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India and the Fallacy of the Demographic Dividend

Jun 17, 2016


At times it is very difficult to make sense of a country as complicated as India is. What complicates the situation further is the fact that we have very little data going around in many cases. But then there are broader trends, which one can comment on.

One such thing is the demographic dividend or to put it more precisely India's demographic dividend. Nearly eleven years back, when I didn't understand much economics or finance, this was one of the terms I heard people connected with the investment industry, continuously talk about.

India will do well in this decades to come because of its demographic dividend, they said. In fact, some of them are still talking about it.

So what is the demographic dividend? As country progresses it moves from being a largely rural agrarian society to a predominantly urban society. Along the way it changes from being a society with high fertility and mortality rates to a society which has low fertility and mortality rates.

As Ronald Lee and Andrew Mason write in an article titled What is the demographic dividend in the Finance and Development magazine of the International Monetary Fund: "At an early stage of this transition, fertility rates fall, leading to fewer young mouths to feed. During this period, the labour force temporarily grows more rapidly than the population dependent on it, freeing up resources for investment in economic development and family welfare. Other things being equal, per capita income grows more rapidly too."

The infant mortality rate in India was 75 in 1996. It has come down to 38 in 2015, data from World Bank shows. The infant mortality rate is essentially defined as the number of infants who die before reaching one year of age, for every 1000 live births during the course of a given year.

Along with the infant mortality rate declining, the general technological advances as well as access to medical facilities have improved. This essentially means that in the coming years there will be a huge bulge in the number of young people in the country. In this stage, the workforce of the country will increase dramatically.

There are multiple estimates of what India's workforce will look like in the years to come. Most of these estimates essentially suggest that India's workforce is increasing at the rate of one million workers per month and will continue increasing at this rate in the years to come.

The Planning Commission, before it was disbanded by the Narendra Modi government, had made an estimate on India's workforce in the years to come.

As the 12th Five Year Plan (2012-2017) document pointed out: "One hundred and eighty-three million additional income seekers are expected to join the workforce over the next 15 years." This essentially means that a little over 12 million individuals will keep joining the workforce every year, in the years to come. This works out to around one million a month. And at this rate, the Indian workforce is expected to be larger than that of China by 2030.

And this is India's demographic dividend. As these individuals enter the workforce, find work, earn money and spend it, the Indian economy is expected to do well. When economists and politicians talk about an economic growth of close to 10 per cent per year, they are essentially hoping that India's demographic dividend will play out as it is expected.

But the question is how likely is this? How have things with other countries been in the past? Have countries which were expected to benefit from the demographic dividend benefitted from it?

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As Ruchir Sharma writes in his new book The Rise and Fall of Nations-Ten Rules of Change in the Post-Crisis World: "The trick is to avoid falling for the fallacy of the "demographic dividend," the idea that population growth pays off automatically in rapid economic growth. It pays off only if political leaders create the economic conditions necessary to attract investment and generate jobs. In the 1960s and '70s, rapid population growth in Africa, China, and India led to famines, high unemployment and civil strife. Rapid population growth is often a precondition for fast economic growth, but it never guarantees fast growth."

Sharma then talks about the Arab world which despite being poised to, did not benefit from a demographic dividend. As Sharma writes: "The Arab world provides a cautionary tale. There between 1985 and 2005 the working age population grew by an average annual rate of more than 3 percent, or nearly twice as face as the rest of the world. But no economic dividend resulted. In the early 2010s many Arab countries suffered from cripplingly high youth unemployment rates; more than 40 percent in Iraq and more than 30 percent in Saudi Arabia, Egypt, and Tunisia, where the violence and chaos of the Arab Spring began."

This is something that India and Indians need to be aware of. The demographic dividend benefits a country if the government of the day is able to create the right environment in which jobs are created. As Sharma writes: "In India, where hopes for the demographic dividend have also been sky high, ten million young people will enter the workforce each year over the next decade, but the lately the economy has been creating less than five million jobs annually."

If this were to continue, there will be no demographic dividend for India.

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. Vivek is a writer who has worked at senior positions with the Daily News and Analysis (DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. The latest book in the trilogy Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System was published in March 2015. The books were bestsellers on Amazon. His writing has also appeared in The Times of India, The Hindu, The Hindu Business Line, Business World, Business Today, India Today, Business Standard, Forbes India, Deccan Chronicle, The Asian Age, Mutual Fund Insight, Wealth Insight, Swarajya, Bangalore Mirror among others.

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7 Responses to "India and the Fallacy of the Demographic Dividend"

Sajida Waseem

Nov 29, 2017

And with urbanization poised to become like Latin America because unlike Turkey, where urbanization and income growth went hand in hand-because of urban governance modernization-India is ( and Pakistan and Bangladesh are like India and Latin America) not modernizing urban governance.



