Academic journal article Political Economy Journal of India

Demographic Dividend versus Demographic Disaster in India

Academic journal article Political Economy Journal of India

Demographic Dividend versus Demographic Disaster in India

Article excerpt

Introduction

Demographic dividend is defined as a rise in the rate of economic growth as a result of rising share of working age people in a population. According to James (2008), this phenomenon occurs with a falling birth rate and the consequent shift in the age structure of the population towards the adult working age. Some demographers are of the opinion that many Asian and non-Asian countries are expected to benefit from demographic dividend as there is a positive correlation between age structure and economic growth. This trend is expected to continue from a change in the working age population in coming years as the growth of the working population will be higher as compared to the growth of child population and aged population, leading to a low dependency ratio. The economic miracle in East Asia and the Chinese growth story are cited as examples of benefit from demographic dividend. On the other hand, the critics of the demographic dividend have argued that while age distribution changes create supply side potential, the utilization of this potential ultimately depends upon the policy environment in each country. In an underdeveloped country like India with a high incidence of unemployment, a growing working population may not find gainful employment, and in the absence of skill development of the working population, we may be heading towards what they call as 'demographic disaster'.

The aim of this paper is to present both these viewpoints and suggest areas that deserve urgent attention of the policy makers. The paper has been organized into three sections. Section one discusses the impact of demographic dividend on economic growth. Section two talks about demographic dividend in India by analyzing the age structure of the population. Section three gives the viewpoint of the critics of demographic dividend in India, which they describe as demographic nightmare or demographic disaster.

Demographic Dividend and its Impact on Economic Growth

Some demographers have pointed out that many Asian and non-Asian countries are expected to benefit from the change in the age structure of their population as growth of the working population will be higher as compared to the growth the child and aged population, leading to a lower dependency ratio. James (2008) has quoted some studies that show a strong positive correlation between demographic variables and economic growth. It would be worthwhile to mention some of those studies. For example, the study by Bloom and Williamson (1998) of 78 Asian and Non-Asian countries showed a powerful positive impact of growth of the working age population on economic growth. The results showed that nearly one-third of the economic miracle of East Asian countries could be attributed to demographic dividend. A study by Behrman et al. (1999), using panel data for several countries since 1950 found a strong positive association between the age pattern of population and economic outcome. Andersen's (2001) study of Scandinavian countries data since 1980 also found a positive association between the share of working age population and economic growth. Bloom et al. (2003) and Bloom et al. (2006), using panel data of countries from 1996 to 2000, established a positive correlation between age structure transition and economic growth in India and China.

The arguments put forward by these studies can be summarized as follows:

* The saving rate in a country is expected to increase during the age structure transition. The demographic dividend that accrues to a country will automatically generate capital resources that the country needs for investment purposes. This is due to the fact that the size of the surplus available for investment after current consumption depends upon the ratio of actual workforce to those who are outside the workforce. In other words, other things remaining the same, the higher the share of workers to non-workers in the population of a country, the larger is the surplus available for investment. …

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