Welcome to this week’s edition of TOPICAL WEDNESDAY! This week, we delve into the transformative power of India’s demographic dividend. Discover how this phenomenon has propelled developed nations forward and explore the strategic opportunities that await India as it positions itself to harness this demographic advantage. Dive in for compelling insights that reveal the potential for growth and prosperity.
The Population Bomb
In 1968, American biologist and Stanford University professor Paul Ralph Ehrlich raised concerns about India’s ability to feed its growing population in his book “The Population Bomb”. At the time, the world viewed India’s massive population as a burden, given the country’s limited resources. Economically, India was grappling with widespread poverty and unemployment, with nearly 80% of its population living below the poverty line. Socially also, the situation was dire, literacy stood at a mere 12%, leaving the vast majority without access to education. An underdeveloped healthcare and farming systems further worsened conditions, leading to high mortality rates and frequent famines.
The late 1960s marked a turning point with the Green Revolution, boosting India’s food security through high-yield crops, modern irrigation, and better farming techniques. By 1966, food production had risen 1.7 times since 1951, yet rapid population growth offsetted these gains. The 1965 drought led to severe food shortages, forcing Indira Gandhi to seek U.S. aid.
Once seen as a burden, India’s population is now viewed as an asset, driving its transformation from a developing to a developed economy and a global consumption hub.
(Source: Insights, EY)
What is Demographic Dividend?
The term demographic dividend refers to the economic benefits arising from a substantial increase in the working-age population, leading to higher productivity and economic growth. It occurs when the percentage of the working-age population exceeds that of the dependent population.
How working population exceeds dependent population?
In the 1960s, only about 19.5% of India’s population was working, while the remaining 81.5% depended on their income. This meant that in a family of 10, only 2 people were earning, supporting the other 8. Fast forward to 2024, India’s working and dependent population now stands at an equal 50-50 ratio.
Learning from History: Insights from Global Economies
Understanding the impact of the demographic dividend on economic growth requires looking at the history of major economies. Japan, South Korea, and China successfully capitalized on their working-age population boom to drive industrialization, innovation, and economic expansion. These nations offer valuable lessons on how strategic investments in education, skill development, and job creation can transform demographic potential into sustained prosperity.
Japan (1964 – 2004)
Japan’s demographic dividend period spanned from 1964 to 2004. At the beginning of this phase, Japan’s GDP was ~$47.4 Bn. During this time, the country experienced rapid economic growth, with an average annual rate of about 4.5% during the 1960s and 1970s. By the end of this period, Japan’s GDP had grown to around $5.2 Tn. However, post-2004, Japan’s economy has faced challenges due to an aging population, and its GDP is now ~$4.2 Tn.
South Korea (1987–Present)
South Korea entered its demographic dividend phase in 1987. Initially, its GDP was ~$220 Bn (in PPP terms). During this period, South Korea achieved significant economic growth, with an average annual rate of about 8% during the 1980s and early 1990s. By 2007, its GDP had risen to ~$1.1 Tn. Today, South Korea’s GDP is ~$1.7 Tn, with a growth rate of about 2.32% in 2023. Despite slower growth, South Korea remains a strong economy.
China (1994–Present)
China’s demographic dividend period relevant to this timeframe began around 1994, though some experts believe that it started in earlier 1982. By 1994, China’s GDP was ~$463 Bn. During this phase, China experienced dramatic economic growth, with an average annual rate of around 9.5% from 1994 to 2013. By 2013, its GDP had grown to ~$9.5 Tn. Today, China’s GDP exceeds $18 Tn, though growth rates have slowed due to demographic changes and economic restructuring. China remains the second largest economy of the world.
Now that we’ve seen how a young working-age population can act as an invisible growth engine of the economy, let’s dive deeper into the details within the Indian context.
India’s Demographic Dividend: A Once-in-a-Lifetime Opportunity.
It is said that India entered its demographic dividend phase in 2018, a period set to last until 2055, one of the longest in the world. With a population of 143.8 crore, India has now surpassed China to become the world’s most populous country, accounting for one in every six people globally. India’s median age is just 28.4 years, making it significantly younger than many developed nations. Nearly 67% of the population falls within the working-age group (15-64 years), while 26% is below 14 years, and only 7% is above 65. In contrast, 17% of the U.S. population and over 21%of Europe’s are aged 65 and above, highlighting India’s unique advantage.
This demographic position presents a tremendous opportunity for economic growth. With strategic investments in education, skill development, and job creation, India can leverage its young workforce to drive innovation, entrepreneurship, and industrial expansion. As China’s demographic advantage is set to end by 2031 and Brazil’s by 2038, India’s extended window positions it as a future global powerhouse. By effectively utilizing its workforce, India has the potential to shape its economic future and establish itself as a dominant player on the world stage.
(Source: The Economic Times)
Unlocking Potential: Whether India is tapping into this opportunity?
