Population Structure and Economic Growth in India

William Joe, Delhi University Enclave
Atish Kumar Dash, Central University of Bihar
Pradeep Agarwal, Institute of Economic Growth (IEG)

Population structure has direct implications for economic growth with significant consequences for countries undergoing demographic transition, such as India. Against this backdrop, this paper examines the impact of changing population structure on economic growth in India. We ask whether India’s current phase of demographic dividend will continue and, if yes, what are the preconditions? The analysis informs that, unlike China, India’s savings and growth potential as well as the magnitude and timing of first demographic dividend is adversely affected by slow pace of fertility decline. The ARDL estimates suggest that one percent decline in dependency ratio could lead to about 4 percent increase in per capita GDP of India. However, this relationship is indicative of expected adverse consequences when the dependency ratio begins to rise. The paper also compares India with China and argues that higher savings rate and favorable population structure are critical to harvest a second demographic dividend.