Rakesh Mohan: Fiscal challenges of population ageing - the Asian experience
Speech by Mr Rakesh Mohan, Deputy Governor of the Reserve Bank of India, at the Global
Demographic Change Symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson
Hole, Wyoming, 26-28 August 2004.
The author is grateful to R. K. Pattnaik, Abhiman Das, Indranil Bhattacharyya and Partha Ray of the Reserve Bank of India for
their assistance.
The references and annex for the speech can be found on the Reserve Bank of India's website.
I. Introduction
One of the most critical demographic events in the world today is population ageing i.e., the process
by which the share of older individuals in the total population starts becoming larger. The ageing
phenomenon, which has been initially experienced by developed countries, is now steadily
approaching the developing world. Projections show that over the next five decades, world median
age will continue to increase, resulting in enhanced old age dependency ratios in all parts of the world.
Thus, population ageing would be a major global public policy concern in the twenty-first century
posing unprecedented challenges for fiscal, monetary and overall macro-economic management.
There is a general consensus that ageing population reduces output growth, limits economic welfare
and lowers employment. One direct effect of population ageing is labour shortages that are caused by
declining birth rates and increasing life spans. This translates itself into a higher old-age dependency
ratio (i.e., proportion of population aged 65 and older to population aged 15 to 64). Consequently, with
ageing, the economy's capacity to sustain the elderly population would decline. An important
consequence of this development is reflected in increasing fiscal pressures through higher
government spending on social security, health care and other welfare programs for the elderly
accompanied by lower tax buoyancy consequent to falling proportions of the productive labour force.
Given the hard budget constraint for many developing countries, this could mean lower government
spending for programs that primarily benefit the young. With public pension schemes coming under
increasing pressure to raise contribution levels or cut the size of social safety benefits, the issue of
fiscal sustainability is one of the principal challenges facing policymakers worldwide, particularly in the
context of intergenerational equity.
The experience of US, Western Europe and other OECD countries suggests that substantial
demographic changes have occurred in the past few decades. Improvements in life standards, health
care and nutrition have increased life expectancy. As a result, the old-age dependency ratio in OECD
countries is projected to reach nearly 50 per cent by 2050. As has been documented in this
symposium, this is going to pose a huge fiscal burden in terms of social security, health care, pension
and other related expenditures. In this regard, an OECD exercise reveals a rise in old age pension
spending, on an average, by about 3-4 percentage points of GDP over the period till 2050.
Expenditure relating to health and long term medical care is estimated to increase by more than
3 percentage points of GDP over the same period. Overall, total age-related expenditures relative to
GDP could rise on average by about 7 percentage points over the period 2000-2050. In turn, this
would imply an average decline of 6-7 percentage points in the primary balance to GDP ratio.
The economic impact of the decline in dependency ratios is usually beneficial and is often referred as
the 'demographic dividend'. Many developing countries may temporarily experience increase in
economic growth in the wake of a declining dependency ratio. Falling birthrates would increase female
participation in the workforce thereby increasing the supply of labour resulting in higher economic
growth. An additional benefit from smaller families is that parents would invest more in the education
of children. Almost a third of East Asia's growth in per capita income between 1965 and 1990 is
attributed to the demographic dividend (Bloom and Williamson, 1998). The impetus to economic
growth arising from declining dependency ratios, however, also depends on government policy.
However, many Latin American countries experienced declining dependency ratios during the past
40 years without enjoying the rapid economic growth of East Asian countries. It has been argued that
recurrent financial crises and high trade tariffs in Latin America reduced the size of its demographic
dividend (Bloom, Canning and Sevilla, 2001).
