 2016, India’s rank is 131 out of the 188 countries ranked in terms of Human Development. India’s life expectancy at birth is 68 years, much lower than what is seen in other developing countries. For example, China has a life expectancy of 76 years whereas Sri Lanka’s is almost 75 years. This reflects the state of poor health and hygiene facilities in India. India’s GNP per capita (PPP US$ 5663) is also very low and below the South Asian average. India lags behind even in terms of education. It’s expected years of schooling are just 11.7 years whereas mean years of schooling are as low as 6.3 years. In the 70 years since independence, very little focus has been given to primary education leading to the creation of uneducated and fairly unproductive labour. These factors are important to develop a healthy and a productive workforce. A workforce that is unhealthy, ill-fed, and does not have enough training and education cannot be a resource for its economy.

Burden of unskilled labour

Finally, a huge chunk of India’s population falls under the category of unskilled labour. According to a National Skill Development Corporation (NSDC) report, the major chunk of the population entering the workforce every month falls in the category of unskilled labour. There is a severe skills deficit in the economy leading to a huge skills mismatch. In the India skills report 2017 published by Wheebox, it was found that only two-fifths of the students entering the job market meet the employers’ requirement.  This can be attributed to a poor proficiency in English and lack of basic computer skills, which are a prerequisite for any job in the current day and age. The 12^th five-year plan laid major emphasis on this aspect and aimed to create a high-quality workforce. ‘Skill India’, the major policy enforced by the government to tackle the skill deficit, has improved the condition slightly but we are still nowhere close to the ideal situation.

What does the future hold?

These factors taken together paint a very worrisome picture for the coming years. India is a major supplier of labour for countries all over the world. Undoubtedly, it has a huge talent pool but the quality of the workforce is exceedingly questionable. Therefore, it is of utmost importance that we look to our South Asian neighbours, the Asian tigers and learn from their experience. These countries, at independence, also faced problems similar to ours. However, it was through rigorous efforts of the government like heavy investment in health facilities, primary and higher education, and creating a suitable environment for the female labour force, the countries managed to achieve the impossible. Thus, despite the frightening picture, there is still hope that India will be able to harness the full potential of its dividend, given that it acts quickly and meticulously.

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