Now-a-days no meeting on India’s present condition seems complete without coming to the topic of “demographic dividend”. The question here arises is, what exactly is this demographic dividend. The core idea behind this is straightforward. India’s population in the year 2004, was around 1,080 million of whom 672 million people were in the age group of 15 to 64 years. This is treated as the “working age population”. Since people not falling in this age group are very few people, it is reasonable to think of the remainder which happens to be around 408 million people as the “dependent population”.

Nation’s dependency ratio is the ratio of dependent population to the working age population. In case of India this ratio happens to be 0.6. With this figure, India is not too different from developing countries such as Bangladesh’s dependency ratio which is 0.7, Pakistan’s ratio as 0.8 and Brazil with 0.5. The difference with India is the prediction that it will see a sharp decline in this ratio in next 30 years or so. This is what constitutes the demographic dividend of India.

India’s fertility rate which is defined as the average number of children a woman expects in her life time was 3.8 in the year 1990. This figure has decreased to 2.9 today and is expected to fall more in the next few years. With the high fertility rate of Indian females earlier, today India has a sizeable number of people in the age group of 0-15 years.

Advantages of Demography

Since the fertility is falling, it is expected that after about 10-15 years down the road, this bulge of young people would have moved into the working-age category. And since that time, the relative number of children will fall and therefore the dependency ratio in India will become low. It is expected that in 2020, the average age of an Indian will be 29 years, compared to 37 for China, 48 for Japan and by 2030, India’s dependency ratio would be over 0.4. All this can bestow numerous benefits to India.

First and the foremost benefit would be the rise in relative number of bread-winners. Moreover, with fewer children being born, more women will join the work force and so this further improves the bread-winners ratio. The more indirect but essential advantage for Indian economy is that this effect can boost the savings. Now even women can work with few children being born. Human beings save most during the working years of their lives, when they are children they consume more and same is the case during their old age. This directly associates the decline in nation’s dependency ratio to the average savings’ rate.

As per the percentage of GDP, India’s saving rate has been rising since 2003. Today it stands at 33% which is comparable to the Asian super-performers, all of whom save at above 30%, with China saving at around 40% rates. The saving’s growth is based on the improvement shown by government in fiscal health and a sharp rise in corporate savings. And in case these factors disappear, the decline in the dependency ratio would enable India to hold its saving and investment rate above the 30% for next 25 years.

Our theory of demographic advantage has been challenged and so it can be evaluated this in reality by looking at the actual experience of other nations. The most prominent example of economic growth is being stimulated by demography is the case of Ireland. Ireland’s legalization for the utilization of contraception in 1979 resulted in the decline of birth rate from 22 (per 1000 population) in 1980 to 13 in 1994 that caused a rapid decline in dependency ratio.

As per the expectations of researchers, India will get benefit from higher savings and investment rates and this will continue to fire India’s high growth rate. In addition to this, much depends on how the nation executes on primary and secondary education in order to ensure how larger working age is an educated lot and the manufacturing sector which creates job opportunities for labor force.

Pertaining to the fact that demographic dividend is the population lying in working-age category; it is up to nation’s interest to reap as much as profit possible from the dividend so that it is robust enough for future safeguard.