In the immediate future, due to reduced fertility and mortality, the working age population will grow faster than the total population, hence reducing the dependency burden.
J Krishnamurty & Abhay Kumar
In the immediate future, due to reduced fertility and mortality, the working age population will grow faster than the total population, hence reducing the dependency burden. A growing working age population is typically associated with a growing workforce which may, under certain conditions, lead to rapid growth in output. At the same time, reduced dependency would permit increased investment per child in health and education and increased female labour force participation (as the burden of child-bearing and rearing is reduced) and higher rates of household saving. If indeed these conditions are met in India, and lead to rapid growth of the economy, we may say that the demographic dividend is being realised.
Some of the requirements for a demographic dividend will be met over the next 15 years or so. This is clear from looking at the latest UN projections contained in the World Population Prospects 2017. Using the medium variant, the following important points may be made about Indian trends for 2012 to 2026, the period we have chosen to examine in detail. [We also provide a graphic indicating long-term trends in the share of the major age groups in the population.]
*The working age population will grow faster than the total population. The population aged 15-59, conventionally described in India as the working age population, will increase between 2012 and 2026 by 20%. The population of all ages will increase by 16%.
* The dependency burden will fall over this period. (This is conventionally defined as the population aged 0-14 and 60 and over as a ratio of the population aged 15-59.) The ratio will fall from 0.62 to 0.56 between 2012 and 2026.
*The young-age-dependency ratio (in respect of the population aged 0-14) will decline from 0.49 to 0.38.
*However, the old-age-dependency ratio (relating to the population aged 60 and over) will rise very rapidly: from 0.12 to 0.18.
Will these trends, over the period up to 2026, generate a demographic dividend for the Indian economy? The answer is yes, provided three sets of conditions are met.
First, the spurt in labour force growth due to changes in the age structure results in the growth of productive employment. This, in turn, assumes that the required jobs are created by the economy and that the growing labour force possesses, or can easily acquire, the requisite education, skills and training to take advantage of these opportunities.
Secondly, the reduction in dependency results in greater household saving and increased expenditure on health and education, which in turn will further raise productivity over time. Note, however, that increased old-age dependency would work in the opposite direction.
Thirdly, the reduced burden of child bearing and rearing frees more women to participate in the labour force and contribute to output growth.
In our discussion, we will concentrate on the first point. Is the growing labour force likely to possess the required education, training and skills to benefit from and contribute towards rapid economic growth based on rising productivity?
Ideally, this requires preparing labour force projections taking into account changes in participation rates for sex, by age group and by rural-urban residence. We had attempted this in an earlier paper using our own population projections and available information on current participation rate patterns. [See J Krishnamurty and Abhay Kumar, “The Demographic Dividend: Challenges to Employment and Employability,” Indian Journal of Labour Economics, Volume 58 Number 1, January-March 2015]. We do not attempt it here.
Basing ourselves on the most recent UN projections, let us look more closely at the age composition of the working age population and draw some important policy conclusions. Two major changes stand out. We examine them in turn. First, the share of youth (persons aged 15-29) in the working age population will decline in relative terms from 44.4% to 39.6% over the period of 2012-2026. Of course, this still means that about 40% of the working age population will be in the youth age group, but many may not be in the labour force; they may be undergoing education and training or involved in child bearing and child care.
They will, no doubt, account for a smaller proportion of the labour force in 2026. Nevertheless, their contribution to economic growth will be greater, not on account of their growing size, but on account of their better education and probably better skills and training.
Secondly, the major part of the increase in the working age population will be in the 30-59 age group. Their share will rise from 55.6% to 60.4%. They would contribute in greater numbers to the growth of the labour force.
Also, a higher proportion of older persons of working age are likely to be in the work force and this would include women who have completed child bearing and child care. This group comprises of persons who were aged between 16 and 45 in the base year, 2012. Most of them would have low educational attainment in 2012 and are very unlikely to improve their educational status over the period to 2026. They are also unlikely to possess or be able to acquire the training and skills needed to respond to emerging labour market demands. Hence, they are not likely to contribute much to the demographic dividend in terms of output and productivity growth.
It is important to stress that the mere addition of a person to the labour force over the period of time means little in terms of contributing to economic growth unless she/he has an appropriate endowment of education, training and job-relevant skills. Future growth will be driven by technological changes and will require a growing highly skilled work force.
We have focused here on the population projections, to give a broad picture of future trends. Growth rates of population and the labour force are not uniform across India, and there are major questions to be addressed about future trends in labour force participation, especially of women.
We expect future economic growth to be driven by technological changes and a growing highly skilled work force. It will, however, be limited by the increasing numbers of older workers lacking adequate education and skills, and without the ability to acquire them in the future. Public policy has not seriously addressed this problem. This should be a priority task for the NITI Aayog.
The first step is to set up an expert group on population and labour force projections, which should include some independent experts. The expert group should develop population and labour force projections disaggregated, at the very minimum, by sex, age, labour force participation, residence and State.
The NITI Aayog should then develop scenarios for India’s future built upon these projections. They should cover, at least, the next 15-20 years. This will facilitate an informed discussion of future scenarios for India’s development and of the policies and programmes that will be needed.
Krishnamurty is former senior economist, ILO, and visiting professor, IHD. Kumar is ED, Lokashraya Foundation