Understanding Demographic Dividend
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Understanding Demographic Dividend

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We keep hearing that India will become a Super Power country some day because of its demographic dividend. ...

We keep hearing that India will become a Super Power country some day because of its demographic dividend.

What exactly is this demographic dividend? Here's a lesson ‘Demographic Dividend’ that attempts to simplify this interesting concept for you.

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Understanding Demographic Dividend Presentation Transcript

  • 1. DEMOGRAPHIC DIVIDEND
  • 2. Demographic dividend is the benefit a country gets when its working population outgrows its dependants such as children and old people. DEMOGRAPHIC DIVIDEND
  • 3. DEMOGRAPHIC DIVIDEND This means there are relatively more hands to earn i.e. higher per capita income leading to higher savings and growth. However, such rapid growth in labour force is temporary. This stage of a country’s growth starts with a demographic transition. It means a shift from one phase to another.
  • 4. Let me explain.
  • 5. Developing countries go through three demographic phases: DEMOGRAPHIC DIVIDEND
  • 6. Phase 1: DEMOGRAPHIC DIVIDEND
  • 7. DEMOGRAPHIC DIVIDEND Improved income and health reduces the infant mortality rate and a baby boom (or population explosion) arises. This increases the dependency ratio (the number of dependents per income earner).
  • 8. Phase 2:
  • 9. The baby boomers, once regarded as a population curse, grow up to create an unprecedentedly large army of income earners thereby boosting the GDP. The dependency ratio improves dramatically - there are relatively more hands to earn and fewer mouths to feed. This is the first demographic dividend. Few Examples: India, Australia, Indonesia etc. DEMOGRAPHIC DIVIDEND
  • 10. Let us see the formula of the Current Account Balance (CAB) CAB = X - M + NI + NCT X = Exports of goods and services M = Imports of goods and services NI = Net income abroad  [Salaries paid or received, credit / debit of income from FII & FDI etc. ] NCT = Net current transfers [Workers' Remittances (unilateral), Donations, Aids & Grants, Official, Assistance and Pensions etc] CURRENT ACCOUNT DEFICIT A second demographic dividend is also possible. DEMOGRAPHIC DIVIDEND
  • 11. With improved health, baby boomers expect to live long and so save large sums for retirement. This higher saving finances additional investment and accelerates GDP growth. This is the second demographic dividend. Few Examples: Brazil, China, USA etc. In short, the first dividend yields a transitory bonus and the second transforms that bonus into greater assets and sustainable development subject to implementation of effective policies. DEMOGRAPHIC DIVIDEND
  • 12. Phase 3: DEMOGRAPHIC DIVIDEND
  • 13. DEMOGRAPHIC DIVIDEND In phase 3 of a country’s development, the dividend starts disappearing. A growing desire for small families means that the baby boom is followed by a baby bust. When the baby boomers begin to retire, the proportion of non-earning old people rises sharply and tends to reduce the income per head. Few Examples: Japan, Germany, Russia, Italy etc.
  • 14. What is the role of policymakers?
  • 15. The dividend period can only be considered as a window of opportunity rather than a guarantee of improved standards of living. Only when a country capitalizes on the resources and uses them effectively will the economy benefit. If right policies are not in place, a demographic dividend can turn into a demographic disaster. DEMOGRAPHIC DIVIDEND
  • 16. Let us see the formula of the Current Account Balance (CAB) CAB = X - M + NI + NCT X = Exports of goods and services M = Imports of goods and services NI = Net income abroad  [Salaries paid or received, credit / debit of income from FII & FDI etc. ] NCT = Net current transfers [Workers' Remittances (unilateral), Donations, Aids & Grants, Official, Assistance and Pensions etc] CURRENT ACCOUNT DEFICIT Hope you have understood the concept of Demographic Dividend. DEMOGRAPHIC DIVIDEND
  • 17. Please give us your feedback at professor@tataamc.com
  • 18. DISCLAIMER The views expressed in this lesson are for information purposes only and do not construe to be any investment, legal or taxation advice. The lesson is a conceptual representation and may not include several nuances that are associated and vital. The purpose of this lesson is to clarify the basics of the concept so that readers at large can relate and thereby take more interest in the product / concept. In a nutshell, Professor Simply Simple lessons should be seen from the perspective of it being a primer on financial concepts. The contents are topical in nature and held true at the time of creation of the lesson. This is not indicative of future market trends, nor is Tata Asset Management Ltd. attempting to predict the same. Reprinting any part of this material will be at your own risk. Tata Asset Management Ltd. will not be liable for the consequences of such action. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.