Given the experiences of the developed (OECD) and Latin American countries, it is interesting to
compare those with the emerging scenario in Asia. At present, most of the developing countries in
Asia are in the middle path of demographic transition and potentially in a favorable position on the
economic front due to relatively large working populations. This demographic dividend or
"demographic gift" may not last long as the Asian population is ageing at a faster rate than global
population with rapid improvement in nutrition and health care (Williamson, 2001). The policy options
to handle this problem are wide and varied across countries due to them being in different stages of
the demographic transition. In this context, it is important to examine whether (a) the experience of
Asia will be similar to that of OECD countries and (b) whether the policy stance of the developed
countries could act as a role model for the developing ones or a unique/country-specific approach is
required.
Against the above backdrop, this paper focuses on the potential fiscal challenges of population ageing
in Asia. The impact of this demographic change is seen primarily from an economist's (and a Central
Banker's) viewpoint. The rest of the paper is as follows. Section II is in the nature of a digression and
presents the conceptual and theoretical issues. The main focus is on review of the literature on
ageing, impact on savings, social security and pensions. Section III discusses the demographic profile
of select Asian countries, excluding Japan and Korea as they are covered under OECD. Section IV
highlights the impact of ageing on the fisc. The reforms of the pension system and health care carried
out by various Asian countries are also covered in this Section. The Indian experience would be
discussed in a separate sub-section highlighting emerging fiscal developments, changing
demographic profile, fiscal implications of growing pension payments and pension reforms and health
care. Section V sets out the policy perspectives in terms of demographic transition including lessons
drawn from developed countries. Instead of the concluding observations, an approach to Asian ageing
is presented in Section VI.
II. Theoretical underpinnings
Demographic transition and ageing
Demographic transition is, in general, a process of change where society passes through the stages of
high fertility and high mortality to low fertility and low mortality. Before the start of the demographic
transition, life was short, births were many, growth was slow and the population was young (Lee,
2003). The shift from high to low levels of fertility and mortality has been explained through the
different stages in the demographic transition theory.
The modern transition theory is explained in four stages. In Stage I, the birth rate was very high and
average longevity of life was short; therefore, population growth was relatively slow and the population
was fairly young. Significant medical advances, better health care services, higher nutritional
standards over the years have resulted in a drastic decline in mortality in almost all countries and a
noticeable increase in the longevity of life. With this, the transition enters Stage II. With increase of
exogenous survival rates, parents' family-size decisions changed towards having fewer children.
Besides, fertility rate is also influenced by how economic change influences the cost and benefits of
childbearing. With the advancement of technology and rapid changes of family structure vis-à-vis the
opportunity cost of child bearing and rearing, fertility decline follow subsequently and drift downwards
until it stabilises at a much lower plane. This is technically Stage III of demographic transition. The
fourth and final stage of demographic transition refers to low fertility and low mortality rates. While
developed countries are already in Stage IV of demographic transition for more than three decades,
Asian countries are passing through Stage II/Stage III as evident from their trends in total fertility rates.
Stage Stage
For example, presently while Pakistan is in II, India is in III.
Low fertility and increasing longevity cause a dramatic change in the population age distribution. An
increase in the old-age dependency ratio indicates a situation in which an increasing number of
potential beneficiaries of health and pension funds are supported by a relatively smaller number of
potential contributors. This obviously imposes heavier demands on the working-age population in
order to maintain a stable intergenerational flow of benefits to the older people. Given the existing
social security arrangements and policies, the transition towards more elderly people relative to the
number of workers will have pervasive effects on factor and product markets and will substantially
impact on public finances, with important distributional implications, both between existing retirees and
the working age population as well as between current and future generations (Visco, 2001).
Fiscal implications
The fiscal impact of ageing population is reflected through higher government spending on social
security, health care and other welfare programs for the elderly. With public pension schemes coming
under increasing pressure to raise contribution levels or cut the size of social safety benefits, the issue
of fiscal sustainability is one of the principal challenges facing policymakers worldwide, particularly, in
the context of intergenerational equity. In this regard, the literature on social security and pensions has
assumed critical importance.
