Blasé Capital 15-yEAR WINDOW

India has a narrow 15-20-year window to enjoy the fruits of the existing demographic dividends. After the early 2040s, the working-age cohort between 15 and 59 years, which constitutes two-thirds of the current population, will “peak… after which the labour force will contract, and dependency ratios will climb. The next 15-20 years represent the final phase of India’s youth bulge entering the workforce.” This is a stark warning that emanates from the recent research study posted on orfonline.org. “With the demographic window closing, there is a narrow and urgent opportunity to ensure that this final wave of new workers is effectively absorbed, particularly into sectors that require advanced and interdisciplinary skills,” states the report. If this workforce is equipped with the right skills, good health, and gainful jobs in high-value sectors, it can serve as a lever to energise growth. If India misses this train, or aircraft, it will miss the bus to transition to a high-income economy.

At present, the World Bank classifies India as a lower-middle-income economy “with a median age under 30.” Despite frenetic growth, being the fastest-growing major economy, and becoming the fourth-largest economy, India can fall into the middle-income trap. This is because most emerging nations escape poverty, and emerge as middle-income ones, but struggle to reach the high-income status. Indeed, as per the World Bank, such strugglers-stragglers experience long periods of stagnation or lower growths. This happens because the earlier drivers of growth such as abundance of low-cost labour, capital formation, and export expansion begins to “exhaust.” In India’s case, the problems are acute as it never became an export-led economy like the Asian Tigers, China, or even Japan in the last century. Hene, if it loses the advantage of abundant and cheap workforce, which it may enjoy till the early 2040s, the momentum will be lost. Since 1990, according to the World Bank, only 34 nations have broken the middle-income trap.

Of course, the prime reason for the changing demographics within two decades stems from declines in the fertility rates “across regions, income brackets, and religious groups. Data from the National Fertility and Health Surveys show that India’s Total fertility Rate dropped to 2 in 2019-21 from 3.39 in 1990-92.” Since the replacement threshold is 2.1, the population degrowth will become visible in 15-20 years. According to the study, “the ramifications are sweeping: School enrollments will taper, the working-age population will peak within decades, and the share of elderly citizens will accelerate. The Indian policy-making machine must study the various first-, second-, and third-order effects of this drop to mitigate their negative consequences.” Coupled with the economic implications of the middle-income trap, the impact can be colossal, and derail the Indian economic gravy train.

Rising dependency ratios in the 2040s will strain public policies and public finances. The ratio will shoot up from 16 per cent to 30 per cent by 2050. For every three working-age persons, there will be one above 60 years, which will reshape “intergenerational economics. Without adequate pension systems, insurance coverage, and preventive healthcare, the working-age population will bear rising fiscal and caregiving burdens, heightening intergenerational inequity. Investing early in care systems and productivity-enhancing health infrastructure is essential to sustaining social contracts, and political stability.” The use of technology will be crucial to evolve solutions, and handle the future challenges. As the study finds, “Technology can be an important differentiator in the delivery of these services. Health tech, telemedicine, and diagnostics driven by AI, and advancements in biotech and materials can ensure medical services at scale.” Hence, the current moves to make both healthcare and insurance access to the entire population, including villages, are notable.

Across the states in the north, west, and south, the fertility rates are below the national average of 2, except Rajasthan, where it is incrementally up at 2.01. In the central region, only Uttar Pradesh has a high fertility rate of 2.35. Only in the east, Bihar (fertility rate of 3) and Jharkhand (2.3) are above the national average, and West Bengal and Odisha are below it. “This divergence implies that India’s demographic shift will occur in an uneven manner. Some states… will face ageing burdens and shrinking labour forces by the 2030s. These states have high per-capita incomes, and higher levels of industrialisation and urbanisation. They also face a higher degree of immigration from labour-surplus states,” explains the study. The states that will generate young workers well into the 2040s depend on agriculture, and rural sectors. At present, they migrate to the west and south but grab low-income jobs. For them to add to productive India implies higher and better education, and a new set of skills.

In a decade or two, the dynamics of ‘silver economy,’ or one tuned to the demands and needs of the elderly, will kick in. “Younger households with fewer children will spend more… on education, health, and enrichment. At the same time, the ageing households will direct a higher share… towards medical insurance, preventive healthcare, geriatric care and housing, and financial security,” states the study. But the expanding ‘silver market’ provides incentives for start-ups, and large firms to carve out new markets, and expand niche ones. The opportunity lies in affordable and scalable business models.