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Economists concerned with demography prefer to explain demographic transitions in four stages. In the early stage, while both birth rate and death rate are higher, population growth is low. In the next stage, death rate falls but no change in birth rate occur and this results in an increase in population. In the third stage, birth rate starts falling with a corresponding fall in the death rate as well. This leads to a drop in population. In the last and final stage, death rate exceeds the growth of birth rate. In this stage, population growth declines. The question of demographic dividend arises in that stage when the proportion of young people is higher than the proportion of dependent people in the population.

India’s demographic transition is very slow. This is said to be so as it has sustained higher illiteracy and poverty as well as some other social customs and been hampered by lack of adequate health expenditure. Dipak Nayar, Professor Emeritus, JNU, New Delhi, pointed out recently in an article in a national daily that India’s average annual growth of population had been 2.1% in between 1951 and 1971 and 2.2% between 1971 and 1991. It dropped to 1.8% between 1991 and 2011 and further to 1.3% between 2011 and 2016. On the other hand, the birth rates (per 1000 population) dropped from 37 between 1951 and 1971 to 29 between 1971 and 1991 to 21 between 1991 and 2011 and to 19 between 2011 and 2016. The fertility rate (birth per woman) dropped from 5.2 to 3.6 to 2.4 to 2.3 in the same time frames.

Nayar also pointed out to some important data from the Economic Survey 2019 (ES 19). The ES 19 projected that annual average population growth in India will reduce to 1.1% between 2011 and 2021, 0.7% between 2021 and 2031 and 0.5% between 2031 and 2041. The fertility rates will also drop to 1.8% in 2021 and to 1.7% in 2031.

The replacement rate of fertility in India has been 2.1%. This means a woman, on an average, will have to give birth to 2.1 children to keep the number of population constant. The problem of India regarding fertility is that the replacement rate should be higher. This is because the sex ratio in India is biased towards men. That is, there are more men than women in India. Therefore, a reason for hope exists. The number of working age people (20-59) and their share in total population will continue to increase for more than two decades and peak at 59% in 2041.

Political economy of demographic dividend

In the first place, lack of job opportunity for a significant amount of labour makes a good amount of people a liability for the economy. Secondly, when unemployment is high, the women participation in the labour market tends to be less than what it should be. Thirdly, if unemployment is high, income of the people is less. So savings decrease. This slows down the investment expenditure in an economy. Low investment means inadequate infrastructure, less use of updated technology and many other pull factors. As a result, low productivity in the economy will persist. This will further lower the surplus generation.

Therefore, a vicious circle of low employment generation - low income- low surplus - low level of upgraded technology adoption - low productivity- low surplus and low employment opportunity can be experienced in an economy like India. The question is how to deal with this situation? The circle can be broken in many ways. One of the important ways is to have a policy of massive expenditure in employment generation. This will increase the income of the people which leads to higher demand in the market. This may lead to higher investment and higher employment. That may lead to an increased labour productivity. At present, India has been suffering from such a crisis situation. A section of economists think that India should take a policy of huge expenditure on employment generation with emphasis on decent level of wages to reverse the ongoing GDP slowdown of the economy.

Doubts about reaping India’s demographic dividend

There are two doubts in this regard. One is whether India can get the maximum benefit of demography in the coming years. Another is how far can India enjoy the fruits of a favourable demography.

The first proposition entails the thought that if the people of India are not skilled and productive and not properly educated, attaining full benefit of the demographic dividend is not possible. At the same time, India’s productive force is not so developed to employ almost its entire people in productive ways. It is only possible if India has a big market to sell all its quality products at very competitive prices. Both domestic and foreign markets are to be explored. One can look at China. China has been successful to get benefit of its favourable demography for decades. This has been possible as China’s was able to export its products by an increasing higher proportion of its GDP for decades. There have been other countries like Taiwan and South Korea which followed the similar path for many years. But it is very doubtful for India as it may not have access to an expanding market for its quality goods at competitive prices. In that situation, reaping the demographic dividend to a large extent will remain a distant dream. 

Secondly, there has been another observation. The scope of dividend may not stay for long as the population can stabilise sooner than expected. In a recent article in a national daily, T.V. Mohandas Pai, Chairman, Aarin Capital and Nisha Holla, Technology Fellow, C-Camp, observed, “As fertility and population growth are dropping, India’s population may stabilise faster than expected. We can expect a peak soon, followed by a gradual decline. With improved life spans, we are soon going to have a large ageing population supported by a gradually shrinking labour force.”