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What is Demographic Dividend in India?

Pre-Independence Phase (1786-1947) of Demographic dividend in India Bank of Calcutta in 1786. Bank of Bengal, Bank of Bombay and Bank of Madras merged in 1935 to form the Imperial Bank of India. First Indian-owned was Allahabad Bank- 1865. RBI is established in 1935 under RBI Act, 1934.

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Demographic Dividend Meaning

  • The demographic dividend was a term coined by Harvard economists David Canning and David Bloom to explain the boost in a country’s economic growth which results from the change in the country’s population age structure.
  • The United Nations Population Fund (UNFPA) describes demographic dividend as, “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)”
  • This change in a country’s population age structure arises due to decline in fertility and mortality rates.
  • Due to decreasing fertility rates, the proportion of population in working-age groups surpasses the country’s young dependent population (also known as a demographic gift). With a larger labor force and lesser dependent population, the country has a window of drastic economic growth if accompanied by adequate social and economic policies and investments in the sectors such as governance, education, health and economy.
  • Empirical research also shows that the large requirement to support this young population can also place constraints on the economy thus depressing the pace of economic growth and preventing needed human capital investments.
  • The demographic dividend provides a framework through which a research agenda, policies and allocation of resources can be defined. This can help the country realize it’s accelerated economic growth potential in the long-run.
  • A country goes through a demographic transition or a demographic shift when there is a switch in the economy from a rural-agriculturally based economy (characterized by high mortality and fertility rates) by high to an urban-industrial economy (characterized by low mortality and fertility rates). This demographic shift starts the demographic dividend.
  • UNFPA states, “A country with both increasing numbers of young people and declining fertility has the potential to reap a demographic dividend.”
  • First Demographic Dividend: This phase lasts for five decades or more, where per capita income decelerates and demographic dividend goes negative. Birth rates reduce the input in labor force while improvements in healthcare leads to longevity in the population. The older workforce accumulates assets to support retirement, which are invested in both domestic and international markets, adding to national income.
  • Second Demographic Dividend: This increase in a country’s national income marks the second dividend which continues indefinitely. Here, the dependency ratio declines sharply leading to demographic dividend. This decline combined with good polices surrounded around health and education can push a country’s economic growth further.
  • For main areas where a country’s demographic dividends can be analyzed are:
    • Economic growth: A dip in dependency ratio causes a rise in GDP per capita.
    • Human capital: Better education and health outcomes are derived as a result of fewer births and more resource allocation per child.
    • Labor supply: More people are added to the labor force. This also a span when women enter labor force in large proportions, due to reasons such as rising income, increase in life expectancy, smaller families, postponement of marriage, increasing divorce rates and single-person households.
    • Savings: Personal savings grow and are used to stimulate the economy.
  • According to World Bank Global Development Report, China enjoyed the benefits of demographic dividend in the mid-1960s.
  • According to United National population research, Asia and Latin America has enjoyed the benefits of demographic dividend in the past four decades. Countries such as Africa are yet to experience demographic dividend.
DEMOGRAPHIC DIVIDEND IN INDIA
Source: Google
  • There are approximately over 1.8 billion people in the age span of 10 to 24 years across the world today.
  • This is the highest number of young population that the world has witnessed till today. This number according to the UN Population Fund would be on a rise until 2070.
  • This rise is arising out of developing or developed nations who are experiencing increased growth in their proportion of young population.
  • The least developed countries have almost 60 percent of their population under the age of 24 years.
  • This increasing young population especially in developing nations create an opportunity to reap benefits of demographic dividend, although with certain challenges.
  • UNFPA in relation to the potential challenges that we might face stated, “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.”
  • The potential of demographic dividend would only be realized if countries are able to provide ample opportunities to young people for growth.

Demographic Dividend in India

  • India is estimated to be the largest contributor to the global demographic transition in the near future.
  • India’s population’s average age would be 20 years by 2016 which is the least among global average. This would enable India to surpass China as the largest country in the world by 2025, in terms of number of people in working population.
  • India’s population is estimated to peak at 1.692 billion by 2050.

