India’s Economy in the Twenty-First Century: Role of State-Differentiated Demographic Dividend

A number of recent studies have highlighted that in the twenty-first century, India is slated to become the global growth leader, maintaining relatively high growth rates over several decades. This is estimated to result in India becoming the second largest economy in terms of its size of GDP as measured in PPP terms by 2039–40 and the largest economy by 2051–52 (EY, 2023). Even in market exchange rate terms, India is estimated to become the second largest economy by 2075 (Goldman Sachs, 2022). This robust growth performance is largely dependent on the interface of India’s unfolding demographic dividend with its saving and investment rates. Saving rate tends to be high when dependency rate is low and the available population in the working age group is productively employed. In this paper, we have highlighted that the demographic profile in the next few decades is expected to be noticeably different across Indian states. States that are at present considered relatively more developed in economic terms are also the states that would be aging ahead of the states that are presently less developed. To some extent, the growing discrepancy in the age profiles of different states would be moderated by inter-state migration. Using the differential features of the evolution of age structure across states, policymakers both at the central and state levels can orient their policies to maximize overall and state-specific growth by finetuning over time, their expenditure prioritization with respect to education, health, and skill building. In terms of urbanization and spread of infrastructure facilities also, suitable messages can be derived for optimal allocation of infrastructure investment across space and over time.