The principal rationale for mandatory social security programmes is that some individuals lack the
foresight to save for their retirement years. Since the provision of social security benefits imposes real
costs and acts as a fiscal burden on several generations, the optimal level of benefit requires
balancing between the consideration of providing relief to the elderly and the deprived sections of
society while minimizing the costs of distorted real resource allocation (Diamond, 1977). The issue has
been compounded at the present juncture on account of a variety of factors, viz., (a) increasing
proportion of old people, (b) higher degree of urbanisation and greater migration from rural to urban
areas, (c) diminishing support for old people from families due to changes in family structure,
(d) higher rearing cost of surviving children and (e) old people require greater resources and need
support for a longer period. As such, the key issue is whether such support is provided by private or
public funding. It may be noted that the inability of private provision implies greater reliance on public
funding which is a burden on the fisc.
In the Asian context, this issue is of great relevance as ageing is occurring at lower income levels. The
redistribution of resources from younger to older generations has to be concerned with the incentive
for savings, keeping in view the need for higher investment in sustaining the growth process. In
addition to the redistribution of resources from young to old, there also have to be some resource
transfers from the affluent to the less well off. While the redistribution from young to old has been
traditional and would continue as long as possible for those who cannot provide for themselves, the
transfer of resources from rich to poor affects incentives. One critical difference between developed
and developing countries is that in the case of the latter, as income growth is higher, pace of change
in the standard of living is also high which may be difficult to maintain in old age on the basis of
savings accumulated at a younger age. At the same time, since living standards are relatively low in
developing countries, expectations about future standards of living are lower. Thus, more
intergenerational resource transfers are warranted for developing countries.
In thinking about the fiscal challenges arising from ageing, the first question that arises is: why these
problems now? It is true that longevity has increased tremendously in the past few decades, but some
old have always been with us. What is different now?
In developing countries, and certainly in India, until recently, the provision for pensions and care for
the old was essentially privately provided, and usually within the family. Why is this changing now?
•
In rural areas, people essentially worked as long as they could. There was no retirement age
and job content changed according to capacity to work as people aged.
• With urbanization, in the first instance, the old people get left behind, and remittances
provide for pension equivalents, encompassing inter generational resource transfers.
•
As urbanization proceeds, the issue of outside family provision arises, and is heightened by
labour mobility.
•
Earlier, when the retired were essentially expected to live until the age of 65 to 70, the issue
of within family care arose for 5 to 10 years. This was a feasible burden for the family. Now
with rising longevity, the within family care could extend to 20 or even 30 years, and with
delayed marriage, perhaps throughout the son or daughter's full working life. This is difficult
to sustain.
Thus, the problems of ageing are upon us in developing countries as well, and certainly in Asia. We
can clearly expect a shift from private to public provision in the years to come. The issue for public
policy in Asia is how fast this transition will take place and at what pace should public social security
and pension provisions be made, with the consequent burdens on already stretched fiscal systems.
It has been argued that the provision of social security, particularly public pensions, reduces the
inducement to save thereby having a damaging impact on a country's long-term growth prospects.
(Feldstein, 1977) This view has been countered by the multigenerational planning horizon theory of
Barro (1978) which states that people making bequests is evidence enough that they derive some
benefit from the well being of future generations. Current generations will therefore find that they need
to save less to finance their own old age, but need to save more in order to increase their bequest
sufficiently to compensate successive generations for their tax liabilities. These two effects should
cancel each other leaving the savings rate unchanged. This issue is of particular importance for
developing countries in Asia, which will continue to need high savings for investment and growth for
quite some time.
Against the above background, let me now turn to the issues relating to ageing and the consequent
fiscal challenges in the Asian context.
III. Ageing population profile: select Asian country experiences
At present, the total fertility rate is below the replacement level in practically all industrialized countries.
In the less developed regions, fertility decline started later but has proceeded faster than in the more
developed regions. Over the last 50 years, the total fertility rate (TFR) declined globally by almost half,
from 5.0 to 2.7 children per woman. Over the next half century, it expected to drop to the replacement
level of 2.1 children per woman. In this context, it is important to note that Asia is roughly 50 years
behind the developed nations. Within Asia, a great diversity in terms of demographic transition is
noticeable.