Middle-East

  • Recently, North Africa and the Middle East experienced an increase in their population (15-29 years old) which comprise of 30 percent of their population.

East Asia

  • East Asian countries such as Korea, have heavily invested in their infrastructure and human resource. They have also implemented family planning schemes in order to encourage people to have fewer kids. This led to more resource allocation for investment in the economy.
  • UNFPA in relation to Kora’s growth stated, “The Republic of Korea, saw its per-capita gross domestic product grow about 2,200 per cent between 1950 and 2008 and Thailand’s GDP grew 970 per cent.”

Benefits of Demographic Dividend

  • Demographic dividend can contribute to rapid economic growth through the following channels:
    • An increase in the working population leads to more input in labor force.
    • An increased fiscal space which is created by demographic dividend can divert resources from children to investing in human and physical capital.
    • The rise of women’s participation in the workforce can lead to a decline in fertility (postponement of marriage is another cause) which can act as a new source of growth.
    • A peak in the savings rate of the working class can lead to an overall increase in savings in the economy.
    • The incentive to save for retirement in the long-run can increase the longevity of savings.
    • A massive shift towards a middle-class society that is already in making across various economies.
  • Higher rates of education, growth, homeownership and an increase in economic security, and an increase in demand for durable goods are other consequences of demographic dividend.

Challenges of Demographic Dividend in India

  • The growth benefits of demographic dividend in India depend on multiple factors, which can very from country to country:
    • The trainability of the working population and the employment opportunities created to employ 10 million people who join the labor force each year.
    • De-industrialization, technological processes, fourth industrial process and de-globalization can all impede future growth by creating a jobless economy.
    • Technological advancement though might create new jobs, they might also substitute a hoard of current jobs in the market. This creates skill and knowledge redundancy in the market, that is skills and knowledge become obsolete faster due to technological change.
    • India’s low human resource investment and base, might prevent it from taking advantage of these opportunities.
    • A jobless economy combined with demographic dividend can increase the proportion of the population dependent on the working force. This can lead to economic insecurity as lesser people will be able to generate wealth.
    • States such as Uttar Pradesh and Bihar are estimated to experience the largest increase in working population than developed states such as Kerala. However, this lack of development might lead to being underprepared to take advantage of the demographic change that will experience.

Indian Government Initiative In Demographic Dividend in India

Certain government initiatives by the Government of India to take advantage of Demographic Dividend in India are as follows:

  • Swacch Bharat Mission: This will help set bases for enhancing health standards and improving sanitation across the nation.
  • Pradhan Mantri Jan Dhan Yojana (PMJDY) and RuPay debit card: This will help in spreading financial inclusion and provide financial empowerment to all the account holders.
  • Make in India: This is focused on improving employability and creating employment avenues and opportunities for the youth.
  • Department of Skill Development and Entrepreneurship: This has been created in the Central Government to focus on skill development among the youth.
  • Build Human Capital: There is a strong link between human resource investment, stability, security and economic growth. Thus, increasing the portion of GDP spend on human resource investment through quality education, healthcare, skilling and job opportunities is essential. Other goals such as reducing poverty through the creation of an inclusive society is also crucial.
  • Better Implementation of Policies: Improved implementation of policies such as Mid-Day Meal Scheme, ICDS budget, Food Security Act and Domestic Violence against Women Act can help in building health, education and number of women participating in workforce. In addition, increasing allocation of GDP to enhance education (especially early childhood and elementary education) should be done.

Summary

  • The demographic dividend was a term coined by Harvard economists David Canning and David Bloom to explain the boost in a country’s economic growth which results from the change in the country’s population age structure.
  • India is estimated to be the largest contributor to the global demographic transition in the near future. As India’s population’s average age would be 20 years by 2016 which is the least among global average. This would enable India to surpass China as the largest country in the world by 2025, in terms of number of people in working population.
  • Swacch Bharat Mission and Make in India are key initiatives by the Indian government to invest in human capital.

 

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