Saptarshi Nag

Demographic dividends occur in countries that see declines in both fertility and mortality rates. A country that experiences low birth rates in conjunction with low death rates receives an economic dividend or benefit from the increase in productivity of the working population that ensues. As fewer births are registered, the number of young dependents grows smaller relative to the working population. With fewer people to support and more people in the labour force, an economy’s resources are freed up and invested in other areas to accelerate a country’s economic development and the future prosperity of its populace.

To receive a demographic dividend, a country must go through a demographic transition where it switches from a largely rural agrarian economy with high fertility and mortality rates to an urban industrial society characterized by low fertility and mortality rates. In the initial stages of this transition, fertility rates fall, leading to a labour force that is temporarily growing faster than the population dependent on it. All else being equal, per capita income grows more rapidly during this time too. This economic benefit is the first dividend received by a country that has gone through the demographic transition.

There are four main areas where a country can find demographic dividends:

Savings: During the demographic period, personal savings grow and can be used to stimulate the economy.

Labor supply: More workers are added to the labour force, including more women.

Human capital: With fewer births, parents are able to allocate more resources per child, leading to better educational and health outcomes.

Economic growth: GDP per capita is increased due to a decrease in the dependency ratio.

According to United Nations Population Fund (UNFPA), demographic dividend means, “the economic growth potential that can result from shifts in a population’s age structure, mainly when the share of the working-age population (15 to 64) is larger than the non-working-age share of the population (14 and younger, and 65 and older)”.

Where the world economies are struggling with declining birth rates, tight labour markets and an ageing population, India is standing at the cusp of an unprecedented opportunity—all thanks to its demographic. With the world’s largest youth population1 with the median age of 28.4 years, India is not only strengthening its competitive advantage but also setting trends in consumer and discretionary spending. India will have 1.04 billion working age persons by 2030, highest of any large economy.

So, what is a youth? As defined by the National Youth Policy, the population in the age group of 18-29 years is considered youth. India has over 371.4 million youth, as per 2021 census projections, making up for approximately 27% of the total population.

Imagine a country where half of the population is in its prime working years. Here, innovation meets ambition as the youthful workforce is poised to redefine global growth. That’s India for you.

More than four in 10 people in India are under 25 years old. For investors seeking expansion opportunities, this offers a substantial pool of potential workers across various industries, including technology, manufacturing and services.

A young population can help India’s economic growth and innovation since it represents a larger workforce with the potential for improved productivity and increased consumer demand. India’s demographics offer various advantages for investors, notably among which are:

A trained workforce boosts economic prosperity with the potential to boost economic output, innovation and productivity in the nation.

A rising young population increases demand for products and services, driving economic activity.

A young population that openly embraces technology breakthroughs and invests in digital infrastructure can help India overcome development challenges and become a global technological leader.

Investments in infrastructure, especially in metropolitan and rural areas, are crucial to tapping and promoting the potential for productivity and economic growth among the nation’s youth.

India’s booming IT and BPO services export story is a testament to its ability to capitalise on demographic advantages. It has the largest pool of English-speaking science, technology, engineering and mathematics (STEM) graduates of an estimated two million. Thereby providing a competitive edge over other regions. The nation will have nearly 18 million STEM graduates by 2027, a sign of India’s growing influence in the science and tech sector. According to the All-India Higher Education survey, women constituted 42.6% of total STEM graduates in 2021-22, which makes a compelling argument for inclusive development and gender equality. Although we have a substantial pool of female STEM graduates, it remains underutilised mainly because women either do not join the mainstream workforce or drop out early in this field. This presents an opportunity not only for the government and policymakers but also for investors to foster equitable growth.

“India still has some time to benefit from its demographic dividend for economic growth but is aging faster than many realize,” McKinsey Global Institute said in its report ‘Dependency and depopulation? Confronting the consequences of a new demographic reality’. “Despite very fast progress, India is still a low-income country, so it needs to “get rich before it gets old,” it added.

In absolute numbers, India will have 1.04b working age persons by 2030. Correspondingly, India’s dependency ratio would be the lowest in its history by 2030 at 31.2%. India’s young dependency ratio —the number of children below 15 years of age relative to total population — is expected to overtake the old dependency ratio (ratio of population aged above 65 years relative to total population) by 2056. 

India would remain the largest provider of human resources in the world. About 24.3% of the incremental global workforce over the next decade will come from India. This is significant considering the rapidly ageing population in the developed world, creating potential challenges to labour supply in various sectors of the global economy.

The fact that India has a relatively young population with a median age of 28.4 years is equally important. Approximately 26% of the population is below 14 years and ~67% is between the age of 15 to 64 years and 7% above the age of 65. In contrast, the population over 65 years in US is ~17% and Europe is over ~21%.

The potential contribution of the growing population to India’s GDP growth would depend, among other factors, on the rate of growth and size of total population and its contribution to the size of working age population who may be absorbed in productive employment.

This young population not only reinforces India’s competitive advantage in the services and manufacturing sectors, but also unleashes the consumption power of a young population towards discretionary expenditure.

Challenges associated with Demographic Dividend in India

Unemployment is still the biggest monster in India. While we boast of magical economic progress in the past decade or so, have we really been able to allow our younger generation to reap the fruit? It has been shared recently that the central government has been able to produce only around 2 million jobs in the past decade in stark contrast to 20 million jobs promised a decade earlier. As per the India Employment Report 2024, India’s working population increased from 61% in 2011 to 64% in 2021, and it is projected to reach 65 % in 2036. On the other hand, the percentage of youth involved in economic activities declined to 37% in 2022.

