ALLIANCE UNIVERSITY

Demographic Profile of
India: opportunity or
threat?
Mohd. Arif Sayyed Moin, Sulekha Angeline Kujur & Mohammed Ali Shaikh

The power of population is indefinitely greater than the power in the earth to produce
subsistence for man
-Thomas Malthus
Population is one of the driving factors that help the nation to grow as a whole. Rapidly
expanding population increases human and intellectual capital providing expanding markets
leading to economic growth. The importance of population cannot be overemphasized in this
regard. As per the United Nations World Population Prospects 2015, the world population is
7.3 billion. India has the worlds highest youth population. The average youth population in
India by 2020 would be 29 years of age compared an average age of 37 in china and U.S.A
and 45 in Europe and 48 in Japan. In the recent past, a new line of thinking has emerged
which emphasizes on the composition of the population rather than numbers. The policy
makers pegged that rapid reduction of fertility rate through the stringent one child policy has
reaped its benefits in the short term period. But, in the longer period the changes in the age
structure of China will lead to a population pyramid in which the large number of elderly will
be supported by the smaller base of the working population. In contrast, India having
experienced slower decline in the fertility rate will have a large working population with a
smaller dependency ratio and reap the benefits of demographic dividends. This window of
opportunity is sometimes referred to as reward for fertility reduction. But, the question arises
as to the role of the policy environment needed to reap the window of opportunity created by
demographic dividend. In, India the surpluses created by the population has to be distributed
to a large population which is thinly spread. Thus, there effect on unemployment and job
creation in the economy is limited. Moreover, with limited resources the task of feeding such
a large population and providing them with clean water, sanitation and education becomes a
challenging task. Thus, the future window of opportunity created by the demographic
dividend can be exploited only if the government focuses on the following grounds:
1) Increase in the rate of Gross Domestic Capital Formation (GDFC) and Gross
Domestic Savings with the % level of GDP.
2) Increase the female labour Participation.
3) Adequate investment in skill development and quality of education according to
market demand.
4) To increase in the health and education of the young population.
To analyse the effective and appropriate policies to exploit the window of opportunity created
by the bulge in the population age structure, it is necessary to determine the total dependency

ratio, which has to be defined in terms of actual workers to non-workers and not the nonworking population to working population. Lower the dependency ratio, higher the per capita
income for a person to improve his standards. Now, we shall examine the estimates of gross
domestic capital formation and gross domestic product as percentages of GDP.

30
25
20
GDFC

15

GD Savings
rog GDP

10
5
0
1981

1983

1985

1987

1989

1991

Source: National Statistical Organization, Various issues.

As chart 1 shows, both the savings and investment rates have increased over a period of a
longer duration. The saving and investment rate is a part of a trend of much a longer duration,
whereby the savings and investment rates have increased with the level of the economic
development as the economy expands, in an Engel curve type pattern whereby increased
aggregates allow for larger share of savings. Many neo-liberals economists have argued that
in a world of substantially mobile capital, domestic savings do not act as a constraint to the
investment and growth if demand is not a binding constraint. Rather, it is typically suggested
is that what really matters is a deregulated environment designed to be attractive to external
investors, which would attract foreign savings and allow domestic investment to increase
accordingly.
The World Bank (2013) clearly pointed the policy environment must be conducive to
growth. It requires attending to macroeconomic stability, an enabling business environment,
human capital accumulation, and the rule of law. This was also reiterated by the governor of

Reserve Bank of India Dr. Raghu Ram Rajan. Know your customers business, risk
management and fair treatment of customers, apart from financial inclusion would acquire
centrestage for the financial sector in the future, Chakrabarty observed in an interview with
IIM-L. The extent to which the increased resources per capita resulting from the decline in
the fertility ratio translates into higher living standards depends on policy settings. With good
policy management and investment in physical and human capital, the savings from this
window of opportunity can be used to transmute economies such their growth rate remains
high even after the window is closed.
The other pathway by which the demographic changes influence the economic development
is the participation of the female. The decline in the dependency ratio cannot be achieved
unless women participation in the work increases. This is expected to increase the family
income and ergo has the potential of improving the standard of the family. Policy makers
have argued that rapidly ageing population, China will lose the competitive edge to India with
the shrinking working age population left to support a large number of elderly. Population
projection suggests that the dependency ratio, will increase from 0.39 in 2001 to 0.50 in 2030
while on the other hand it will decrease from 0.55 to 0.48 in the same period. This discourse,
however ignores the fact of female work participation in India is way lesser than that of
China. For example, International Labour Organization (ILO) estimates shows 68.9%
Chinese women in the labour force and only 34.2% Indian women in the work force. Thus, in
order to reap the benefits created by the window of opportunity the work rate participation of
women has to be increased.
The third step that has to be taken is to invest in skill development of the young population.
The Ernst & Young Report 2015 identified five core industries which will demand the
maximum labour are Infrastructure, Auto and auto components, Building & Construction,
Textiles and Cothing and Transport and Logistics. Around 93% Indian workforce is engaged
in unorganised or informal sector, which lacks the skill development system. Every year, only
2.5% of the unorganized workforce goes for skill development compared to 11.6% in the
organised sector. Furthermore, only 10.5% workforce from the unorganized and organized
sector undergo for formal training leaving 85% of the workforce unskilled. In order to
exploit the window of opportunity the state must invest in skill development.
Figure: % of Formally Skilled Workforce

