Demographic Dividend: Boon OR Bane for India

Aparna ShuklaAssociate Professor Dr. VSIPS, Kanpur

Dr. A.K. TomarHOD, D.S. College, Aligrah

Abstract

Demographic dividend is an opportunity for India if it grasps it accordingly. There was a

major role of DD in economic growth of China. Now a day India is very much aware about

this opportunity but there is a need of proper planning and strategy formulation. This paper

is an attempt to find and analyse the correlation between economical and social factors with

successful DD through various equations. This paper also compares Chinese and Indian DD

competencies.

Key Words: Demographic Dividend (DD), Per Capita Income, Working Age Population ,

worker’s Participation Rate, skill Labour.

It is true that dramatic declines in fertility throughout much of the world—but especially in

East Asia—have produced an initial “demographic dividend.” Many countries with falling

fertility have been able to devote more human and financial capital to the market economy

rather than to child rearing, thereby enjoying high levels of economic growth.

Indian DD:

In the near future India will be the largest individual contributor to the global demographic

transition. A 2011 IMF Working Paper found that substantial portion of the growth

experienced by India since the 1980s is attributable to the country’s age structure and

changing demographics. The U.S. Census Bureau predicts that India will surpass China as the

world’s largest country by 2025, with a large proportion of those in the working age category.

Over the next two decades the continuing demographic dividend in India could add about two

percentage points per annum to India’s per capita GDP growth.

No country is better poised to take advantage of the demographic dividend than India In

2020, the average age in India will be only 29 years, compared with 37 in China and the

United States, 45 in western Europe, and 48 in Japan. Moreover, 70 percent of Indians will be

of working age in 2025, up from 61 percent now. Also by 2025, the proportion of children

younger than 15 will fall to 23 percent of India’s total population, from 34 percent today,

while the share of people older than 65 will remain around just 5 percent.

Demographic Dividend of India & China

Contribution of DD in china’s

growth: Research conducted by Wang

and an economist indicates that at least

15% of the economic growth in China

between 1982 and 2000 was a result of

demographic dividend. After 2000,

China's demographic dividend has

declined and is reaching its end,

accounting for only 20% of its previous

contribution to China's economic

growth before 2000.

Like many developing

countries at present, India will

have a relatively large working-

age population (aged between

15 and 59 years), as compared

to its dependent population

(aged 0-14 and 60+) over the

next few decades. This ‘youth

bulge’ will reach its peak in the

year 2035. Analysts consider

this period of a ‘youth bulge’ to

be a boom, during which the

abundance of human capital can

be used to fuel the growth of

the country.

Is India ready to grasp the opportunity of DD ???????????????????????????????

The following economical and social factors are analysed to know the Indian competency for successful DD, they are as,

Growth of the working-age to non-working-age ratio in India, 1950-2050

In India ratio of

working age to non

working age is

increasing in

comparison to other

Asian countries.

This will help India

to emerge as an

upcoming economic

giant in this region.

Improvements in Literacy Rate

Overall literacy rate has gone

up from just over half to

almost three quarters during

1991-2011. Literacy level

among females has nearly

doubled. Among the youth

the rates are much higher.

Employment Status in India

Agricultural Employment Growth Rates Non-Agricultural Employment Growth Rates

1993-94 to 2004-05(%)

Agriculture Self employment

1.01

Agriculture wage employment

-0.89

Total Agriculture employment

0.40

Agricultural GDP 2.37Implied employment elasticity

.17

Real Agricultural Wage rate( CPIAL deflated)

2.15

1993-94 to 2004-05 (%)

Non- agricultural self employment

3.86

Non- agricultural wage employment

3.18

Rural Non- agricultural employment

3.52

Urban Non- agricultural employment

3.46

Secondary sector employment 3.70Tertiary sector employment 3.35Total Non- agricultural employment

3.49

Non- agricultural GDP 7.71Implied employment elasticity .45Average Real Non- agricultural Wage rate

2.77

Unemployment Rate in India by Age Group

Source: Using NSS Employment and Unemployment Survey unit record data

The unemployment rate by year interval age groups shows that it is the highest among the younger cohorts especially 15 to 24 years age cohorts. In other words, the incidence or instances of those who are willing to work and available for the labour market but unable to find the work or employment is higher among the young (below 30 years) when compared to their seniors (30 + age). It is highest among the 20 to 25 years age cohorts. The situation of young jobseekers in comparison to adults seems to be hard.

Projected Sector wise Employment Status in India

From the above given table and

chart it is clear that there is a

increase in employment rate in

agriculture sector . Dependency on

this sector is high but contribution

to GDP is low. It is clear from the

given figure that employment in

agriculture sector should decline

and more participation should in

other sectors.

Work Participation Rate (WPR) in India by Age Group

WPR is approx 57% in India in

last decade while in China it

was approx 70%. In India

female WPR is very low

approx 33%. And for male

77.7% .From the given chart it

is clear that in last decades

WPR in age group (10-24)

increased but afterwards there

is no improvement.

Indian Skilled work force Numbers

This is one side

of coin but on

the other side

India has a

higher education

gross enrolment

ratio of only

12.4%. The

remaining 87.6%

drop out at

various points in

school. Only 2.5

million out of a

total of seven

million that

reach class XII go

on to a

university.

Currently only

about 2% of

the Indian

workforce has

formal training

as against an

average of 75%

in Europe.

SWOT Analysis of Indian Demographic Dividend

SRRENGTH Increased working age population. Improvement in overall literacy rate. Increasing access of people presently in the

working age to vocational education and skills training facilities could prove to be an enormous benefit.

