Demographic dividend refers to demographic or population advantage which is obtained due to numerical domination of the young people in the population. It is an advantage due to less dependency ratio.

Dependency ratio means that children less than 14 years and people above 65 years are considered as dependent on the rest of the population. In simple terms, the ratio of the combined age group 0-14 years plus 65 years & above to the 15-65 years age group is referred to as the total dependency ratio.

The younger age groups in the age structure are believed to be an advantage for India. Like the East Asian economies in the past decade and countries like Ireland today, India is supposed to be benefitting from a ‘demographic dividend’.

This dividend arises from the fact that the current generation of working-age people is a relatively large one, and it has only a relatively small preceding generation of old people to support. But there is nothing automatic about this advantage – 

it needs to be consciously utilised in the following ways.

a. The demographic advantage or ‘dividend’ to be derived from the age structure of the population is due to the fact that India is one of the youngest countries in the world. In 2020, the average Indian will be only 29 years old, compared with an average age of 37 in China and the United States, 45 in Western Europe, and 48 in Japan. This implies a large and growing labour force, which can deliver unexpected benefits in terms of growth and prosperity.

b. But this potential can be converted into actual growth only if the rise in the working age group is accompanied by increasing levels of education and employment.

c. India is indeed facing a window of opportunity created by the demographic dividend. The effect of demographic trends on the dependency ratio defined in terms of age groups is quite visible. The total dependency ratio fell from 79 in 1970 to 64 in 2005.

But the process is likely to extend well into this century with the age-based dependency ratio projected to fall to 48 in 2025 because of continued fall in the proportion of children and then rise to 50 by 2050 because of an increase in the proportion of the aged.

d. This suggests that the advantage offered by a young labour force is not being exploited. Unless a way forward is found, we may miss out on the potential benefits that the country’s changing age structure temporarily offers.