As per global estimates, currently, the average annual growth of the older population (60+)1 is 1.9 per
cent, which is noticeably higher than that of total population at 1.2 per cent (Table 1). More
significantly, the average annual growth rate of persons aged 80 years and over (3.8 per cent) is
currently twice as high as the growth rate of the population over 60 years of age (1.9 per cent).
Projected figures clearly indicate a much higher growth rate of older people in 25 to 50 years ahead. In
terms of percentage, the aged constituted 8.2 per cent of total population in 1950; this percentage
rose slowly to 10 per cent of world's population in 2000 and is projected to rise to 21.1 per cent in
2050 (Table 2). During that time, world population of the aged is expected to exceed the population of
children in the age group 0-14 years (Table 3).
Table 1
Trends in average annual population growth rate
Regions/countries 1950-55 1975-80 2000-02 2025-30 2045-50
World 1.8 1.7 1.2 0.8 0.5
More developed regions 1.2 0.6 0.2 0.0 -0.2
Less developed regions 2.1 2.1 1.5 1.0 0.6
Least developed regions 1.9 2.4 2.5 2.0 1.4
Asia 1.9 1.9 1.3 0.7 0.3
Eastern Asia 1.8 1.4 0.7 0.2 -0.3
South-central Asia 2.0 2.2 1.7 1.0 0.6
South-eastern Asia 2.1 2.2 1.4 0.8 0.4
Western Asia 2.6 2.7 2.1 1.6 1.1
China 1.9 1.5 0.7 0.2 -0.3
India 2.0 2.1 1.5 0.8 0.4
Bangladesh 2.0 2.4 2.1 1.1 0.7
Sri Lanka 2.5 1.6 0.9 0.3 -0.1
Pakistan 2.0 2.9 2.5 1.7 1.0
Indonesia 1.7 2.2 1.2 0.7 0.3
Thailand 3.0 2.3 1.1 0.5 0.0
Malaysia 2.7 2.3 1.7 1.0 0.5
Philippines 3.0 2.7 1.9 1.0 0.5
Source: United Nations, World Population Ageing 1950-2050, Population Division, Department of Economic and Social
Affairs, 2002.
BIS Review 55/2004
Table 2
Trends in proportion of older people (60+)
Regions/countries 1950 1975 2000 2025 2050
World 8.1 8.6 10.0 15.0 21.0
More developed regions 11.8 15.4 19.4 28.2 33.5
Less developed regions 6.4 6.2 7.7 12.6 19.2
Least developed regions 5.4 5.0 4.9 5.9 9.5
Asia 6.8 6.7 8.8 14.7 22.6
Eastern Asia 7.4 7.4 11.2 20.8 30.7
South-Central Asia 6.1 6.1 7.0 11.2 18.6
South-East Asia 6.0 5.7 7.1 12.7 22.0
Western Asia 7.2 6.6 7.1 10.3 15.6
China 7.5 6.9 10.2 19.5 29.9
India 5.6 6.2 7.6 12.5 20.6
Bangladesh 6.2 5.5 4.9 8.4 16.0
Sri Lanka 7.3 6.4 9.3 18.0 27.6
Pakistan 8.3 5.5 5.7 7.3 12.5
Indonesia 6.2 5.3 7.6 12.8 22.4
Thailand 5.1 5.0 8.1 17.1 27.1
Malaysia 7.3 5.6 6.6 13.4 20.8
Philippines 5.5 5.0 5.6 10.4 19.6
Source: United Nations, World Population Ageing 1950-2050, Population Division, Department of Economic and Social
Affairs, 2002.