Most jobs created in the future will demand high skills, and the lack of skills in the workforce of India is a big challenge. It might result in India not being able to take advantage of the opportunities because of lack of skills and low human capital base. India still suffers from the lack of skill-based education.

India holds the 130th rank out of the 189 countries in the UNDP’s Human Development Index. Hence, the education and health parameters have to be substantially enhanced to make the workforce of India skilled and efficient.

According to the India Ageing Report 2023 of United Nations Population Fund, India’s elderly population is growing rapidly, with a decadal growth rate of 41% and by 2050, over 20% of India’s population will be elderly.

Resource Scarcity- The rapid growth of the population has a negative effect on resource usage and its access.

For example- Cities like Delhi and Bangalore and the State of Rajasthan have been facing severe water stress.

Also, as per a recent survey of the Central Water Commission, India’s per capita water availability has dropped from 1,816 cubic metres in 2001 to approximately 1,486 cubic metres in 2024, leading the country towards water stress.

Unplanned Urbanisation: It comes with issues such as overburdened infrastructure, traffic congestion and pollution, slum growth on the outskirts of cities, housing challenges and environmental degradation.

India’s urban population is expected to grow from 410 million in 2014 to 814 million by 2050. India is projected to add 4 new megacities by 2030 which could lead to more unplanned urbanisation and slum related issues.

India’s informal nature of economy would prove to be another obstacle in yielding the opportunity for major economic growth during the demographic transition in India. Almost 92% of the total workforce in India is in unorganized sector.

The Labour Force Participation Rate (LFPR) in India, which represents the percentage of working-age individuals engaged in or seeking work, has not been too much encouraging. In May 2025, the overall LFPR was 54.8%. These results lead to a big concern that the growth in the future could turn out to be jobless growth because of de-globalisation, deindustrialisation, the fourth industrial revolution and technological progress.

What is the way-out?

1. Forward-looking policies

Countries like Singapore, Taiwan and South Korea have already shown us how demographic dividend can be reaped to achieve incredible economic growth by adopting forward-looking policies and programmes to empower the youth in terms of their education, skills and health choices. Enhancement of quality and accessibility of education across all demographics, focusing on marginalized communities is the need of the hour. We need to promote vocational training and skill development aligned with industry needs to enhance employability. We must invest in digital literacy and technological skills to meet the demands of a digital economy.

• Inclusion Growth and Gender Equality

Implementation of policies promoting gender equality and empowerment, ensuring equal access to education and employment.

Supporting initiatives that enhance social cohesion and reduce inequalities.

According to International Labour Organization estimates, only 24% of women were participating in the workforce in 2022, so getting more women to enter the workforce will be pivotal for future growth.

• To invest more in children and adolescents

 India ranks poorly in Asia in terms of private and public human capital spending. It needs to invest more in children and adolescents, particularly in nutrition and learning during early childhood. Given that India’s workforce starts at a younger age, a greater focus needs to be on transitioning from secondary education to universal skilling and entrepreneurship, as done in South Korea.

• Investing in Healthcare

Health spending has not kept pace with India’s economic growth. The public spending on health has remained flat at around 1% of GDP. Evidence suggests that better health facilitates improved economic production. Hence, it is important to draft policies to promote health during the demographic dividend. We need more finance for health as well as better health facilities from the available funding. We need to provide universal access to high-quality primary education and basic healthcare. The unmet need for family planning in India at 9.4% as per the latest National Family Health Survey-5 (2019-21) is high as compared to 3.3% in China and 6.6% in South Korea, which needs to be bridged.

• Are our states equal to us?

India needs to address the diversity between States. While India is a young country, the status and pace of population ageing vary among States. Southern States, which are advanced in demographic transition, already have a higher percentage of older people. These differences in age structure reflect differences in economic development and health – and remind us of States’ very different starting points at the outset of the 2030 Sustainable Development Goals Agenda. But this also offers boundless opportunities for States to work together, especially on demographic transition, with the north-central region as the reservoir of India’s workforce.

• Progressive Federal Outlook

India needs to address the diversity, heterogeneity and disparity among the States. While India is a young country, the status and pace of population ageing vary among States. Southern States, which are advanced in demographic transition, already have a higher percentage of older people. These differences in age structure reflect differences in economic development and health – and remind us of States’ very different starting points at the outset of the 2030 Sustainable Development Goals Agenda. But this also offers boundless opportunities for States to work together, especially on demographic transition, with the north-central region as the reservoir of India’s workforce.

• Tackling Urban Migration

                By 2030, India’s urban population is projected to reach 600 million, with over 40% of the country’s population living in urban areas. This rapid urbanization is driven by migration from rural areas, seeking better economic opportunities and lifestyles. This influx of people will put significant strain on urban infrastructure and resources, requiring substantial investments in infrastructure development and urban planning. There is a need to focus on urban policy planning to give the migrating people access to basic amenities, healthcare services, and social services.

• Harnessing the trend

Leveraging consumption trends like e-commerce and fintech, the digital revolution, rising internet access and the youth’s strong online engagement, there is immense potential for online shopping and financial services. The expanding middle class and urbanisation also contribute to an increasing demand for food delivery and home services.