India’s elderly population: Fiscal challenges offer opportunities
PremiumWe can assure them income security and lower our pension costs by adopting a plan to keep the dependency ratio in control
Ample discussions surround the topic of India’s demographic dividend. The country is at a peculiar stage in its demographic transition, characterized by a bulge in its youth population, which can be a window of opportunity to accelerate growth. However, a parallelly occurring phenomenon that requires equal attention with regard to India’s economic growth trajectory is rapid ageing.
Countries all around the world are experiencing an increase in the proportion of their elderly population because of falling fertility rates and rising life expectancy. By the United Nations’ population projections, the headcount of people aged 65 and above, which constituted 703 million people in 2019, will double to 1.5 billion in 2050, thus accounting for 16% of the world population. But developing countries like India are experiencing ageing at a faster pace. According to the World Health Organization, India’s elderly population will rise from its current 60 million to over 227 million by 2050. Accordingly, the old-age dependency ratio will rise from 9.8 to 20.3. Hence, even as the demographic dividend works to enhance economic growth, an increase in our elderly population and rising pressure on pension systems can offset our efforts.
This posits two policy challenges: Ensuring income security for the elderly as well as mitigating the fiscal costs that arise from a high old-age dependency ratio.
Although the rising proportion of elderly people throws up fiscal challenges for the country, it also calls for a sharper focus on income security for the elderly population, which is a concern that cannot be ignored to focus solely on the economy. Against this backdrop, the Quality of Life for Elderly Index has set out to present an assessment of the quality of life led by the elderly across Indian states and Union territories. The study assesses their well-being across four pillars, further split into eight sub-pillars that include 45 indicators.
While the index focuses on the overall well-being of India’s older population, income security forms an integral part and one of the pillars of assessment in the study. The findings reveal that income security is the biggest challenge to the well-being of our elderly. According to the index, this particular pillar has the lowest national average score, at 33.03 (out of 100), with 62% of all regions scoring below the national average. The pillar evaluates the essential measures that provide income support, such as pensions and provident funds. In the index, 21 of 36 states were found to have utilized less than 50% of their funds sanctioned under the National Programme for Health Care of the Elderly, while Chandigarh and Dadra and Nagar Haveli were not sanctioned any amount. Most of the states also fell short in providing the benefits of existing pension schemes for the elderly below our poverty line.
The index scores reflect our policy approach towards ensuring income support to the elderly, as India spends only 1% of its gross domestic product on pensions. The Indira Gandhi National Old Age Pension Scheme, Indira Gandhi National Widow Pension Scheme and Atal Pension Yojana are the country’s key interventions in this regard. Thus, both the Centre and states need to enhance their efforts, especially in states with a higher proportion of the elderly population.
All of these findings point to one fact: 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%. This is a major concern in itself, but it also does not bode well for India’s ageing journey in the near future. How well will our pension systems fare once old people account for a larger share of the country’s population? The need of the hour is to strengthen our pension systems through better funding and coverage.
The second challenge remains; the economy still needs to mitigate the fiscal costs that arise from a rising old-age dependency ratio. The first step to resolving this is to change the negative connotation attached to old age. At a point of time in scientific evolution when humanity has overcome so many perilous diseases that the average lifespan has increased considerably, it would be unwise to assume that an individual ceases to be a valuable resource after crossing 60 years as an age threshold. Accordingly, the vocabulary employed for the elderly needs to change from ‘burden’ to ‘asset’.
As India’s demographic dividend diminishes and the pressure on pension systems risks mounting, the index suggests that we should raise the retirement age in the future, albeit in a phased manner so as not to jeopardize opportunities for younger generations. This would usher in a truly multi-generational workforce, wherein older workers bring wisdom and work experience to complement the new-age skills and energy of the younger lot.
However, raising the retirement age would be a challenge too. It requires that the country begins preparing for it well in advance. To leverage a second demographic dividend, our institutional and policy framework should be conducive to this intended change. Further, active ageing is the key here, as it is not possible to extend the working age of the population if the country does not have a pool of healthy elderly people capable of working in the first place. It must be further noted that the well- being of the elderly in the future is tied to the well-being of our working population today. A strong multi-generational workforce is only possible in the future if the youth of today have adequate access to social goods and employment opportunities.
As India experiences a demographic transition that holds the promise of economic abundance, our policymakers need to look both closer and beyond the demographic dividend. In addition to taking steps to ensure the well-being of the elderly today and in the coming decades, policymakers need to make provisions for easing the fiscal challenges it entails, lest the challenges of tomorrow weigh heavier than the benefits of today.
Amit Kapoor & Bibek Debroy are, respectively, chair, Institute for Competitiveness, India and visiting scholar, Stanford University; and chairman, Economic Advisory Council to the Prime Minister.
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