Aging Gracefully or Grudgingly? India's Demographic Dilemma
BY AANYA TANDON/ NOVEMBER 04, 2023
From the changes in the dependency ratios to the potential economic benefits attached to it, is the shift in demographic transition moving in India’s favour?
he phenomenon of population ageing has recently seen a steady increase in not just the developed countries but also the developing countries. The ageing of the world's populations is the result of decline in fertility rates and increased life expectancy. This demographic change has resulted in increasing numbers and proportions of people above the age of 60. As a result, for the first time in history, older people exceeding the younger ones is rapidly approaching
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Although at different paces, the dependency ratios of the old age population will rise significantly in the next few decades.
Although at different paces, the dependency ratios of the old age population will rise significantly in the next few decades.There are major economic implications driven by this trend which has a profound impact on various factors such as labour markets, healthcare expenditures, skills development and so on. However, to understand the ramifications of this phenomenon, it is important to understand the demographic transition theory. The age composition of a country’s population changes as it shifts from high fertility and high mortality to low fertility and low mortality. During this demographic transition, all countries have a demographic ‘window of opportunity’ when the growth in the working-age population is greater than the growth in the total population.
The term ‘demographic transition’ was first introduced by the American demographer Frank W. Notestein and since then numerous additions have been made to the theory. The traditional demographic model comprises four stages. The first stage, known as the ‘high population growth potential stage’, characterises fluctuating birth rates and death rates. As societies are evolving, the death rates are decreasing quickly while the birth rates remain constant at a high level. This is the second stage, also known as ‘population explosion’. The third stage, which is the ‘population stage’, takes place when there is a decline in the birth rates but the death rates remain constant, therefore, the population grows at a diminishing rate.
The fourth and the final stage is called ‘the stage of stationary population’ where both birth rates and death rates are low as the population starts to level off. They are both at near balance and there is little growth in the population. Therefore, it remains stationary at a low level and there is a risk of population shrinking.
This convergence where birth rates coincide with death rates depicts a transition to an ageing population, a demographic environment where the proportion of elderly people is steadily increasing. Consequently, we observe a link between the demographic transition and the ageing population in this setting. Hence, the demographic transition, which is characterised by fluctuations in the birth and death rates, leads to the ageing population phenomena.
Pictured: Illustration by unknown via Pinterest
This connection serves as a reminder that the problems and the opportunities presented by an ageing population are not two separate events, rather, they are integral parts of a dynamic and ever changing demographic shift. As societies manage this shift, they must grapple with the social and economic implications of this intricate interplay of population dynamics. Demographic dividend refers to the growth in an economy that is the result of a change in the age structure of a country’s population. (Boyle, 2020). The change in age structure is typically brought on by a decline in fertility and mortality rates. Therefore, it refers to a period in a country’s demographic transition where the proportion of the working-age population (somewhere around 15-64 years) is significantly bigger than the dependent population (children below 15 years of age and elderly people). India stands to benefit from this phenomenon.
India is currently at that stage of demographic transition where the youth of the nation make up a sizable proportion of the population.
India is currently at that stage of demographic transition where the youth of the nation make up a sizable proportion of the population. The country’s demographic dividend is expected to persist at least until 2055–56 and will peak around 2041, when the share of the working-age population 20–59 years is expected to hit 59%. (Mohanty, 2023)
The economic benefits of India’s demographic dividend are notable and well observed even in the current scenario. The country has the potential to reach even higher economic rates, higher productivity and heightened competitiveness due to its substantial and large workforce. It also provides a competitive edge in the country’s efforts to become a leading centre for the manufacturing hub. The government has taken a few noteworthy initiatives like ‘Make in India, Make for the World’ that aims to align its labour advantage by encouraging eminent foreign investors and corporations to invest in Indian manufacturing. Though taken in a negative sense, even the high unemployment rates as well as the subdued labour force participation have the potential to do well in future if proper policies and schemes are taken into consideration. It indicates the availability for expanded recruitment before shortage in labour becomes a huge concern.