South Korea

Japan

Germany

UK

India

20

40

60

80

100

120

Source: IDFC (as published in 2011)

The formal sector offers the greatest scope for absorption of labour, with far higher values of
incomes. This is especially the case in manufacturing sector. The united nations reports on
the bloom in the East Asian countries have been attributed to the demographic dividend.
Countries like South Korea focused on low-end manufacturing in the 1960s and 19770s
thereby building a base for skills and policies for high end manufacturing and services.
Vietnam, also moved from exporting primary produce to manufacturing plant to production
of high end technology such as Samsung. However, it may take some time for India to
expand the formal sector. Meanwhile, India can repeat the Chinese Model. For example, the
Township and Village Enterprises (TVEs) in China. China employed its population by
creating manufacturing enterprises that produced a various products for local consumption as
well as exports. This model is sine qua non for India where the majority of the population
lives in rural areas. Expanding livelihood in rural areas will help contain the pressure of
migration in urban areas and increase the pace of urbanization and employment when people
migrate to urban areas. This model functions with deep involvement of the local government
in collaboration with the central government which through its wider access to information
provides them information pertaining to raw material, quality control, marketing facilities etc.
The state can act as a catalyst in expanding the productivity of cottage and small scale

industries which supports a huge mass of the population. The government of India has set the
target of imparting the necessary skill to 500 million people by the year 2022. In this regard,
the Institute of Applied Manpower Research has computed a new skill gap figures to arrive at
a realistic figure. The government think-tank predicts that the government needs to impart
skill to 249 million to 290 million people in different sectors. The twelfth five year plan
embarked on an earnest task of imparting skill to 80 million people until 2017, which leaves
around 400 million people to be trained till 2022. India has a capacity of training 4.3 million
people thereby depriving more than half of the population the opportunity of formal skill
development every year. Moreover, net enrolment in vocational courses in India is estimated
at around 5.5 million per year, while that in China is 90 million and in the US 11.3 million.
Clearly, the country faces a major challenge of imparting employable skills to its growing
workforce over the next few decades. To accomplish this Herculean task, various agencies of
the central government, state government, NGOs and even private companies through
Corporate Social Responsibility (CSR) have joined hands. About 17 ministries of the
government are engaged in various skill development initiatives with a target of imparting
skill to 350 million people by 2022. The ministry of Human Resource Development and
Ministry of Labour and Employment play an important role in engaging various skill
development initiatives.

Recently, the cabinet also approved of the National Skill

Development Agency (NSDA) that will undertake the functions of Prime Ministers National
Council on Skill Development (PMNCSD), the National Skill Development Coordination
Board (NSDCB) and the office of the prime minister on skill development. Also, the State
Skill Development Missions have been introduced by various state governments. As per the
World Bank, financial inclusion is important for reaping the window of opportunity. Financial
inclusion of the various group of the society has been emphasised and measure have been
taken to achieve it. In the wake of which Prime Minister Narendra Modi launched the Jan
Dhan Yojana which aims at providing bank account to the rural population.
The dialogue on economic implication of demographic dividend also presumes that the bulge
in the working age population should have access to quality healthcare services. While,
changing age distribution of the population does not necessarily results in increase
productivity sans significant improvement in health status of the population. Thus, in order to
exploit the savings it is significant that the government increase the spending on social
welfare.

In sum, the indications suggest that India faces major setbacks in areas such as health,
education which could adversely affect the transition of growing labour into an effective
labour workforce. Strategies exist to exploit the demographic dividend but it needs to be
adopted and implemented rigorously. The problems of health and education are bound to
grow. The government must focus on liberal and openness policies and excessive fiscal
prudence which may mitigate against the adoption of appropriate policies.
.

References

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