Home / Market / Mark-to-market /  Demographic dividend: waiting for the payout

India’s demographic dividend has been a steady feature in presentations about the country’s economic potential. Between now and 2025, India’s working age population is expected to rise by 100 million people, according to a report by Macquarie Research and Global Demographics.

This makes it the largest contributor to the global working population, compared with a decline of 29 million in China, an increase of 53 million in North Africa and Middle East, 44 million in Africa and 39 million in developing Asia. This makes India a market with great consumption potential, making it an attractive market for investors. That is one view.

While the working population is indeed increasing, what matters is its dependency ratio. That measures how many people are dependent on the working age population, mainly young children and old people. Even here, India is doing well. Between 2010 and 2015, India’s dependency ratio is estimated to have declined from 56.3 to 52.4, according to data from the UN’s World Population Prospects: 2015 revision. By 2025, it is estimated to decline to 48.4, based on the UN report’s tables computed using an assumption of medium fertility.

But demography is not destiny. There are many countries that have seen a sharp fall in their dependency ratios but have not seen extraordinary growth rates.

Adding to the workforce and lowering the dependency ratio is fine, but ensuring this workforce has the right skills and there are enough economic opportunities are equally important. The sorry episode of doctorate-holders applying for government jobs way below their skill level is one example, even if an extreme one, of a glaring mismatch in demand and supply.

The Macquarie report highlights how only 7% of India’s population has vocational education. South Korea, which has reaped a demographic dividend, shifted its education strategy in the 1950s and 1960s to help students get good jobs, according to an article on the Population Reference Bureau website.

More women in the workforce can also make a big difference. The same Asian Development Bank (ADB) report which lowered India’s growth forecasts, says India’s record in this area is abysmal. The ADB report quotes a UN index that measures losses to human development due to gender inequality. “In 2013, Afghanistan, Papua New Guinea, Pakistan and India in that order posted the highest continuing losses to human development, all exceeding 55%."

Macquarie’s report estimates most of the increase in income between 2015 and 2025 will anyway go to India’s upper middle class and rich households. Its estimates show that the two lowest income classes, deprived and aspirers, will fall from 65% of the population to 59%. That is still a large number and is after assuming that the so-called demographic dividend pays out.

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