Table 3
Trends in proportion of young people (0-14)
Regions/countries 1950 1975 2000 2025 2050
World 34.3 36.7 30.0 24.3 21.0
More developed regions 27.3 24.2 18.3 15.0 15.5
Less developed regions 37.6 41.1 32.8 26.0 21.8
Least developed regions 41.1 44.7 43.1 37.9 29.1
Asia 36.5 39.6 30.2 22.9 19.5
Eastern Asia 34.1 37.8 23.9 17.9 16.1
South-Central Asia 38.6 40.7 35.2 25.7 20.8
South-East Asia 38.9 42.1 32.4 23.5 19.8
Western Asia 38.5 41.7 35.9 30.2 25.0
China 33.5 39.5 24.8 18.4 16.3
India 38.9 39.8 33.5 23.2 19.7
Bangladesh 37.6 45.4 38.7 28.1 22.0
Sri Lanka 40.1 36.9 26.3 20.0 17.3
Pakistan 37.9 42.0 41.8 34.4 23.1
Indonesia 39.2 41.4 30.8 23.0 19.9
Thailand 42.1 42.6 26.7 19.6 17.1
Malaysia 40.9 42.1 34.1 23.6 19.8
Philippines 43.6 44.2 37.5 24.9 20.3
World Population Ageing
Source: United Nations, 1950-2050, Population Division, Department of Economic and Social
Affairs, 2002.
The Asian continent, with its large size, wide socio-economic and demographic disparities is better
understood and interpreted when studied at country level. Accordingly, selected countries are
categorised into three broad groups as indicated below.2
I: Indian Sub-Continent (India, Pakistan, Bangladesh, Sri Lanka)
II: China
III: East Asian Tigers (Indonesia, Malaysia, Philippines, Thailand)
The young-old balance of population is shifting throughout the world. The increasing proportion of
aged people is accompanied by a falling proportion of young persons. In developed countries, the
proportion of older persons already exceeds that of children, and by 2050, it is expected to be twice
that of younger persons. What is notable, however, is that the proportion of working age people in
developed countries has been roughly constant over the last 50 years at around 60 per cent (Table 4),
and has in fact increased slightly with the float over baby boom. The overall dependency ratio has
therefore not increased (Table 5). The issue of concern in developed countries is that the proportion of
working age people is now expected to decline from these levels to about 50 per cent by 2050, with
the corresponding rise in dependency ratios : hence the heightened concern with ageing in recent
years in developed countries. What is most dramatic is the expected rise in old age dependency
(i.e., those in the 65+ years age bracket as a proportion of the working age group 15-64 years). In
developed countries it is around 21 per cent now, rising to 33 per cent by 2025 and as much as 46 per
cent by 2050 (Table 6).
Table 4
Trends in proportion of working age population (15-59)
Regions/countries 1950 1975 2000 2025 2050
World 57.6 54.7 60.0 60.7 58.0
More developed regions 60.9 60.4 62.3 56.8 51.0
Less developed regions 56.0 52.7 59.5 61.4 59.0
Least developed regions 53.5 50.3 52.0 56.2 61.4
Asia 56.7 53.7 61.0 62.4 57.9
Eastern Asia 58.5 54.8 64.9 61.3 53.2
South-Central Asia 55.3 53.2 57.8 63.1 60.6
South-East Asia 55.1 52.2 60.5 63.8 58.2
Western Asia 54.3 51.7 57.0 59.5 59.4
China 59.0 53.6 65.0 62.1 53.8
India 55.5 54.0 58.9 64.3 59.7
Bangladesh 56.2 49.1 56.4 63.5 62.0
Sri Lanka 52.6 56.7 64.4 62.0 55.1
Pakistan 53.8 52.5 52.5 58.3 64.4
Indonesia 54.6 53.3 61.6 64.2 57.7
Thailand 52.8 52.4 65.2 63.3 55.8
Malaysia 51.8 52.3 59.3 63.0 59.4
Philippines 50.9 50.8 56.9 64.7 60.1
Source: United Nations, World Population Ageing 1950-2050, Population Division, Department of Economic and Social
Affairs, 2002.
