Is

 India’s  “Demographic  Dividend”  a  Liability?  

-­  Kartik  Hosanagar  
 
Oct  07,  2010  
 
During  a  recent  visit  to  India,  my  colleagues  at  Wharton  and  I  had  a  chance  to  meet  
with  the  cream  of  India’s  industry  and  government.  The  optimism  and  excitement  
about  India’s  future  was  palpable  to  all  of  us.  CEOs  talked  about  their  exponential  
growth  at  their  firms  in  the  past  few  years  and  how  the  only  constraint  in  India  
these  days  is  supply,  not  demand.  One  phrase  that  emerged  in  just  about  every  
meeting  was  “India’s  demographic  dividend”.  People  have  been  talking  about  it  for  
the  last  seven  or  eight  years  but  it  appears  to  have  reached  fever  pitch  now.  The  
demographic  dividend,  put  simply,  is  that  more  than  half  of  India’s  population  is  
under  25.  The  next  few  decades  will  see  this  age  group  join  the  working  population.  
The  entry  of  this  young  group  into  the  workforce  will  contribute  to  a  significant  
increase  in  GDP  per  capita  and  be  a  source  of  great  economic  prosperity.  
 
This  sounds  great  in  theory.  And  in  fact,  there  is  ample  evidence  that  several  
countries  in  the  past  have  witnessed  periods  of  increased  productivity  and  savings  
during  periods  in  which  they  have  enjoyed  a  demographic  dividend.  But  all  this  
assumes  that  this  young  and  upcoming  workforce  can  be  trained  and  meaningfully  
employed.  In  India,  that  is  a  big  IF.    
 
Although  the  literacy  rate  has  been  climbing  up  steadily,  India  still  has  the  world’s  
largest  number  of  illiterates  at  over  250  million.  Although  more  and  more  jobs  are  
being  created  thanks  to  the  economic  boom,  the  gap  between  the  haves  and  have-­‐
nots  seems  to  be  increasing.  I  shudder  to  think  what  might  happen  if  we  have  a  
sudden  influx  of  large  numbers  of  unemployed  and  disgruntled  youth.  Besides  the  
obvious  worries  about  crime  rate,  one  has  to  increasingly  worry  about  political  
unrest  and  issues  like  Naxalism.  
 
But  before  we  jump  to  this  doomsday  scenario,  let  us  start  from  the  very  beginning.  
Why  is  everyone  teeming  with  excitement  about  our  demographic  dividend?  First,  it  
should  be  obvious  that  the  size  of  our  workforce  will  increase  significantly  based  on  
the  current  under-­‐25  population.  For  example,  it  is  estimated  that  India’s  average  
age  in  2020  will  be  under  30  whereas  the  average  age  will  be  37  in  the  US  and  48  in  
Japan.  Another  interesting  trend  is  the  steadily  declining  fertility  rate.  With  
relatively  lower  number  of  children,  this  will  help  improve  the  dependency  ratio,  i.e.  
the  ratio  of  working-­‐age  population  to  dependents.  Further,  with  fewer  children,  
more  women  will  be  able  to  join  the  work  force.  With  fewer  dependents  and  more  
workers  per  family,  the  savings  rate  of  the  country  will  also  rise.  So  greater  income  
and  greater  savings  is  the  rosy  future  that  potentially  lies  ahead  of  us.  And  it  is  not  
just  a  theory.  Similar  booms,  driven  in  part  by  shifting  demographics,  have  been  
seen  in  Japan  in  the  1950s  and  in  Ireland  in  the  1980s.  Interestingly,  in  Ireland,  the  
demographic  dividend  arose  due  to  the  legalization  of  contraception  in  1980.  Being  
a  strongly  catholic  state,  contraception  was  banned  in  Ireland  up  until  a  group  of  
feminists  defied  the  ban  and  forced  the  government  to  revisit  the  issue.  The  lift  of  
the  ban  resulted  in  lower  birth  rates  and,  in  turn,  better  dependency  ratio.  This  has  
partly  contributed  to  the  Irish  economic  boom.  
 
