India may face economic trouble as fertility levels drop

The female fertility level in India has dropped below replacement level sooner than in many developed countries, causing premature ageing of the population; The trend makes it imperative that India grows its economy rapidly or it runs the risk of getting caught in the middle-income trap

October 12, 2023 08:00 am | Updated 10:16 am IST

Image for representation only

Image for representation only | Photo Credit: VISHNU PRATHAP

India’s policymakers have long flaunted the massive economic benefits that the country will reap from its huge youth population. But while the country, with a median age of a little below 30 years, is still relatively young today, it looks all set to age quite rapidly in the coming decades, thanks primarily to a rapid decline in fertility levels. An ageing population, many economists believe, could turn out to mean serious economic trouble unless India manages to grow its economy at a rapid pace in the coming decades.

In a report released late last month, the United Nations estimated that India’s elderly population (people over 60 years old) will grow at a rapid 41% between 2021 and 2031. It further noted that the number of elderly people will be larger than the number of children (people who are younger than 15 years old) by 2046. To put this in perspective, in 2021 there were 39 elderly persons for every 100 children in India, and 16 elderly persons for every 100 working-age persons. Further, according to the UN, elderly people will constitute about 20% (or one in five members) of India’s population by 2050. And by the end of the century, 36%, or a little more than one-third, of India’s population will be over 60 years old.

The economic cost

The UN further noted the economic consequences of an ageing population. Going forward, developing countries will see a rapid rise in their old-age dependency ratio (that is, the ratio of the number of elderly people compared to the number of people in the working-age population). This is not surprising because people in India and around the world are living longer and are also reproducing at far lower rates than ever before in history. In fact, according to the fifth round of the National Family Health Survey (NFHS-5) released in 2022, female fertility levels have dropped below the replacement fertility level of 2.1 in all Indian states except only five (Uttar Pradesh, Bihar, Jharkhand, Meghalaya, and Manipur). Further, the fertility level in urban India, which stands at just 1.6, is comparable to the low fertility levels seen currently in the developed world.

As more elderly people come to depend on a shrinking working-age population, developing countries like India will face a far bigger challenge in the coming decades than did developed countries in their past. This is because developing countries today are witnessing a significant drop in fertility levels far sooner in their development journey than did developed countries. Most of the developed world had much higher per capita income levels when their populations began to age, which made it easier for them to handle the economic pressures caused by an ageing population. Developed countries, in other words, had a far bigger economic pie that they could use to sustain their elderly people when their populations began to age rapidly. Countries like India do not enjoy that luxury. As the UN notes in its report, in some developing countries today the old-age dependency ratio could more than double in 50 years, while it took about 150 to 200 years for the same thing to happen in the developed world. This puts undue burden on working-age people in these developing countries who, while trying to raise their own living standards through faster economic growth, will also have to support their elderly during the process.

A timely reminder

The findings presented in the UN report are seen as a timely reminder of the demographic challenge facing India’s policymakers. As the UN notes, policymakers in developing countries are slower to recognize and respond to the demographic shift underway because of other pressing development priorities competing for attention. With an ageing population, which will have to be supported in the coming decades by a shrinking workforce, it becomes imperative that India’s economy grows at a strong pace consistently over decades. Otherwise, the demographic dividend that policymakers have dreamt about may not turn into reality. Instead, India may face a demographic disaster as its young population turns older and could run the imminent risk of getting stuck in the middle-income trap.

To be sure, an ageing population does not necessarily have to mean economic disaster if the working-age population, regardless of its size, can be equipped with the necessary capital that helps boost their productivity. In a 2017 paper published in the American Economic Review, economists Daron Acemoglu and Pascual Restrepo analysed the economic performance of countries and noted that there is no strict negative relationship between an ageing population and per capita income levels. In fact, they noted that, between 1990 and 2015, in countries with rapidly ageing populations, per capita income levels actually grew at a faster rate than in other countries. Acemoglu and Restrepo attribute this to the increasing adoption of capital equipment like robots in the production process, which helped boost labour productivity and more than compensated for the loss of young labour due to ageing. India may have to radically reform its economy before time runs out if it is to replicate the success of the developed world.

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