India’s demographic dividend will eventually dwindle: ADB

Tbilisi, Georgia: Ageing population is turning out to be a challenge for developing Asia and the Pacific and it could reduce the demographic dividend of countries with younger population such as India and Indonesia, over the coming years, the Asian Development Bank (ADB) said in a report released here on Thursday. However, there is an opportunity to get more productivity out of older persons, a silver dividend, ADB said.

The ADB report titled Aging Well in Asia: Asian Development Policy Report 2024 released at the multilateral body’s 57th annual meeting highlighted that the share of people aged 60 years and more over those in the 15-59 years of age, called old age dependency ratio, is set to increase significantly for the region, including for India, by 2050 from the levels seen in 2022. For India, old age dependency ratio, which was a little less than 20% in 2022, is expected to be over 30% by 2050, the report said, using an analysis of United Nations data. India is already the most populous nation in the world. 

Demographic dividends

Younger economies such as India and Indonesia will continue to enjoy sizable demographic dividends, albeit dwindling ones, the report said. According to an analysis quoted by ADB, the change in old-age dependency ratio will reduce India’s GDP growth per capita by 0.053 percentage points in the 2031-2040 period. For China, it would be a reduction of 0.211 percentage points in the period. 

The report also said that overall, the analysis resoundingly confirmed the conventional wisdom that the demographic tailwinds that helped propel developing Asia’s past economic growth will turn into demographic headwinds in the coming decades, but promoting the well-being of old people, especially, their health, can significantly increase their capacity to work. ADB’s senior economist Aiko Kikkawa, co-author of the report, said at a briefing that the economic growth rates of countries could benefit if untapped work capacity of people in the age group of 60-69 years is tapped. For example, India could see an improvement of 1.5 percentage point in GDP growth rate in terms of ‘silver dividend’ if the untapped work capacity is utilised.

ADB chief economist Albert Park said at the briefing that macroeconomists look at indicators like the dependence of young people and old people as a share of working-age people and if this dependency ratio is increasing, then it is going to be a headwind to growth. India enjoys a demographic dividend in terms of its positive contribution to growth, he said. Park said that the growth impact of growing old-age dependency ratio could be addressed by giving more flexibility for old persons to transition from full-time work to part-time work and by getting more out of the older workers.

Ageing population

Experts pointed out that an older population would mean lesser workforce, while a nation’s spending on welfare of the aged goes up—factors that have a bearing on its public debt as well as debt servicing capacity. 

“After China and Japan, India may be the next Asian country to face the challenge of ageing population as over the next 25-30 years, the current middle-aged working population would become the old-age population,” said N.R. Bhanumurthy, vice-chancellor at Dr. B.R. Ambedkar School of Economics University, Bengaluru. “Old age challenge is one of the most clear and anticipated future public and fiscal policy risk which should be the part and parcel of India’s public policy discourse,” said Bhanumurthy. Bhanumurthy’s suggestion implies that ageing population should be a criteria in policy discussions on setting long term fiscal policy targets.

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In response to a question from Mint, Park agreed that an increase in old age dependency should definitely be a factor policy makers have to consider while setting fiscal targets and that a lot of thinking has to go into the expenditure needs of countries given the programmes they would like to establish. “I think governments need to start putting in place programmes to support the elderly—the big areas here are health insurance, pension and eventually, long term care needs.”

The ADB report said that the number of people aged 60 years and older in developing Asia and the Pacific is set to nearly double by 2050 to 1.2 billion—or about a quarter of the total population—significantly increasing the need for pension and welfare programmes as well as healthcare services. 

Expanding healthcare and long-term care services for the elderly will entail substantial fiscal costs but experience in advanced economies showed that the expanded fiscal space is indispensable. “Tax resource mobilization can be augmented by deploying greater fiscal effort toward generating more revenues. Public and private investment in human capital—notably preventative and curative healthcare, and lifelong education—can generate big silver dividends as healthier and better educated older Asians become more productive and require less healthcare and long-term care," the report said.

The reporter is in Tbilisi at the invitation of Asian Development Bank.