Table 5
Trends in total dependency ratio
Regions/countries 1950 1975 2000 2025 2050
World 65.2 73.7 58.4 53.2 57.7
More developed regions 54.4 53.8 48.3 57.0 73.4
Less developed regions 71.0 81.8 61.1 52.5 55.7
Least developed regions 79.7 91.5 86.0 71.4 54.9
Asia 68.3 78.0 56.5 49.0 56.8
Eastern Asia 62.9 74.1 46.2 47.8 66.0
South-Central Asia 73.4 80.1 65.9 49.5 51.4
South-East Asia 74.4 84.0 58.9 46.7 56.1
Western Asia 75.2 85.3 68.5 59.0 57.1
China 61.3 78.2 46.4 46.2 63.9
India 73.2 77.4 62.5 46.1 52.6
Bangladesh 70.2 95.4 71.9 50.0 49.0
Sri Lanka 83.7 69.3 48.3 47.8 62.9
Pakistan 76.3 83.0 83.4 64.6 45.9
Indonesia 75.8 80.6 55.2 45.7 57.1
Thailand 83.1 84.4 46.8 44.8 61.9
Malaysia 85.0 84.6 61.9 48.4 54.4
Philippines 89.3 89.7 69.7 46.6 52.0
Note: The total dependency ratio is the number of persons under age 15 years plus persons aged 65 years or older per one
hundred persons in the category of 15 to 64 years. It is the sum of the youth dependency ratio and the old age dependency
ratio.
Source: United Nations, World Population Ageing 1950-2050, Population Division, Department of Economic and Social
Affairs, 2002.
Table 6
Trends in old-age dependency ratio
Regions/countries 1950 1975 2000 2025 2050
World 8.5 9.9 10.9 15.9 24.6
More developed regions 12.2 16.6 21.2 33.4 46.5
Less developed regions 6.7 7.1 8.2 12.8 21.8
Least developed regions 5.9 5.9 5.8 6.5 9.7
Asia 6.9 7.5 9.2 14.9 26.2
Eastern Asia 7.3 8.2 11.3 21.4 39.3
South-Central Asia 6.5 6.8 7.6 11.1 20.0
South-East Asia 6.6 6.5 7.4 12.2 25.1
Western Asia 7.7 8.0 8.0 11.0 17.8
China 7.2 7.8 10.0 19.4 37.2
India 5.8 6.8 8.1 12.2 22.6
Bangladesh 6.2 6.8 5.4 7.8 16.2
Sri Lanka 10.1 6.7 9.3 18.2 34.7
Pakistan 9.4 6.2 6.8 7.9 12.1
Indonesia 6.9 5.9 7.5 12.2 25.8
Thailand 6.0 5.8 7.7 16.4 34.2
Malaysia 9.3 6.9 6.7 13.4 23.8
Philippines 6.8 5.8 6.0 10.1 21.1
The trends in Asia over the next 50 years will be more reflective of the past 50 years for developed
countries, with significant variations across different countries. The proportion of old people in Asia
(excluding Japan and Korea) today is around 8.8 per cent and will reach 22-23 per cent by 2050.
However, similar to the developed country experience of the past 50 years, the working age population
in Asia is about 60 per cent now; it will rise marginally by 2025 and then fall slightly by 2050. In the
case of China it is now 65 per cent and will fall gradually to around 55 per cent by 2050. India,
Indonesia and other Asian countries will remain between 60 and 65 per cent until around 2050. The
expected increase in old age dependency is also dramatic : from about 9 per cent now to 15 per cent
in 2025 and 26 per cent by 2050, which would be a little higher than that in developed countries now.
The Chinese, however, are ageing faster with the old age dependency ratio rising from about 10 per
cent now to an expected 19 per cent in 2025 and 37 per cent in 2050. For India and Indonesia, the
rise will be much slower, whereas the situation in Sri Lanka and Thailand will be more like that in
China (Table 6).