During the first seven years of their demographic dividend phase, various countries experienced significant economic growth. China led with a 9.6% GDP growth rate, followed closely by Korea at 9.4% and India, despite facing the unprecedented impact of the COVID-19 pandemic, registered a respectable 5.2%.
(Source: Indus Valley Annual Report 2025,Blume Ventures)
While India’s growth rate appears lower in comparison to other countries, it was due to Covid-19, GST implementation, election years and Major shift in India’s Fiscal and Monetary Policies. As India has entered this phase relatively late, it has an advantage of learning from the success and mistakes of other nations. Additionally, rapid digitalization, globalization, and strong international partnerships with major economies position India favorably for sustained economic acceleration. Unlike earlier cases, India now benefits from a more interconnected world, allowing it to leverage emerging opportunities and fine-tune policies with greater precision. This extended window of demographic advantage, combined with its strategic global alliances, ensures that India’s growth story is far from over. In fact, it is just getting started.
However, if we look at the flip side, India still faces several challenges in fully capitalizing on its demographic dividend. These obstacles, if unaddressed, could hinder the country’s ability to transform its favorable age structure into sustained economic growth. Below are the key challenges:
Underfunded Future: The Cost of India’s Low Education Spending
India’s public spending on education stands at just 2.7% of GDP, far below global peers like Indonesia (3.7%), China (4.1%), the USA (5.0%), the UK (5.5%), and Sweden (6.9%). This persistent underinvestment in education threatens to weaken the foundation of India’s workforce, making it difficult for the country to fully capitalize on its Young Population in the long run.
A low education budget results in poor infrastructure, outdated curricula, teacher shortages, and lack of skill-based training, leading to a mismatch between education and industry demands. This is already evident in India’s rising unemployment rate among highly educated youth, where graduates face higher joblessness than less-educated workers.
(Source: Indus Valley Annual Report 2025,Blume Ventures)
Unemployment Rises with Education: A Troubling Trend
India’s job market faces a paradox—higher education is leading to higher unemployment. Despite earning degrees, many graduates struggle to find jobs, while those with lower education levels often secure employment more easily. This highlights a severe skill-job mismatch, where outdated curriculum and a lack of industry-relevant training leave educated youth unemployable. To truly harness its demographic dividend, India must align education with market needs, foster vocational training, and create high-skill job opportunities, ensuring that degrees translate into employability rather than joblessness.
(Source: Indus Valley Annual Report 2025,Blume Ventures)
Manufacturing Gap: A Missing Link in India’s Growth Story.
Economic transitions typically follow a structured path—moving from agriculture to manufacturing and eventually to a service-driven economy as expertise and complexity evolve over time. However, India took an unconventional leap, bypassing the manufacturing phase and directly establishing itself as a global leader in the service industry. Unlike other nations that spent considerable time developing their manufacturing sector, India’s rapid shift to services has created a structural challenge.
Now, with AI revolutionizing the service industry, this gap is becoming more apparent. AI is reshaping efficiency, productivity, and corporate structures, shifting them towards an “hourglass model,” where a few highly skilled workers oversee automated processes, reducing the demand for mid-level jobs. Without a strong manufacturing base to absorb displaced workers, India faces a critical challenge—how to adapt its workforce and economy to the realities of an AI-driven world.
(Source: Indus Valley Annual Report 2025,Blume Ventures)
Informal Economy: The Invisible Barrier to India’s Growth
India’s informal economy, which employs 91% of the workforce, hinders its demographic dividend by providing low-skilled, low-wage jobs with minimal contribution to GDP. Limited access to credit, technology, and formal employment results in underemployment, forcing many educated and skilled workers into low-productivity roles. Additionally, the absence of job security and social benefits leaves informal workers highly vulnerable to economic shocks.
(Source: Indus Valley Annual Report 2025,Blume Ventures)
Conclusion
India’s demographic dividend is a powerful opportunity for economic growth and progress. As the world’s most populous country with a young workforce, India has the potential to drive innovation, entrepreneurship, and prosperity. With one in every six people in the world being Indian, the country’s influence on the global economy is set to grow.
However, to make the most of this advantage, India must invest in education, skill development, and job creation. By doing so, it can build a highly skilled workforce, boost economic growth, and strengthen its position as a global economic leader. If India takes the right steps now, it can secure a bright and prosperous future for generations to come.
If you liked this newsletter, don’t forget to share it. Also, feel free to share your thoughts on X, where you can find us as @bastionresearch.
Disclaimer: This newsletter is for educational purposes only and is not intended to provide any kind of investment advice. Please conduct your own research and consult your financial advisor before making any investment decisions based on the information shared in this newsletter.
😂Meme of the Week🤣
Follow us
If you are a diligent investor, you would not want to miss checking out our research platform, where we share insightful research on companies regularly. Gain access to our sample research by clicking on the button below.