Despite  these  similarities,  there  is  one  obvious  difference  between  India  and  these  
countries.  In  the  cases  of  both  Ireland  and  Japan,  the  human  resources  challenge  of  
educating  and  employing  the  workforce  was  of  a  much  smaller  scale.  Not  only  does  
India  need  to  train  and  employ  orders  of  magnitude  more  people  but  it  also  has  to  
start  from  a  worse  initial  position  in  terms  of  existing  educational  infrastructure.  We  
will  need  a  massive  infrastructure  of  universities  and  vocational  training  institutes  
spanning  the  country,  including  its  rural  interiors.  Kapil  Sibal,  the  HRD  minister,  
discussed  this  challenge  with  our  group.  He  indicated  that  over  60  million  children  
will  soon  be  entering  colleges  and  that  700-­‐800  universities  need  to  be  founded  in  
the  next  ten  years.  On  the  one  hand,  this  is  a  great  opportunity  for  private  enterprise  
but,  on  the  other,  it  is  not  clear  whether  we  have  enough  qualified  teachers  to  staff  
this  many  universities.  We  do  not  want  fly-­‐by-­‐night  operators  filling  the  gap.  Only  
thoughtful  concerted  action  will  ensure  that  we  are  able  to  provide  the  basic  tools  
the  emerging  youth  will  need  to  be  productive  citizens.  I  understand  Mr  Sibal  when  
he  says  “I've  had  sleepless  nights;  the  task  is  daunting."  
 
The  conversation  with  Mr.  Sibal  reminded  me  of  the  obvious  challenges  ahead.  But  it  
was  Mr  Vijay  Mahajan,  the  founder  of  the  microfinance  company  BASIX,  who  
perhaps  best  drove  home  the  significance  of  the  issue.  He  worries  that  all  the  recent  
growth,  while  very  welcome,  has  unfortunately  not  been  inclusive.  He  believes  that  
people  increasingly  have  high  aspirations,  driven  by  the  influence  of  media,  but  
limited  potential  to  achieve  those  aspirations.  With  limited  access  to  quality  
education  and  employment,  most  of  the  youth  will  enter  the  labour  force  at  the  
lowest  levels.  The  frustration  feeds  into  movements  like  Naxalism  and  even  
manifests  itself  in  the  form  of  violence  based  on  religion  or  regionalism.  Mr  Mahajan  
pointed  out  that  as  many  as  175  districts  in  India  have  been  labeled  as  disturbed  
and  only  25  of  these  are  on  the  border.  The  rest  are  often  tied  to  exclusion  from  
India’s  economic  growth.    
 
I  do  not  wish  to  sound  like  the  grim  reaper.  My  point  is  not  that  India  faces  a  doom.  
Rather,  I  agree  that  a  rosy  future  awaits  India.  But  this  future  cannot  be  taken  for  
granted  and,  in  fact,  a  number  of  pressing  concerns  need  to  be  addressed  before  we  
can  make  any  conclusions  about  the  demographic  dividend.  The  public  and  private  
sectors  need  to  invest  heavily  in  education,  including  in  rural  India.  I  do  not  envy  Mr.  
Kapil  Sibal’s  task  but  there  is  no  doubting  that  it  is  one  that  requires  attention  and  
support  from  all  of  us.  The  silver  lining  is  that  there  is  a  genuine  thirst  for  education  
in  India.  And  this  is  one  sector  where  I  agree  that  the  issue  is  not  about  inadequate  
demand  but  one  of  inadequate  supply.  
 
In  addition,  we  will  need  to  invest  heavily  to  protect  and  grow  our  natural  
resources.  I  still  recollect  Mr  Mahajan’s  list  of  environmental  concerns,  ranging  from  
floods  made  worse  by  rampant  deforestation  to  water  degradation  and  soil  devoid  
of  micronutrients.  Given  that  half  the  country  depends  on  agriculture  (and  the  rest  
anyway  depend  on  food  and  water),  economic  prosperity  for  the  nation  cannot  
occur  without  investments  in  our  natural  resources.  
 
There  are  many  reasons  to  believe  that  it  is  ultimately  feasible  to  provide  hundreds  
of  millions  of  Indians  with  education,  employment  and  a  decent  quality  of  life.  But  I  
am  not  yet  ready  to  call  it  India’s  demographic  dividend.  And  I  sincerely  hope  
history  does  not  judge  it  as  India’s  demographic  liability.