It is timely to discuss how India should allocate its human capital investments because she is currently in the middle of her demographic dividend — a period when population changes give economic growth a boost by expanding the working-age share of the population. Research has suggested that capitalising on the demographic dividend accounted for one-third of the East Asian miracle. Projections suggest that India’s working-age population share will continue rising till about 2035-40, meaning that India has another 25 years – one more generation – to exploit this dividend. Demography in other words is an opportunity not destiny.

— Arvind Subramanian in Economic Survey 2015-16, Volume 1

On the day that India’s population has topped China’s, making it the most populous country in the world, it is time to look at the virtuous concept of the so-called Demographic Dividend that Arvind Subramanian, then chief economic advisor, spoke so glowingly about in the Economic Survey of 2015-16.

Back then, Subramanian believed that India had a 25-year runway – one more generation – to exploit this dividend.

“Demography…is opportunity not destiny,” Subramanian wrote in an effulgent note on the subject. The whole idea was predicated on a virtuous cycle created by a surge in investment, jobs and personal spending.

In 2023, a lot of that enthusiasm has dissipated: private investment isn’t rising because average plant capacities are operating at around 80 per cent after the turmoil wrought by the double whammy of a pandemic and the Ukraine war which makes capital expenditure more of a luxury than a necessity.

Job creation has turned into a game of smoke-and-mirrors at a time the Modi government stopped the Labour Bureau’s quarterly enterprise survey and then the annual Employment-Unemployment Survey in 2017, preferring instead to mash numbers from other sources like the Employee Provident Fund and Employee State Insurance Corporation to create an illusion of jobs growth.

But it is time to ask the basic question: Is the concept of a Demographic Dividend still healthy and kicking?

Economists said the country needs to create enough employment to reap the benefits of the demographic dividend. It has to grow around double digits for the next two decades, undertake structural reforms and increase the share of manufacturing in GDP.

Prof N. R. Bhanumurthy, the vice-chancellor of B.R. Ambedkar School of Economics University, Bangalore, said: “India needs to grow at 8 per cent to 10 per cent for the next two decades at least to reap the benefits of population growth. There need to be structural reforms in the economy and focus should be on increasing the share of manufacturing to at least 25 per cent of GDP, which would create enough jobs.”

Policymakers began viewing a growing young population in the form of the so-called demographic dividend — when a majority of a country’s population falls within the working ages (15-64 years) — as an engine for further economic development.

K.S. Chalapati Rao, Institute for Studies in Industrial Development, said: “Quality of the population in terms of the skills and educational qualifications (not merely degrees) is of paramount importance to convert that demographic advantage into economic dividends. China moved ahead of India not because of the size of the population but because it used its potential in a calculated manner.”