Once defined by its growing population, India now faces a quieter but deeper demographic shift. According to the Sample Registration System (SRS) 2023, the Total Fertility Rate (TFR) of the country has reached 1.9 children per woman, below the replacement rate of 2.1. In urban India, the TFR stands at 1.5, while rural India is at the threshold of 2.1.
A TFR below the replacement level precursors a shrinking population, an ageing society and potential labour shortages. By 2050, one in five Indians will be 60 or older, increasing pressure on public finances and health care systems. With fewer workers contributing to taxes while more retirees rely on pensions and welfare, the government could face growing fiscal deficit, a challenge already apparent in ageing economies like Japan. India’s Gross Reproduction Rate has now fallen below one nationally, signaling each successive generation of women entering childbearing age will keep shrinking, making course correction more difficult.
However, India is not in the red zone just yet. Demographic changes occur with a lag due to population momentum. If a country slows down births, a youthful age structure can sustain population growth for decades, just as an older population can continue to shrink long after fertility rates recover. Currently, this lag is in our favour. According to the World Bank 2024 report, India has 68.2% of its population aged 15 to 64 years. Thus, even if families are having fewer children today, population growth will sustain for decades until the decline sets in. The UN World Population Prospects (UN WPP) 2024 projects India’s young working-age population will peak at 69.2% in the mid-2030s and then start to decline. This would be a turning point, as the dependency ratio of children and older people on the working population would decline from 66.6% in 2000 to 44.5% in the mid-2030s and then rise again. This is a window of demographic opportunity, or as NITI Aayog calls it, India’s demographic “sweet spot.” This period, spanning roughly from 2025 to 2035, will see the working-age population peak, with median age rising from 28.8 to 38.3 years between 2025 to 2050 (UN WPP, 2024). It represents the country's most favourable phase for accelerating productivity and income growth before aging pressures intensify.
Lessons from East Asia provide a cautionary insight. According to UN estimates, China’s working-age share peaked around 2010 at 72.9% and is expected to decline steadily through 2040. Japan reached its peak much earlier in 1992 at about 70%. Since then its old-age dependency ratio has doubled from 25.6% in 2000 to over 50.7 % in 2024, while its public debt exceeds 250% of GDP, driven largely by pension and health care spending (World Bank, 2024). Similarly, South Korea peaked around 2015 at 73.3% and is currently grappling with a TFR of 0.75. India now has their opportunity to convert the incoming peak into an economic dividend.
{{/usCountry}}Lessons from East Asia provide a cautionary insight. According to UN estimates, China’s working-age share peaked around 2010 at 72.9% and is expected to decline steadily through 2040. Japan reached its peak much earlier in 1992 at about 70%. Since then its old-age dependency ratio has doubled from 25.6% in 2000 to over 50.7 % in 2024, while its public debt exceeds 250% of GDP, driven largely by pension and health care spending (World Bank, 2024). Similarly, South Korea peaked around 2015 at 73.3% and is currently grappling with a TFR of 0.75. India now has their opportunity to convert the incoming peak into an economic dividend.
{{/usCountry}}Expectedly, much depends on how effectively India addresses its employment, skills, and participation gaps. Much of the labour market still suffers from spatial mismatch, skilling up and poor training quality. Furthermore, a substantial number of people are employed in low-productivity jobs, such as construction (12% of total workforce). In contrast, the services sector has the highest contribution to growth (54.4% GVA share), while its employment has stagnated from 31.1% in 2017-18 to 29.7% in 2023-24). India’s young workforce is shifting, but too slowly, from farms to factories, or informal to formal jobs. Deep gender imbalances continue to persist with female labour force participation at 41.7% and only 28% in urban areas. The World Bank’s Women, Business and the Law (2024) report estimates that eliminating such disparities could raise global GDP by over 20%. Addressing this divide is not only a matter of equity but also essential for sustaining India’s economic growth as the population ages.
Thus, while baseline scenarios tempt one to show India’s demographic transition as a one-way slide into population aging, peer history proffers solutions. European nations have shown policy change in children and eldercare can increase output per worker, while reversing low fertility rates. Household data across different income and age groups can also show fertility rates to recover naturally within the next few generations akin to a business cycle with the advent of AI and the global workforce reaching the downward sloping part of the labour supply curve. The latter especially hopes the tough trade-off between income and replacement-level fertility (a U-shaped curve) eventually auto-corrects the microeconomic family decisions, restoring the trend. It remains to be seen what path India carves out for itself. This demographic story, after all, is not a crisis to fear but a transition to manage. With foresight and inclusive planning, it can still be one of adaptation and growth.
This article is authored by Kritika Soni, research associate and Jayanta Talukder, associate fellow, National Council of Applied Economic Research, New Delhi.