Demographic dividend is essentially the economic gain realized when a country experiences a decline in its total fertility rate (TFR) and/or population growth rate resulting from transformations in the age structure of its population. Countries experiencing this demographic shift can benefit from an increase in their labor force through increased participation of women in the workforce and contributing more to national output.
Labour supply: The young population is the increased labor supply, as more people reach working age. The young population is inherently talented and enterprising. Due to high motivation and plenty of energy, they are eager to learn and work. Furthermore, given the long-term uncertainty regarding life after graduation, they are more likely motivated to accumulate work experience.
Physical capital: The second benefit stems from physical capital investment; where a relatively smaller capital stock depreciates at a faster rate in the presence of a larger young population.
Capital formation: As mentioned earlier, demographic dividend in India is a help in economic development of the country. The size of working age population is increasing and the number of dependents is decreasing. This increases the savings rate (private and government) of the country. This increase in capital formation helps in increasing income levels and level of economic activity.
Female Human capital: Health and education level is some of the biggest factors influencing a nation’s fertility rate. Education for women has a direct impact on decreasing fertility rates. Usually, women with higher levels of education tend to have fewer children than uneducated women. Better female health is also vital in determining a nation’s fertility rate. Countries with a healthier female population are typically more productive in both agricultural and non-agricultural workforces.
Economic growth: A sustained increase in a country's gross domestic product (GDP) per capita is the key factor for good economic conditions in the country. Economic growth gives birth to growth and increases the GDP per capita in many ways. It helps by increasing employment opportunities, and increasing the standard of living which stimulates demand for goods needed to improve one's well-being. This leads to demand-driven economic growth.
Infrastructure: Investments in human capital get channelized to investment in physical infrastructure resources. Increased fiscal space created by the demographic dividend enables the government to divert resources from spending on children to investing in physical and human infrastructure.
Skilled workforce: A skilled workforce is a crucial resource for the development of any country. The effective utilization of a skilled workforce can enable the massive potential of the economy to be harnessed and immense growth can be made. Most sectors of Indian economy would require a more skilled workforce than the present. It would be both a challenge and an opportunity for India to provide its workforce with required skill sets and knowledge to enable them to contribute substantially to its economic growth.
Migration: Migration could provide the much-needed impetus to the economic development of many states. Migration has two faces: interstate and international. International migration is well documented because there is a great deal of interest in it. For states to reap the benefits they have to attract migrants within India.
Enhancing human capital: The demographic dividend has huge potential for boosting India’s per capita income and GDP growth in the long run. In the short run, however, challenges remain with respect to enhancing human capital formation in order to reap the benefits of this demographic dividend.
Low human development: The recent census data have been able to highlight how the demographic dividend could impact the country’s human development prospects if that dividend is not effectively used. India ranks 130 out of 189 countries in UNDP’s Human Development Index, which is alarming.
Informal economy: The informal sector in India is the biggest employer, and hence the biggest challenge. The informal sector is defined as those businesses which are not registered with any government agency and work on a cash basis. Nearly 216 million people are engaged in the agriculture sector, are in the informal economy where not only they earn lower wages, but with little social security and few days of employment in a year.
Jobless growth: Coming to the issue of demographic dividend, it is true that India had a better demographic profile than most of its peers and faced low dependency ratio on account of the relatively low share of children and elderly people. However, it is important to note that for more than two decades we have been struggling with rising unemployment rate in rural as well as urban areas.
Asymmetric demography: Asymmetric Demography refers to an uneven and occurring earlier in time than the whole country. As against popular belief, poverty is not a big enough determinant of population growth. The growth in the working-age ratio is likely to be concentrated in some of India’s poorest states and the demographic dividend will be fully realised only if India is able to create gainful employment opportunities for this working-age population.
Issue of tilted sex ratio: Providing half of its population with any income is a challenge to the country. The absence of women in the labor force not only diminishes women’s economic contribution but also leads to a skewed sex ratio. This challenges the process of demographic dividend.
