Second Demographic Dividend
Mon, 20 Dec 2021

Second Demographic Dividend

In News

The renaming of the National Action Plan for Sr. Citizens (NAPSrC) as Atal Vayo Abhyuday Yojana, indicates a step towards reaping the benefits of the Second Demographic Dividend.

What is Second Demographic Dividend (SDD)?

  • About SDD: This second demographic dividend is characterized by an accumulation of wealth and savings as older individuals save for consumption at old age and invest in their human capital, especially in health and education.
  • Difference between 1st and 2nd Demographic Dividend:
    • The first dividend occurs during the demographic transition process, when the working-age population increases as a share of the total population, and the percentage of both young and old dependents decreases.
  • The second demographic dividend results from an increase in adult longevity, which causes individuals to save more in preparation for old age.

India’s Demographic Profile

  • India’s population is stabilising, as the total fertility rate (TFR) has decreased across majority of the states, as per the NFHS-5
  • As of 2019, over 139 million people living in India are aged over 60 which is over 10% of the country’s total population. The proportion of older people is expected to almost double to 19.5% in 2050 with 319 million people aged over 60. This means that every 1 in 5 Indians is likely to be a senior citizen.
  • The proportion of participation in economic activity by the elderly person in the age-group 60-64 years has decreased from 49.3% in 2011-12 to 40.9% in 2018-19. Similar trend has also been noticed for the age group 65 years and above.
  • Literacy levels among elderly males and females have improved over time in both rural and urban areas. However, huge gender gap has been observed in literacy rates
  • The rise in the elderly population may be due to the longevity of life achieved because of economic well-being, better healthcare and medical facilities and reduction in fertility rates.

What is the potential of SDD?

  • Economic Potential: This second dividend operates in two ways:
  • Greater Accumulation of Wealth: People accumulate wealth during their working years, and by the time they reach old age their wealth is at or near its peak. Also, as people realize they will live longer, they will be more motivated to accumulate wealth that they can use to support themselves in old age.
  • Greater Investments in Human Capital: As people’s wealth increases, research indicates that they are more likely to invest in the health and education. With fewer children to care for, it is possible for parents to invest more resources in each child.
  • If countries are forward-looking and act early, the opportunities the longevity dividend provides can potentially lead to improved productivity over longer lifespans and an increase in gross national income.
  • Social Potential
  • Less Dependency Ratio: SDD can lead to healthier old age individuals, who are financially independent. This is lead to savings for government as the support infrastructure for elderly would reduce.
  • Better Mental being: With lifetime of experience and robustness due to difficult situations, SDD can lead to growth in better mental health among individuals and create and over all ripple effect on the society.
  • Knowledge Base: Intergenerational work is a great way to break down barriers between groups of people. For young people to appreciate the experiences and skills of older people and vice versa so that we foster greater understanding between groups of people.

What can be the Challenges realising this potential?

  • Strain on Public Exchequer: As India witnesses sustained periods of growth, a significant part of the population is expected to live longer than ever before. This essentially would mean that the dependency on the national pension system would be longer after they exit the labour market, adding pressure both on the government and the senior citizens.
  • Societal Barriers: Older people are mostly seen as a bundle of problems and service-needs. Their strengths, skills and knowledge are not harnessed or appreciated in a society infatuated by the youth. Exacerbated risks for women across their life make them more vulnerable in old age.
  • Economic Barriers: India is rated 130th out of 189 countries on the latest United Nations Human Development Index Ranking in 2018. Only a quarter of people (24.1%) older than the statutory pensionable age in India receive an old-age pension.
  • High Dependency ratio: There is a significant increase in the old-age dependency ratio in India, which rose from 10.9 per cent in 1961 to 14.2 per cent in 2011 and is projected to increase to 15.7 per cent and 20.1 per cent in 2021 and 2031, respectively.
  • Health Barriers: Older people need care and support. An ageing population increases the demand for health services. Most common disability among the aged persons was locomotor disability and visual disability as per Census 2011.
  • Administrative: Despite concerns about the fiscal pressures of ageing on the economy, the reality is that our income support systems in their current form are not even capable of catering to the elderly when their proportion of the population is only 8.6%.
  • Amidst the rise in the number of senior citizens in the country, interest rates on savings are falling and touching an all-time low.

Way Forward

Steps taken by government for SDD: Refer to the snapshot on ‘Elderly in India 2021 Report’ (

  • Transfer Wealth: As an alternative to accumulating assets individuals or governments may accumulate transfer wealth,e., claims against future generations. Governments can establish transfer programs in which, pension benefits of current retirees are paid by taxing current workers.
  • Life-long Learnings: Singaporean government has invested significantly in life-long learning initiatives to boost society’s human capital potential as well as to promote personal development and social integration.
  • Skill Development: There is need to for creating Skill sets for the future among the young populace and re-skill the older populace to capitalize on their potential.
  • Social risk pooling: Individuals tend to have great difficulty hedging longevity risk, which includes the risk of outliving their retirement resources and catastrophic health shocks. Relying solely on individual efforts to finance old-age consumption may thus accentuate income and wealth inequalities in society. Here, mechanisms such as social risk pooling can help.
  • Robust and Accessible Financial Systems: Policymakers, especially in developing countries, need to establish sound and trusted financial systems accessible to the millions who wish to secure their financial futures. This could serve to protect the country from an excessive healthcare burden as the population ages.
  • Increasing Retirement Age: While in India, the age for retirement in a majority of government-owned institutions is 60, there are economies like Germany, the US, the UK, Australia, China and Japan that are progressively increasing their retirement age. This will help utilise the experience and knowledge of those at the top for a few more years.
  • Another benefit of raising the retirement age would be the government’s ability to reduce the burden of paying for pensions.

Question: The Second Demographic Dividend can create inter-generation benefits, if capitalized well. Discuss.




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