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February 4, 2011

Life after ’35

The time to plan for old age is now.

India is currently experiencing a favourable demographic phase, during which the share of working age population in the total population is on the rise. This demographic advantage contributes significantly to high savings and investment ratios—and to prevailing high growth rates. However, it also necessitates the implementation of policies that are conducive for the continued generation of jobs and sustained standard of life in the future.

Projections by the United Nations show that India will need to generate productive livelihoods for 120 million persons—equivalent to 28 percent of the global total—between 2010 and 2020. This is an enormous challenge that requires labour market policies, technology choices, and social sector policies that are conducive to creating new livelihoods that can effectively replace existing ones that may not be effective in the long run.
High economic growth rates have grossly masked New Delhi’s inadequate response to this challenge. It is important to note that the costs of such neglect will not only be economic, but social and political as well.

Older Indian

Photo: Meena Kadri/Flickr

From favourable demographics to rapid ageing
The projections suggest that the current favourable demographic phase will end around 2035. After 2035, the country will face the challenge of a rapid ageing population, which will be hastened by declining fertility rates and increasing (although at an uncertain rate) longevity.

One of the indicators is that of the Total Fertility Rate (TFR), which reflects the average number of children a woman is expected to give birth to during her lifetime. Current trends suggest that India will reach a TFR of around 2.15 between 2016 and 2020. A TFR of 2.15, if sustained and if there is no net migration, will lead to stationary population, while a TFR of 1.30 will result in the population of a country reducing by half in just 45 years. Several Indian states already have a TFR below 2.15.

As developmental aspirations of the population manifest themselves in the political arena, the Indian citizen’s life expectancy is expected to improve. For the 2005-2010 period, Indian men aged 60 could expect to live another 16 years. Indian women, for 18. This is likely to improve even further over time, with women widening their lead.

By 2050, the single largest age cohort in India will be that of women over 70, and that they will outnumber men among the elderly. Even if India manages to sustain high growth rates—which is by no means assured—the country will be a middle-income country in 2050, with its projected per capita income only a fifth of that of the United States.

India is projected to have 185 million persons above 60 years of age by 2030. There is little experience globally for designing ageing policies for a society with such a large number of elderly persons. The reversibility principle therefore assumes considerable significance. This principle suggests that in designing and implementing any retirement income security or health care scheme, the cost of reversing and shifting to a different scheme must be minimised. Locking India in a particular scheme without policies based on empirical evidence, and implemented without professionalism, will have high opportunity costs for growth and social cohesion, particularly when there is severe fiscal stringency.

The increasing number of the aged and the near-aged is also likely to impact on the political inclinations and voting patterns. The political processes will need to manage inter-generational and intra-generational differences arising from rapid ageing.

Preparing for an ageing nation
As the number of the elderly increases, and demand for better service rises, failure to modernise the Employees Provident Fund Organization (EPFO), and the Employees State Insurance Corporation (ESIC)—whose membership is mandatory—will increasingly become untenable. There are already demands from employers and the employees to facilitate choice and institute contestability concerning the retirement income and healthcare services provided by these two statutory institutions.

The urgent passage of the Pension Fund Regulatory and Development Authority Bill and expanding its scope to facilitate choice and contestability merits serious consideration.
Unfortunately, there appears to be limited recognition of the multi-dimensional challenges that demographic transformation portends for India. We have a relatively short window of opportunity to prepare for its rapidly ageing society.

The movement towards a rapidly ageing society will affect many diverse areas. Savings and investment ratios will be dampened as older people typically save less, and also spend less on housing, and durable goods. The labour markets will need to adjust to workers whose median age will be higher, and to encourage employers to gainfully engage senior citizens. This will require changes in labour market laws, in the statutory provident fund, healthcare and other regulations. Greater emphasis on knowledge and its management with a view to improving productivity per person will be essential. India will not be able to rely on high savings and investment rates, and abundant labour supply to sustain high growth.
Rapid ageing will also impact India’s mortality patterns. The consumption of healthcare services typically increases disproportionately for those aged above 65. For those above 80, special healthcare services become necessary. However, providing healthcare to a rapidly ageing society is expensive, and will have to be pitted against other economic priorities. India will have to engineer unconventional and innovative mechanisms to finance and deliver healthcare services. Examples include “108 Emergency Service” provided by the Emergency Management and Research Institute (EMRI), and the Chiranjeevi Yojana in Gujarat designed to reduce maternal and child mortality rates.

For an ageing society, the demand for healthcare services must be minimised through a healthier environment and habits. India will also need to invest resources to promote public health and sanitation, and higher quality of food products and medicines. The public infrastructure will also need to be designed with senior citizens in mind. This applies particularly to public transport, street architecture and public toilets.

The current populist policies are ineffective, inequitable, and costly. Successful ageing policies involve a systemic view of economic, social, and health sector policies and programs.
These should lead to low rates of disability and illness, active social participation, livelihood participation, and physical and mental activities for the elderly. It is these criteria that will determine the extent to which India succeeds in preparing for a new demographic phase of rapid ageing in the foreseeable future.


Mukul G Asher is professor public policy and Azad Singh Bali is a doctoral student at the Lee Kuan Yew School of Public Policy, National University of Singapore


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