Demographic Dividend, Debt & Deposits

What is Demographic Dividend

Demographic dividend refers to the growth in an economy that is the resultant effect of a change in the age structure of a country’s population.

There are four main areas where a country can find demographic dividends:

• Savings: During the demographic period, personal savings grow and can be used to stimulate the economy.
• Labor supply: More workers are added to the labor force, including more women.
• Human capital: With fewer births, parents are able to allocate more resources per child, leading to better educational and health outcomes.
• Economic growth: GDP per capita is increased due to a decrease in the dependency ratio.

Source - UNFPA [Graphic by Kaveen Kumar Saini/Mint]

From this  graph, it is clear that the India's working age population (15-59) is around 57% in 2000 and will continue to be above 50% until 2060. So, in this span of 60 years we can have a maximum demographic dividend from our population.

The peak of working age population is about to come in a decade when it will be around 65% in 2030. Hence it becomes imperative to make our population prepared (in terms of skills and training) to reap the demographic dividend.

Two Demographic Dividends

"It is important for us to distinguish between the first demographic dividend, or what we call the demographic deposit, and the second demographic dividend. The first dividend is like the change in an accounting system. The number of dependents drops temporarily, reducing expenditure such as the educational expenditure involved in caring for those dependent. The savings can be placed in a simple deposit to be withdrawn when the dependency burden rises again, this time with funds required to care for the elderly."
Source -  Desai, S., Ind. J. Labour Econ. (2015) 58:217–232

Interrelation between Demographic Deposit and Dividend

Components of the demographic impact on economic growth.
Source: Desai, S. (2013), ‘‘Women in Workforce: Burden of Success, Decline in Participation’’, Yojana, Vol. 57

So, from the relation obtained above, we can assume that
Per Capita GDP = Demographic Deposit x Demographic Dividend

Demographic Debt

Demographic Debt deals with the resources that we have to invest in the care of the elder people. When a large number of elders are dependent on the working population, then demographic debt is very high. One such example is of Japan which is going to face huge demographic debt in near future.

A funny thing is that in this capitalistic society, people can see an investment opportunity even in this scenario 😂😂

Challenges for India

India is going to see a boom in terms of demographic dividend but this demographic dividend remains just another construct until and unless the working population is put to work. 
Another challenge is to make attempts to reduce the Total Fertility Ratio to 2.1 so that we can maintain the current population and reap the demographic dividend without any worrying about the population explosion.