Even though India is stemming from the demographic transition, there are problems that arise from it. While India’s elderly population is currently subdued and lower as compared to other countries, this trend is bound to change due to India’s enormous rising population. The distribution of elderly people is predicted to rise as the country approaches the stage of stationary population in the demographic transition, characterised by low birth rates and death rates. By 2036, Tamil Nadu will be India’s oldest state, with a median age of over 40, while Bihar was and will remain India’s youngest state, the only state where the median individual will be under 30 (34.7 years of age) even in 2036, the projections show. (S, 2020). These interstate disparities give way to major economic disruptions in terms of economic development.
Moreover, an ageing population can lead to a declining workforce as the older population eventually will have to retire. These changes lead to shrinkage in the labour force where specialised skills as well as long term expertise is required. It is difficult for elderly people to continue working as they lack the skills due to the changes in the rapidly evolving technology. This poses a potential fall in the labour force productivity since the proportion of younger people is fewer than that of the elderly population.
Pictured: Illustration by unknown via Pinterest
Another concern is the impact on pensions and the social security systems. Government and the policymakers need to combat this situation and ensure that these institutions are financially afloat in light of the growing retired population. Increased demand for pension benefits and better healthcare opportunities will strain the government’s budget, leading to deficits and necessitating novel funding solutions. As mentioned above, healthcare services are majorly consumed by the elderly population due to their age-related ailments and chronic conditions. The cost of using these healthcare facilities thus rises with the increase in ageing population. This places a huge burden on not just the healthcare system, but also, on the family members, especially those families which have only one person working as the breadwinner of the house.
With increase in the ageing population, there are also significant changes noticed in their savings behaviour. Older people focus more on savings rather than consumption, hence, causing considerable shifts in the total savings rates. As retirees prioritise wealth preservation, investment preferences may move from riskier assets to more conservative ones, influencing investment flows and capital allocation. In addition to this, another important problem is the possible influence of the ageing population on economic growth rates. Due to the diminishing labour force, it is possible for the economies to see reduced growth rates. The demand for technology will rise and solutions to the problems of the elderly such as healthcare breakthroughs and assistive gadgets, provides prospects for economic growth and technological improvement.
In conclusion, the economic repercussions of the ageing population are not only complex but also extremely wide ranging. The transformations seen in the traditional economic structures, challenges posed by the phenomenon and the need for opportunities to innovate are largely felt. Government and bureaucrats must work together to negotiate these difficulties, by effectively working towards a better education system along with techniques that enhance the skill set of an individual by providing them with proper training measures. In this way, nations can successfully navigate the problems of an ageing population while leveraging the potential for long-term economic growth and societal well-being.
Even though India would benefit from the demographic dividend in the next few decades, the sudden shift to higher dependency ratio can pose a major threat to the economic development of the country if comprehensive measures are not taken.
India’s demographic transition poses extensive opportunities as well as challenges.Even though India would benefit from the demographic dividend in the next few decades, the sudden shift to higher dependency ratio can pose a major threat to the economic development of the country if comprehensive measures are not taken.India can confidently stride into the future only by addressing and grappling with the healthcare demands, upgrading the standards for education as well as implementing pension and retirement reforms.
Pictured: Illustration by unknown via Pinterest
Keywords
Aging population, decline in fertility rates,demographic transition, Frank W. Notestein, Demographic dividend, government initiatives, ‘Make in India, Make for the World’,encouraging eminent foreign investors,increase in ageing population, diminishing labour force,
References
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Boyle, M. J. (2020, November 29). What Is the Demographic Dividend, and How Does It Work? Investopedia.
https://www.investopedia.com/terms/d/demographic-dividend.asp
Kumar, U. (2010, September). India's Demographic Transition: Boon or Bane? A State-LeveL
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https://www.spglobal.com/en/research-insights/featured/special-editorial/look-forward/india-s-de
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