The corresponding population ratio in India has grown more slowly, which fits well with the slower increase in India’s rate of economic growth.

Extensive growth in service sector.

WEAKNESS Most of India’s working age population is

employed in the informal sector. Lesser female worker’s participation Lesser infrastructural growth. slightly higher rates of coverage by public

pensions Less workers savings and investment which

creates burden on the government. India’s manufacturing sector remains weak Disparities in human development across

different regions of India. Inadequately educated labor in the northern

parts of the country.

OPPORTUNITY India’s youth bulge could just as easily turn

into a youth bomb. India’s working age population will continue

to be over 70% of the total population till the 2025, there is enough time to exploit it fully for the benefit of the country.

Generates new jobs opportunities. This area will generate more opportunities for

PPP.

THREAT Other developing countries like Indonesia,

Bangladesh, Pakistan is also going to grasp the opportunity of DD.

Analysis of the impact of DD

Here it is tried to find out the correlation between DD and increased per capita income or

increased economic growth with the help of following equation:

yN

= YWA

. WAN

Where YN

is per capita income, YWA

is working age population and YWA

is per capita

income to working age population.Above given equation shows the dependency of per capita income on number of working age

population and also on per capita income to number of working people.

All the above things in favour of India as it is shown in given chart

Growth in Indian per capita Income

The per capita

income of

Indians for the

first time crossed

the Rs 50,000-

mark in 2010-11,

although using

current prices as

the barometer.

According to the

revised GDP data

for the last

financial year, per

capita income is

estimated to have

risen 16.9% to Rs

53,331 compared

to Rs 46,117 in

the previous year.

Barro & Sala – i – Martin (1995), gave an equation for Growth rate of per capita income

which depends upon

here it is to tried to analyse the relevancy of this equation in Indian context.

equals the growth rate of income per member of the working-age population,

is the growth rate of the working-age share of the population.

Keeping the per capita income to working population constant it is clear from the above

equation per capita income of a country is totally depends on the no. of working hands. The

variability of this equation highly proved in Indian case , as shown in above given chart.

Following Barro and Sala-i-Martin (1995), one may express the growth rate of income per

= + .Z

.Y

.W

.W

.Z

member of the working-age population, z , as where z* is the steady-state level of income per worker and z0 is the initial level of income

per worker. λ is the speed of convergence to the steady state, which may depend on factors

such as life expectancy, educational attainment, and the capital stock.

According to the Population

Reference Bureau's 2007World

Data Sheets, life expectancy at

birth for Indians is between 60

and 64years. This was also

confirmed by the most recent

Census of India in 2001. From

the given chart it is clear that

there is admirable improvement

in Indian life expectancy since

1960 to 2007.

According to previous research

the economic growth depends

upon availability of quality

working population which is

ample in India.

The above given equation is again very much proved in Indian context because life

expectancy and literacy rate is increasing in India is increasing which is resulting in improved

numbers of skilled work force and ultimately more economical growth for a country.

Conclusion: The above analysis showes that there is positive relationship between

favourable economical and social factors and successful DD and also the positive correlation

between the life expectancy and per capita income to working population. The lesson here is

that nations wishing to enjoy robust economic growth and viable welfare states over the long-

term must maintain fertility rates high enough to avoid shrinking workforces and rapidly

aging populations. A recent Rand report noted, for instance, that “India will have more

favourable demographics than China” in the long-term, insofar as its workforce is predicted

to grow, not shrink, over the next few decades (see below).1 Indeed, the report suggests that

.Z = λ ( Z*- Z0)

in this century, India may be able to turn this demographic advantage into higher economic

growth rates than even China has enjoyed but the thing is to mould it positively

References:

David Bloom argues, for instance, that more than 25 percent of the per capita GDP

growth associated with the East Asian “economic miracle” of the late twentieth

century can be attributed to the fact that the total fertility rate in East Asia fell from

about six children per woman in 1950 to less than two today.

As Phillip Longman and his colleagues point out in The Empty Cradle, on current

course, countries like China and Japan are poised to see their workforces shrink by

more than 20 percent between now and 2050 because of persistently low fertility,

even as their elderly populations surge.

Bosworth and Collins (2008) use a simple growth accounting framework to compare

the recent economic performance of China and India, and produce estimates of the

contribution of labor, capital, education, and total factor productivity (TFP) for

individual sectors and the economy as a whole.

Nicholas Eberstadt (2010) considers the implications of demographic change in Asia

for the evolving cross-country strategic balance, noting that economic strength has a

major effect on military strength. He finds that China’s forthcoming demographic

changes are likely to pose a barrier to its continued rise, whereas he sees a moderate

boost to India’s strength because of its demographic picture.

Bloom et al. (2010) study economic growth in China and India between 1965-70 and

1995-2000 and find that increases in the working age population share during that

period boosted the rate of economic growth in India by an annual average of 0.7

percentage points.

Yong Wang and Kamhon Kan.Examining projected changes in the size of the labor

force in China and India provides a straightforward way of considering the interaction

of population growth, changing age structure, and the supply of labor.

David E. Bloom Harvard School of Public HealthJanuary 2011, Population Dynamics

in India andImplications for Economic Growth

Web References :http://sustaindemographicdividend.org/articles/the-sustainable-demographichttp://business.mapsofindia.com/india-economy/india-vs-china.htmlhttp://www.policyproject.com/pubs/generalreport/Demo_Div.pdfhttp://www.strategy-business.com/article/10205?gko=93fafhttp://planningcommission.nic.in/data/datatable/0904/tab_57.pdf