Mains Practice Questions

Approach:

• Provide a brief introduction to India’s demographic profile and the concept of demographic dividend.
• Highlight the opportunities presented by India’s demographic dividend for economic and social development.
• Discuss the challenges that hinder India’s ability to fully leverage its demographic dividend.
• Conclude suitably.

Introduction:

India is currently experiencing a demographic window of opportunity, with 65% of its population under the age of 35, making it one of the youngest nations globally. This demographic shift provides India with a potential "demographic dividend," where the working-age population (15-64 years) outnumbers the dependent (young and old) population. With the right investments in education, & infrastructure, this youthful demographic can contribute significantly to India’s development.

Body:

Opportunities of India’s Demographic Dividend:

• Economic Growth and Increased Consumption: The working-age population, which is projected to make up 59% of India’s total population by 2041, can drive productivity and GDP growth.
  • With the rise of the middle class and increasing incomes, India is set to account for 30% of global consumption by 2050, up from 12% in 1997.
  • This shift presents vast opportunities for businesses and will help fuel growth through consumption-led economic expansion.
• Increased Savings and Investments: A smaller dependent population allows individuals to save more, thereby contributing to capital accumulation. India's gross domestic savings rate stood at 30.7% of GDP in March 2024, this rate is significantly higher than the global average, indicating a strong propensity to save among the population.
  • These savings can be redirected towards investments in infrastructure, technology, and economic development
• Innovation and Entrepreneurship: With 1.59 lakh startups, India is now the world's 3rd largest startup ecosystem. The schemes like Startup India and Atal Innovation Mission are aimed at fostering this entrepreneurial spirit among the youth.
  • The demographic dividend can fuel India’s entrepreneurial ecosystem, making it one of the world’s leading startup hubs.
• Labor Force Expansion and Gender Inclusion: The expansion of the labor force, including a higher participation rate of women, is crucial for India’s economic progress. Currently, India has a relatively low female labor force participation (32.8% compared to the global average of 47%).
  • If India is able to increase female participation, the available workforce will expand, leading to higher productivity and economic output.

Challenges in Leveraging the Demographic Dividend:

• Unemployment and Underemployment: Despite having a large labor force, India faces the challenge of insufficient job creation. In 2022, 83% of India’s unemployed population was under the age of 35, highlighting the mismatch between the growing workforce and the availability of jobs.
  • A significant proportion of this demographic is either underemployed or not employed at all (youth unemployment rate- 20%).
  • The mismatch between education outputs and market needs contributes to rising unemployment, especially among graduates (Over 42 % of India's graduates under 25 were unemployed in 2021-22).
  • Informal employment also continues to dominate (Over 90%), where workers face low wages, job insecurity, and lack of social protection.
• Skill Mismatch: A significant challenge is the skill gap in India’s labor market. According to the ILO, 47% of Indian workers, particularly 62% of females, are underqualified for their jobs.
  • A large portion of the working-age population lacks the necessary skills to meet the demands of the modern job market (only 5% of the young workforce is formally skilled).
  • This skills mismatch limits the potential of India’s workforce and hinders its ability to compete globally in advanced sectors.
• Health and Nutrition: India still grapples with health challenges such as malnutrition, inadequate maternal health care, and limited access to quality healthcare. These issues impact the workforce's overall health and productivity, diminishing the effectiveness of the demographic dividend.
• Regional Disparities: The benefits of the demographic dividend are not evenly distributed across India. While some states like Bihar have high fertility rates, others like Sikkim are already experiencing aging populations.
  • This regional disparity demands subnational policies tailored to specific demographic trends to ensure the benefits of the dividend are realized across the country.
• Gender Disparity: Female labor force participation is at 37%, much lower than 75% for males, with gender-based barriers still prevalent. addressing this gender disparity is key to maximizing the economic potential of the demographic dividend.

Measures to Address the Challenges to Demographic Dividends:

• Investing in Human Capital: Aligning curricula with the needs of the labor market and expanding access to higher education will ensure that the youth are equipped for the demands of the global economy.
  • Investing in healthcare and nutrition is essential to improving the overall health of the workforce and ensuring long-term productivity.
• Creating Employment Opportunities: To effectively absorb the growing labor force, India needs to create more formal sector jobs. Government policies should focus on entrepreneurship, business-friendly reforms, and the expansion of industries that generate high employment.
  • Special efforts should be made to boost female labor force participation by implementing gender-inclusive policies, ensuring safe workplaces, and addressing wage disparities.
• Managing Aging Populations: As India approaches the peak of its demographic dividend by 2041, the government should gradually raise retirement ages and create incentives for older workers to remain in the workforce. Pension system reforms will also be necessary to ensure sustainability.
• Regional and Subnational Policies: Given the regional disparities in fertility rates and aging populations, a tailored approach focusing on regional challenges like aging populations in some areas and youth unemployment in others, is required to address the specific needs of different states.

Conclusion:

By investing in human capital, creating formal sector jobs, and implementing policies to ensure inclusive growth, India can maximize the benefits of its demographic dividend and ensure long-term prosperity for its population.