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Sonalde Desai: After the demographic dividend

The three things India must do now to prepare for an ageing population

Sonalde Desai 

After the demographic dividend

Urgent almost always triumphs over important, and nothing could be less urgent than a demographic future that awaits India in year 2050. But as euphoria over declining fertility passes, the nation must prepare for a rapidly growing elderly population. Today, only eight per cent of the Indian population is over age 60 according to United Nations estimates; by 2050, it will be 19 per cent; and by 2085, it will be 30 per cent. Compare this with 19 per cent in today’s United States and 30 per cent in Germany and you will have a sense what the demographic burden may have in store for India.

A recent cross-national study titled “Population Aging and the Generational Economy”, edited by economists Ronald Lee and Andrew Mason, provides interesting statistics. At age 55, labour income exceeds consumption in 17 of the 23 economies surveyed, including India. The change between ages 55 and 60 is dramatic. Sixty-year-olds are producing as much as they are consuming in only two of the 23 economies. By age 65 a lifecycle deficit is universal, and in many economies it is large. How do we plan for this demographic future? Instead of being alarmed at the prospect, it would make sense to put in place sound policies that are good for the nation today, and will stand us in good stead over the years as our population ages. Three specific areas deserve great attention.

First, as mortality declines, health improves and the proportion of the elderly rises, most countries adjust to it by increasing the length of the working life and raising the retirement age, including the elimination of compulsory retirement in the case of the US. At present, India has a relatively large share of elderly males in the workforce with over half the men above age 60 being employed. However, most are self-employed in agriculture. As agriculture declines and an increasing number of people are employed outside family farms, opportunities for the elderly to work will decline.

This implies that the employment policy will have to take into account the need to create employment opportunities for the older population. While raising retirement age may well form a part of this, rigid labour laws make companies look forward to compulsory retirement of unproductive workers instead of seeing older workers as potential resources. Unless these labour laws are restructured, the private sector is unlikely to move towards raising retirement age. Moreover, we need opportunities for workers who formally retire but have many productive years left. There is a need to consider some creative solutions that generate opportunities for the older population in social sectors, for example as para-teachers.

Managing soaring healthcare costs forms the second challenge of an aging society. In most industrial societies, healthcare expenditure in the final ten years of life exceeds that in the earlier seven decades, and the expenditure in the final year of life is the greatest. This is particularly problematic as the disease profile shifts from communicable diseases affecting the young, to diseases affecting the older population, such as cancer and heart attacks. As we rush into expanding public and private health insurance coverage, we may want to learn from the (mostly negative) experiences of countries ahead of India on the demographic curve. How does a society balance the needs of a 70-year-old looking forward to a new lease of life via cardiac bypass surgery against that of a 40-year-old requiring extensive rehabilitation following an accident? Neither medical ethics nor healthcare financing structures have been developed to address these complex choices.

Population over age 60 in IndiaHowever, as we rush into an era of shared risks through insurance, we may want to think about layered healthcare financing structures, where basic public health measures are provided through existing public health systems, emergency care is universally provided by programmes such as the Rashtriya Swasthya Bima Yojana, and tertiary care costs are privatised through private health insurance systems.  Healthcare financing is a challenge even now, and is likely to become an even greater challenge in an ageing society — but without some forward-looking planning, we are likely to become trapped into a patchwork of systems, and create entitlement obligations that may prove burdensome in the future.

The third area that may require considerable ingenuity is increasing the ability to save for old age. In this context, calculations by Dr Ladusingh from the International Institute for Population Sciences and Dr Narayana from the Institute of Social and Economic Change are fascinating. They estimate that, on average, working-age adults spend Rs 7,25,714 caring for children. With declining fertility, child-dependency ratio will decline and some of the money spent on raising children can be used to save for retirement. But this is not possible, given the cost of educating children is also rising rapidly. With nearly 28 per cent of children attending private schools and 20 per cent enrolled in private tuitions, private educational costs are rapidly escalating. Right to Education has already added to the public education expenditure. Education must form a priority if productivity is to be enhanced. However, improving the quality of education while controlling educational costs remains a challenge. It takes somewhat of a leap of faith to imagine that improving efficiency of our educational system is a way of dealing with the problems of ageing but unless we can do that, today’s young parents will not be able to save for their old age.

All three areas outlined above – better utilisation of our human resources, putting in place sound healthcare delivery and financing structures, and improving educational efficiency – are priorities for India’s present; that they will help us adjust to our demographic future adds the icing on the cake. In this case, we are fortunate that the urgent and the important are one and the same.


The writer is a senior fellow at the National Council of Applied Economic Research, and professor of sociology at the University of Maryland

First Published: Thu, December 29 2011. 00:44 IST