
As China, Japan and many other nations face an aging demographic profile, the youth segment of India’s population is growing rapidly, and is projected to continue to do so for the next 30 years. Provided India can act quickly on health, education and employment, this demographic dividend has the potential to inject new dynamism into its flagging economy. Failure to do so, however, will result in demographic disaster.

Today, more than half of India’s population is under the age of 25, with 65 percent of the population under 35. By 2020, India’s average age will be just 29 years, in comparison with 37 in China and the United States, 45 in Western Europe and 48 in Japan.This demographic trend will confer a significant competitive advantage upon India. About a quarter of the global increase in the working age population (ages 15-64) between 2010 and 2040 is projected to occur in India, during which time this segment is set to rise by 5 percent to 69 percent of its total population. Roughly a million people are expected to enter the labor market every month, peaking at 653 million people in 2031. As a result the IMF projects that India’s demographic dividend has the potential to produce an additional 2 percent per capita GDP growth each year for the next twenty years.

However, India’s ability to reap the rewards of its huge demographic advantage is far from guaranteed.The failure of a number of Latin American countries with the same demographic profile as Southeast Asia to achieve similarly impressive economic outcomes is a cautionary tale for India. The key to transforming the demographic dividend into economic growth lies not just in having more people, but having greater numbers of better trained, healthier and more productive people. The relationship here is mutually reinforcing; India must harness the advantage of its youth to fulfill its economic potential, and in turn must generate growth in order to continue to support its growing population. As noted by India's former Minister of Human Resource Development, Kapil Sibal, “it will be a dividend if we empower our young. It will be a disaster if we fail to put in place a policy and framework where they can be empowered.”

At the most basic level, India must focus on improving the overall health and well-being of its children in order to make the most of their immense potential. The Asian Development Bank estimated that 32.7 percent of India's population lives below the poverty line of $1.25 a day (PPP), and India is home to one-third of the world's poor. At 44 deaths per 1,000 live births, India's mortality rate is high. The World Bank notes a direct link between undernourishment and impaired cognitive development, so should India fail to ensure the health and well-being of its children, its future productivity and development will be severely curtailed. With a Human Development Indicators ranking of 134 out of 187 countries, India has a long way to go, and must swiftly invest in developing the potential of its enormous human capital.

Perhaps the most crucial task India faces is equipping its burgeoning youth with education and skills training. According to India’s 2011 Census, India’s literacy rate sits around 74%, with significant variation according to state and gender. In this regard, India’s 2009 Right of Children to Free and Compulsory Education Act is a big step towards guaranteeing a basic education for every child. Since its launch in 2010 India has witnessed some positive results, with 94 percent of children between the ages of 6 and 14 enrolled in school, and steady improvements in terms of facilities such as toilets and drinking water.

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Nevertheless, concerns regarding the implementation of the Act persist, with teacher absenteeism and large class sizes in many government schools fuelling the popularity of private institutions. Basic educational indicators across the country have actually deteriorated since the implementation of the Act in 2001, with the proportion of children in Standard V reading at a Standard II level and unable to complete basic arithmetic rising.

But education and skills training is only the first part of the story. It has been estimated that in order to accommodate the 300 million people that will join India's workforce between 2010 and 2040, India needs to create roughly 10 million jobs a year. Given that India experienced rising unemployment rates even in its highest growth years of 2004-5 and 2009-10, the task of creating jobs now that GDP growth has weakened will be even more difficult.


India has made some progress through its 2005 Mahatma Gandhi National Rural Employment Guarantee Act, which guarantees 100 days of unskilled manual work to rural households. The Act created 2.5 billion workdays for 50 million households in 2010-2011, and has had a positive macroeconomic impact by increasing GDP and trade. Nevertheless, concerns regarding the inefficiency, sustainability, and long-term benefits of the scheme persist. In order to fully capitalize on its demographic dividend and increase female workforce participation, India must focus on manufacturing – a sector which is gradually recovering from a three month low in January.

The unfavorable economic conditions in India have had a disproportionate effect upon its youth, for whom the unemployment rate is almost double the national average. The World Bank’s most recent World Development report pegs youth unemployment in India at 10%, with slightly higher rates among women. The outlook for India’s youth who are not employed, studying, or looking for work, is even worse. Of particular concern are the stark gender imbalances – with 10% of men and 51% of women falling into this category.

Youth unemployment is highest among recent graduates. While initiatives like the Mahatma Gandhi Act have been valuable in empowering the rural poor, they have little impact on the lives of India’s educated middle class. India’s urban middle class is increasingly able to mobilize as a coherent group, as evidenced by the crucial role they played in the large-scale protests earlier this year in response to the brutal gang-rape of a student in Delhi and anti-corruption protests throughout 2011 and 2012. While constituting roughly 15% of India's population today, the middle class is projected to grow along with India’s youth to 20.3% by 2015-16, and 37.2% by 2025-26.

As a result, the Indian government will increasingly have to respond to the concerns of its burgeoning youth and middle class constituencies, both of which can be expected to become a political force to be reckoned with. Whether India’s political establishment, which tends to focus upon winning the rural poor vote, is up to the task is a different matter. While the median age of the Indian population is roughly 25, the median age of cabinet members is closer to 65, and as a result the political establishment is perceived as being out of touch with its increasingly youthful constituents.

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India is already facing the consequences of failing to seriously address the concerns of its increasingly disaffected youth, and will continue to do so should it continue to fail to provide opportunities for this sector of its population. Deemed by Prime Minister Manmohan Singh to be “the single biggest internal security challenge ever faced by our country,” India’s Naxalite movement focuses its recruitment strategies upon this very demographic; targeting youths in areas with particularly low socio-economic and developmental indicators. While the government has taken some measures to promote inclusive development and employment opportunities in Naxal affected areas, the strength of this movement demonstrates the potential severity of continuing to neglect India’s youth demographic.

India's demographic dividend is expected to level off around 2040, so in order to capitalize on its favorable demography India must act now. Should India fail to guarantee the well-being, development, opportunities and growth necessary to support its youth, it will be unable to convert its unique demographic dividend into sustainable economic and developmental outcomes. Instead it will be left to face the dire political, economic and social consequences of a marginalized and restless youth population, on a scale unprecedented in modern history.

Danielle Rajendram (@DRajendram) is a Research Associate at the Lowy Institute for International Policy, whose work focus on Indian foreign and domestic policy, China-India relations and broader Asian strategic issues.