What is really different between developed countries and Asia is the expected trend in total
dependency ratio (Table 7). The key fiscal problem of developed countries is the unprecedented rapid
rise that is expected in the total dependency ratio (young + old as a proportion of the working age
groups) from about 48 per cent now to 57 per cent in 2025 and 73 per cent in 2050. In 1950,
incidentally, it was 54 per cent. For Asia as a whole it was 66 per cent in 1950, 56 now, falling to about
49 per cent by 2025 and then rising again to 57 per cent by 2050, with differences between countries
as expected between China and other Asian countries. Countries such as India, Indonesia and others
will continue to reap the demographic dividend for at least another 25 years.
Table 7
Trends in young-age dependency ratio
Regions/countries 1950 1975 2000 2025 2050
World 56.7 63.8 47.5 37.3 33.1
More developed regions 42.2 37.2 27.1 23.6 26.9
Less developed regions 64.3 74.7 52.9 39.7 33.9
Least developed regions 73.8 85.6 80.2 64.9 45.2
Asia 61.4 70.5 47.3 34.1 30.6
Eastern Asia 55.6 65.9 34.9 26.4 26.7
South-Central Asia 66.9 73.3 58.3 38.4 31.4
South-East Asia 67.8 77.5 51.5 34.5 31.0
Western Asia 67.5 77.3 60.5 48.0 39.3
China 54.1 70.4 36.4 26.8 26.7
India 67.4 70.6 54.4 33.9 30.0
Bangladesh 64.0 88.6 66.5 42.2 32.8
Sri Lanka 73.6 62.6 39.0 29.6 28.2
Pakistan 66.9 76.8 76.6 56.7 33.8
Indonesia 68.9 74.7 47.7 33.5 31.3
Thailand 77.1 78.6 39.1 28.4 27.7
Malaysia 75.7 77.7 55.2 35.0 30.6
Philippines 82.5 83.9 63.7 36.5 30.9
Note: The youth dependency ratio is the number of persons 0 to 14 years per one hundred persons 15 to 64 years.
Source: United Nations, World Population Ageing 1950-2050, Population Division, Department of Economic and Social
Affairs, 2002.
The total dependency ratio is a rough measure of potential social support needs.3 The expected
decline is due to the fact that young-age dependency ratio of all these countries is likely to decrease
very rapidly due to sharp decline in total fertility rate during this period. However, the decline of
young-age dependency ratio during the next 25 years, i.e., 2025-2050 for most of the Asian nations is
expected to be relatively small.
In view of the declining dependency ratio in Asia, there is greater room for maneuverability in public
finances in terms of social security expenditure. A critical issue is the relative emphasis on expenditure
related to the next generation viz., child rearing and education vis-à-vis expenditure on the earlier
generation on account of medical and health care.
Old-age dependency ratio of China is likely to increase by almost four times during the next half
century from 10.0 per cent in 2000 to 37.2 per cent in 2050 (Table 6). The other countries likely to
have similar trends are Sri Lanka, Thailand and the Philippines. In the case of India, old-age
dependency ratio during 2000-2025 is going to increase by almost 1.5 times (8.1 per cent in 2000 to
12.2 per cent in 2025); however next 25 years is likely to witness a sharper increase of around 2 times
(from 12.2 per cent in 2025 to 22.6 per cent in 1950) (Table 7).
Globally, the ageing index is going to increase rapidly and will triple over the next half century. Higher
increase in ageing index during 2000-2050 period is more significant for most of the Asian countries
(see Table 8). This trend may lead to compelling demands for changes in the way a society's
resources are shared between generations. The median age of all the Asian countries is expected to
increase by 12 years during the first half of the current century (see Table 9).
