The recent shedding of over 350,000 jobs in its automobile sector--and thousands elsewhere--is an indicator of the economic and social hurdles that jeopardise India’s demographic dividend, the growth opportunity afforded by the world’s second largest working-age population of 688 million people.

With unemployment at a 45-year high, poor health--42 infants per 1,000 still die before turning one--and low levels of education--an average person has attended school for 6.3 years--India’s demographic dividend is at risk, according to an IndiaSpend analysis of data from the United Nations Population Fund (UNFPA) and the Indian government, and research from the Reserve Bank of India (RBI).

India needs state specific policies--good health and education systems, with more women entering the workforce in young states, and policies to attract migrants and elderly care systems in ageing states. India will also need to reduce caste and urban-rural inequality, especially in access to reproductive care, health, education and jobs.

As its working population is larger than the population of dependents, “India, theoretically, could have a golden period in the decade of 2020 to 2040 (and continuing later, though with decreasing results)...but it could happen only if the right policies and programmes are put in place right now,” according to a 2018 paper by the UNFPA.

However, our research shows, states vary widely in the education, skill development and healthcare facilities they are able to provide, leading to varying employability outcomes.

As a result, states need policies specific to their unique challenges, which are determined, in part, by the stage of demographic transition they are in. For instance, the age-dependency ratio--the ratio of dependents (people below 15 years and above 64 years) to the working-age population (people aged 15-59 years)--shows that Kerala has an ageing population, while in Bihar, the number of working people will keep increasing until 2051, based on a 2017 UNFPA report, Demographic Dividend in India.

This story examines states’ disparate needs and offers some solutions. For instance, ageing Kerala would need policies to attract migrant labour from young states such as Rajasthan and Bihar, while relatively young states such as Bihar and Madhya Pradesh require strong health and education systems to prepare the workforce for the future.

Window of demographic opportunity varies across states

The age-dependency ratio measures how many young people an economy has to support its children and the elderly. An expanding working-age population is associated with higher economic growth, according to a 2019 RBI study, based on how India’s population affected macroeconomic outcomes between 1975 and 2017.

This window of opportunity, which opened in 2005-06, can accelerate India’s economic growth and improve standards of living, at least until the working-age population starts declining.

Currently India’s average age-dependency ratio is low--with 67% of its population in the working-age bracket of 15-64 years, according to a 2018 UNFPA report. This is set to decline further and India, as a whole, will have a smaller dependent population and a larger working-age population every year until 2031, and a stable but reducing working population until 2041.

Because of the vast differences in fertility rates across states, India’s average working population only shows part of the story. If states are analysed individually, there are three broad patterns in India’s demographic transition, said Devender Singh, national programme officer at the UNFPA, based on research on the dependency ratio across Indian states. For the purpose of calculating states’ dependency ratio, the working age is considered to be 15-59 years, as 60 is the age of retirement in India.

"You cannot have the same sets of policies in all these sets of states,” to benefit from the demographic opportunity across India, Singh explained.

In states where the fertility rate is low, including some where the fertility rate is below replacement level--which means that the population will not replace itself--the window of opportunity of their working population will close soon.

In Tamil Nadu, New Delhi, Andhra Pradesh, Telnagana, Gujarat, Punjab and West Bengal, the window of opportunity will start closing after 2021, data from the UNFPA show. Kerala’s window of opportunity has already started closing.

In these states, the focus has to be on supporting the ageing population through better health facilities, and attracting more working hands from the states that have a labour surplus, Singh said. This might require programmes and policies to attract high quality labour from other states, and even re-training them to match the needs of the states with a low workforce.

The second group of states includes states such as Karnataka, Odisha, Himachal Pradesh, Maharashtra, Assam, J&K, Uttarakhand, Haryana, where the working age population is currently at its peak, but will start reducing from 2031.

There has to be a combination of policies for good health facilities for women and children, a good education system to prepare the workforce for future opportunities and a good health and support system for the elderly.

In the third group of states, which includes Uttar Pradesh (UP), Jharkhand, Rajasthan, Chhattisgarh, and Madhya Pradesh (MP), fertility rates are still very high, and these states have a high proportion of children. UP ‘s window of opportunity will start closing in 2043, Chhattisgarh’s in 2035, MP’s in 2041 and Bihar’s in 2051.

In these states, the focus has to be on providing good sexual and reproductive health services to women to meet family planning needs, and access to contraceptives. Women’s access to these services is indirectly related to the demographic opportunity. If women do not have access to good health services, and have a higher number of children, they might not join the workforce, reducing 50% of the population from the workforce.

The large child population would need very good quality education, health services, and good vocational training and skill development programmes to become the workforce of the future.

India’s reducing workforce and growing unemployment

Other countries have seen a high rate of economic growth during their period of low dependency. For instance, in the 10-year period starting 1985, when China’s dependency ratio was similar to India’s today, China grew at an average rate of 9.16% per year, data from the World Bank show. Similarly, South Korea grew at an average of 9.2% during a similar 10-year period in its demographic journey.

In the 10-year period starting when China was at a similar dependency ratio as India is today, the proportion of people, 15+yrs, in the labour force went from 78.6% to 73.3%.

But, in India, although the size of the working-age population is increasing, the number of people working is decreasing, the RBI study found. In comparison to China, India’s labour force participation, of people 15+ years, was 49.8% in 2017-2018, down from 50.4% in 2015-16, according to data from the periodic labour force survey, an employment survey conducted by the Indian government.