Demographic Dividend

Posted 22 Feb 2025

5 min read

Why in the news?

McKinsey Global Institute, in its report "Dependency and depopulation? Confronting the consequences of a new demographic reality", said that India has 33 years to reap the benefits of its demographic dividend.

Key Findings of the Report

Declining Fertility and Population Collapse	Two-thirds of humanity lives in countries with fertility below the replacement rate (2.1 children per woman). By 2100, major economies may see population declines of 20–50%. Sub-Saharan Africa is the only region expected to maintain a high fertility rate.
Aging Populations and Economic Dependency	Age structures are shifting frompyramids (many young, few old) to obelisks (many old, fewer young). By 2050, the working-age population in first wave regions (advanced economies, China) will shrink from 67% to 59%. Later wave regions (India, Latin America, and Emerging Asia) will experience similar shifts within one to two generations.
Economic Consequences of Aging	Seniors' share of global consumptionwill double by 2050, reaching 25%. Retirement systems may require 50% of labor income to sustain aging populations.
India Specific findings	Fertility Trends: India's national fertility rate stands at 1.98, below the replacement level of 2.1. Regional Variations: Sikkim has the lowest fertility rate at 1.05. Bihar has the highest fertility rate at 2.98. India's population dynamics require a subnational approach to address declining fertility rates, as different regions experience contrasting trends. Population and Workforce Support Ratio: India's current support ratio (workers per senior) is 9.8. By 2050, it is projected to halve. Demographic Dividend The demographic dividend contributed 0.7% annually to GDP per capita growth in recent decades. This contribution is projected to drop to 0.2% annually by 2050. Shift in Consumption Patterns: India, along with Emerging Asia, will account for 30% of global consumption by 2050, up from 12% in 1997

About Demographic Dividend

When the share of the working age population exceeds that of the very young and old (dependent population), it lands a country in what is known as the demographic dividend zone.
With fewer people to support, a country has a window of opportunity for rapid economic growth if the right social and economic policies are developed and investments made.

Demographic winter refers to declining birth rates leading to aging populations and eventual decline, as seen in Japan, where 40% of the population may be over 65 by 2050.

With one of the youngest populations globally, sixty-five percent of India's fast-growing population is under 35.
The Economic Survey 2018-19 says that the demographic dividend would peak around 2041, when the working age group will be 59% of India's total population.

Potential benefits of Demographic Dividend

Economic growth: According to IMF, demographic dividend could add about 2 percentage points per annum to India's per capita GDP growth over the next two decades (2011).
- China is a prime example of a country that has experienced significant economic growth fueled by its demographic dividend.
Increased Savings and Investments: With fewer dependents, individuals tend to save more, leading to increased capital accumulation and investment.
Labor supply: More workers are added to the labor force, including more women.
Consumption led growth: According to Mckinsey, India is projected to account for 16 per cent of global consumption at purchasing power parity (PPP) by 2050.
Fiscal space: With a smaller dependent population, governments can allocate more resources to investments in infrastructure, education, and healthcare, further boosting economic development.

Challenges faced by India in reaping demographic dividend

Unemployment and Underemployment: The current rate of job creation is not sufficient to absorb the millions of young people entering the labor market each year.
- In 2022, India's youth accounted for 83% of the country's total unemployed population, according to the India Employment Report 2024.
Skill mismatch: Global Skills Gaps Measurement and Monitoring Report of ILO 2023 indicate that 47% of Indian workers, especially 62% of females are underqualified for their jobs.
Health and Nutrition: India still faces challenges related to child malnutrition, maternal health, and access to quality healthcare, which can impact the overall health and well-being of its workforce.
Gender Disparity: Female labor force participation in India is relatively low compared to other countries.
- Periodic Labour Force Survey for 2021-22 highlights that the FLFP 32.8% in India (47% global average)
Regional Disparities: India's demographic dividend is not uniform across all regions. Some states have already achieved low fertility rates and are facing an aging population.
Informal Economy: A large share of India's workforce is employed in the informal sector, where workers often face low wages, job insecurity, and lack of social protection.

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Way Forward

Investing in Human Capital: Strengthen education and skills training, align curricula with job market needs, and invest in healthcare and nutrition for long-term productivity.
Creating Employment Opportunities: Support job creation through entrepreneurship, business-friendly policies, and labor market reforms while promoting women's workforce participation.
Managing Aging Populations: This may involve raising retirement ages gradually, incentivizing older workers to remain in the workforce longer, and reforming pension systems to ensure their sustainability.
International Cooperation: Share best practices, provide technical assistance, and collaborate for well-managed migration strategies.
Data Collection and Analysis: Improve demographic and labor market data collection to enable informed policymaking and effective economic planning.