Is demography key for development?

Afterthe Union Budget 2025-26 announcement, it looks like the salaried employees are a bit relaxed seeing the new tax slabs. It felt like the finance minister showering these small gifts from the kitty and asking us “after big tax discounts on incomes what else do you want?” ’INCOME’ – the only thing youth population definitely want from the government.

The world is undergoing a major demographic change in terms of population growth due to decreasing fertility rates and increasing mortality rates. Demographic data presents to the government a deeper insight to make strategic planning be it business or economy. Demo-graphic data comprises age, gender, education, income/earnings, interests, language and segmentation of population. Demographic changes have a great impact on the economy. Two to three decades ago, the observers were apprehensive of growing population which would likely strip the world of its resources leading to starvation, resulting in the collapse of global economy.

India has surpassed China in population in 2023, now it is a home to over 1.4 billion people which is more than the population of entire Europe.

Demographic Impact On Economy

According to IMF studies, demographic change in Japan has led to a great impact on the in-terest rates which has turned into a negative territory. This is because of the growing aging and shrinking youth population which throws a challenge to the financial intermediation. These impact the demand and supply thereby influencing the saving and investment behav-ior. The demographic dividend can spur economic growth with more of youth and working age population.

Economists are expressing concerns over the growing aging population as it creates fiscal stress for governments and policy makers to increase pension, and increases the cost of healthcare and so on. As per the IMF reports, Japan is currently the world leader with 28% of its population over the age of 65 and by 2050 Korea is expected to overtake Japan on this metric. Governments will need to respond to all the consequences of demographic changes for the economy by initiating policies that increase productivity and employment.

Job Creation And Economy Growth

A meaningful way of looking at economic growth is to look at it as a function of productivity and employment. Policy makers often treat economic growth as a productive process tagged to GDP and employment as a welfare measure. Growth is the outcome of increase in em-ployment and also and also in productivity. It is obtained either by improving output per la-bour or by employing more people. A combination of growth in employment and productivi-ty should result in economic growth in a country like India where we have huge number of youth population. But we failed to strike a balance between productivity and employment.

In India, we are facing a jobless growth situation which is alarming. Quality employment for the youth is a ticking time bomb which has to be addressed soon. Government has to create avenues for the youth to participate in social and economic growth trajectory. See the chart showing the age distribution in India for the year 2023. The segments repre-sent the three age groups.

We see that the age group of 0-14 years is increasing slowly as compared to the increase in the age group of 65 and above. What is alarming is the steady decline in the working popu-lation of age group between 15 and 64 years. We are right now in the golden era where we tend to reap the demographic dividends due to the presence of youth and working populace. India’s population is quite young with median age of 27, which makes us an average more than 10 years younger than the population of other major economies.

We have to reap the demographic dividends before it gets older. Economic growth typically is measured by the total production of goods and services generally called as GDP. Household consumption which refers to household spending takes the largest share in the aggregate demand. When household income increases, household spending usually increases. McKin-sey report recently warned India to fully capitalise on its demographic dividend within next 33 years.

India’s favorable demographic conditions have added 0.7% points per annum to its GDP per capita growth from 1997-2023. This is expected to shrink to 0.2% points per annum by 2050 with the growing aging population and low fertility rates. The working age individuals per senior aged 65 or older, termed as global support ratio is projected to decline from 6.5 in 2023 to 3.9 by 2050. In India it will fall from 10 workers per senior in 1997 to 4.6 workers in 2050.

Conclusion

Demographic changes pose challenges to policy makers. Budget aims to boost middle class spending through tax cuts focusing on accelerating growth. This is said to be a budget for GYAN (Garib, Yuva, Annadata and Nari Shakti).

Labour force participation among women is still low. The country needs to pull on all the growth levers to capitalise on the opportunities. Policy makers have to provide infrastructure and public services with more productive jobs and navigate the demographic change successfully. First thing we need to do is to leverage young population by developing them into highly skilled workforce enabling them to com-pete in the global economy. Lots of investment should go into the human capital especially children, improving nutrition and providing high quality education made accessible. This can build in building technical/employable skills and make the workforce highly productive.

High time to spend on public infrastructure which can propel the development of next gen com-panies, nurture them by creating conducive environment for growth and innovation through support institutions, physical and intellectual property infrastructure. Steps can be taken to offset consequences of these demographic changes by focusing on policies that increase productivity and economic growth.

(Writer is Associate Professor in Finance, Christ University, Bengaluru)