The divergent demographic dividend

Share of the working-age population is one of the most overused charts to make the long-term case for India. In a traditional sense, economic growth in a country comprises of two factors of production – capital and labour. The working-age population (or its share in the total population) being the determinant of the supply of labour. Higher the share (and rising trajectory) of the working-age population in a country, more labour is available and thus higher is its growth potential, ceteris paribus.

In the case of India, the share of the working-age population is rising whereas that in countries like China or Brazil it has already peaked. While the share of the working-age population in India is likely to peak over the next decade or two, even in the 2040s India’s share is expected to be higher than countries like China and Brazil or even the Global average. And this suggests that India has better longer-term growth prospects (on at least 1 parameter) compared to peer group countries.

While the above arguments are valid, they make several assumptions including a crucial one that there will be adequate jobs for the folks in the working-age population to be productively employed. But that is a separate discussion. The point of this piece and this whole series is that averages do not necessarily always convey the appropriate picture. As the saying goes, you can drown in a lake that is on average just 3 feet deep. And so, it is with this statistic as well. While India does have the benefit of the demographic dividend of a relatively young population, this dividend diverges significantly across states with some states starting to see demographic headwinds.

While the overall working-age population will increase over the next 10-15 years, the increase will not be uniform. In fact, in most large states, the share of the working-age population would have started to decline over the next 15 years. In all the southern states, the share of the working-age population will have started to decline. But even in states like Maharashtra and Gujarat share of the working-age population is expected to start declining over the next decade and a half. States like Bihar, UP, Rajasthan, MP will be among the large states where the working-age population will continue to rise.

These states already act as the states that supply labour to the rest of the country. People migrate from these states to the richer states in search of jobs. And this is often a source of social tensions, especially when it comes to unskilled or less skilled labour. But the need for this migration of workforce will only increase as populations age. By 2036 for instance, over 20% of Kerala’s population is expected to be over the age of 60. In contrast, less than 10% of Bihar’s population will be above the age of 60. India will thus need more, not less, internal migration. But, in an age where ‘jobs for locals’ resonates with the voters, how will this pan out? Will we see more social tensions or economics will trump populism?