Aug 17, 2016

Demographic dividend is a very thin rope India is currently walking upon, hence it is no surprise that talks on this subject results in folks getting overtly optimistic or pessimistic depending upon the frame of mind they are currently in. I personally feel even though India's uncontrolled population growth in last 30 - 40 years is what has resulted in the present situation, putting strict controls on population growth will result in negative direction as is currently being witnessed in China. Vivek's article currently points to demography statistics of the young population but it does not tell how many of them are in the literate and illiterate categories which would only qualify them for doing menial/unskilled jobs which will only be enough to feed self and their large families stomach. It is an open secret that population bulge happened in the poor and illiterate families as compared to the literate ones and I would not be surprised if the ration turns out to be 1 literate to 5 illiterates in this dividend population zone. Hence to me all this demographic dividend seems hoopla as all will depend upon how skillfully and gainfully the 1 literate person is employed as he will be the one spawning indirect jobs to feed the other 5 persons. If the government of the day is able to achieve in providing gainful employment to the highly skilled and literate young Indian then the demographic dividend will still materialize to some extent but not to the greatest extent that is being hyped about.


Avjit Parhar

Jun 18, 2016

It's thin line between Demographic Dividend and Demographic Disaster. Just as mechanised agriculture reduces jobs in agriculture sector, so does robotised manufacturing in the industry segment. Let's be pragmatic, no nation run by politicians can create the number of jobs that are required. A prudent plan for India must try to balance the rate of growth of population with creation of jobs within India and abroad, in countries that are deficient of work force. That is easier said than done, especially if you superimpose the level of motivation, work culture, skills and education on the workforce.

Like (1)


Jun 18, 2016

This article should rephrased as"India's demographic liability " !!
We do not seem to understand as a nation that it's people can be their greatest asset or their greatest liability depending upon how it is generated, controlled and gainfuly used.

Every citizen born is a national liabilty than an asset, if she/he is Not given basic needs of water,food,shelter,health,education and employment opportunities. She/he becomes a liability to the society and nation at large if aforesaid is inadequate.

Biggest problems are feeding more mouths than what we CANNOT afford to,it Cascades into serious and mostly unsurmountable downstream of poor health,no education,deprived life that may look bleak,helpless,Strife's,crimes,undesirable activities.and very undignified living

There are many reasons for this mess.We are perennially linking population with religious biases,practices,beliefs, that are irrelevant to today's INDIA. We have all poor and factual data numbers when we are compared to other countries. There is nothing to be proud about,infact it is shameful tale our system heaped upon people by all governments,past and present,after near seventy years of Indian rule .

Do we have a national population POLICY?? Do we have wherewithal to effectively address all above issues??Have we handled a very basic existential need of clean drinkable water??Do we have enough food that will reach each citizen??There are no answers to each of the above questions.

can we provide basic hygiene,health,education to each citizen ??What good does it do by saying it is a fundamental right of each citizen born ,when most of above is beyond reach
Of each citizen??

It is time to think of bold,differen,workable solutions to address these issues afresh,involve all leaders of religions,social leaders,political systems to a path breaking uncharted Road that will stabilize population, shrink birth rates
It is good for future times for our unborn citizens.who will be better than what we are today.We have lost several generations in the past ,that lived an undignified life,we have done very little so far to ensure better future for the present generation,

so why hype about any dividend that does not exist,if you care to change YOUR vision and see a reality and truth

Act now and fast,there is no time to loose!!!


Like (1)

S. Rajagopalan

Jun 17, 2016

Very good article. India in order to grow, has to cut down its crippling bureaucracy. Labour laws have to be changed completely to have china like growth. This nuisance of ESI and PF have to be revamped. No. of employees limit have to be increased substantially to say 100 persons, so that small and medium scale industries will grow and create jobs. Employee Hire and fire policy should be encouraged to improve productivity. Taxation laws should be overhauled, particularly Indirect taxes and inspector Raj should be abolished.

A small group of Indian bureaucracy and Govt. employees are holding up the growth of this country. The people here have enough enterprise and opportunities.

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Asit Ganguly

Jun 17, 2016

It is convenient for politicians to talk about Demographic Dividend to keep false hopes alive. As data shows more than 20 crore Indians are in abject poverty with poorest pre-natal, post-natal and child health conditions. What we get are only four weak limbs and hungry stomachs. Can we call them complete human beings who can be converted into dividends!! If luck permits these beings go through an education system which does not provide any skill or scope to enrich their brains. Then as young adults they expect livelihood. Rightly so but are they fit for any meaningful employment!! On top of it, change in technologies, robotics and artificial intelligence will take away lower and mid level jobs. What we are staring at is deep disillusion about state by a huge part of population and not a demographic dividend.

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Jun 17, 2016

Vivek, there is no reason to be pessimistic.


There are schemes in place like Skill India, Make in India, Digital India, which ALL PUT TOGETHER, WILL YIELD BENEFITS OF DEMOGRAPHIC DIVIDENDS. Stop misleading the public and put out some genuine, researched analysis and cover it with 'caveats', if you have to even criticize someone or somebody.

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