Table 8
Trends in ageing index
Regions/countries 1950 1975 2000 2025 2050
World 23.8 23.4 33.4 61.5 100.5
More developed regions 42.9 63.7 106.2 187.7 215.3
Less developed regions 17.2 15.1 23.4 48.2 88.6
Least developed regions 13.2 11.2 11.3 15.7 32.5
Asia 18.5 16.8 29.0 64.3 115.7
Eastern Asia 21.7 19.5 47.3 116.5 190.5
South-Central Asia 15.9 15.0 20.1 43.3 89.8
South-East Asia 15.5 13.5 22.1 54.1 110.7
Western Asia 18.5 15.7 19.8 34.3 62.4
China 22.3 17.6 40.7 106.5 183.3
India 14.4 15.6 22.7 53.6 105.0
Bangladesh 16.4 12.2 12.8 29.8 72.9
Sri Lanka 18.3 17.2 35.3 90.2 159.5
Pakistan 21.7 13.1 13.8 21.1 53.8
Indonesia 15.9 13.0 24.7 55.8 112.1
Thailand 12.0 11.7 30.5 87.3 158.1
Malaysia 17.9 13.3 19.3 56.7 104.9
Philippines 12.7 11.2 14.8 41.7 95.9
Note: The ageing index is calculated as the number of persons 60 years old or over per hundred persons under age of
15 years.
Source: United Nations, World Population Ageing 1950-2050, Population Division, Department of Economic and Social
Affairs, 2002.
Table 9
Trends in median age
Regions/countries 1950 1975 2000 2025 2050
World 23.6 22.0 26.5 32.0 36.2
More developed regions 28.6 30.9 37.4 44.1 46.4
Less developed regions 21.4 19.4 24.3 30.0 35.0
Least developed regions 19.5 17.6 18.2 20.8 26.5
Asia 22.0 20.3 26.2 33.1 38.3
Eastern Asia 23.5 21.5 30.8 39.8 44.3
South-Central Asia 20.7 19.5 22.6 29.4 36.1
South-East Asia 20.4 18.7 23.9 32.1 37.9
Western Asia 20.4 18.9 22.1 26.6 31.4
China 23.9 20.6 30.0 39.0 43.8
India 20.4 20.0 23.7 31.3 38.0
Bangladesh 21.6 17.2 20.2 26.9 34.8
Sri Lanka 20.3 20.8 27.8 36.7 42.0
Pakistan 21.2 19.0 18.9 22.8 31.8
Indonesia 20.0 19.1 24.6 33.0 38.0
Thailand 18.6 18.3 27.5 36.6 42.1
Malaysia 19.8 18.6 23.3 31.2 37.8
Philippines 18.2 17.6 20.9 29.2 37.0
Source: United Nations, World Population Ageing 1950-2050, Population Division, Department of Economic and Social
Affairs, 2002.
Economic characteristic and determinants of ageing
Labour force participation of the older people has declined worldwide over the last decades (see
Table 10). In general, labour force participation of the older people of Asian countries is much higher
than that of developed countries. However, disparity in labour force participation among Asian
countries persists. Higher labour force participation of older ages in Asian countries clearly indicates
that old-age support systems in the form of pension and retirement programmes are relatively less
prevalent in these countries (as compared to developed countries).
Fertility decline has been the primary determinant of population ageing. Fertility of more developed
countries with TFR is below replacement level since the last three decades. The TFR of less
developed countries is twice than that of developed countries and this trend is expected to continue till
2030. The higher regional differences in fertility among Asian countries are expected to decrease (see
Table 11). The projected fertility transition has been relatively smoother in India and Philippines. These
countries are, therefore, in a favourable position (and thus may enjoy the fruits of 'demographic
dividend' for a relatively longer period) as far as the inflow of working-age populations are concerned.
Along with fertility decline, reduction in death rate, especially at older ages, assumes an increasingly
important role in population ageing. Over the last five decades, life expectancy at birth increased
globally by almost 20 years, from 46.5 years in 1950-55 to 66.0 years in 2000-05 (Table 12). Among
Asian countries, there exists a great degree of variation in life expectancy at birth. However, the extent
of regional variations in life expectancy at birth among these countries is gradually narrowing down.
Trends in labour force participation (65+)
Regions/countries 1950 1975 2000 2025 2050
World 31.9 24.6 19.9 18.8 17.9
More developed regions 23.3 15.0 9.1 8.4 7.7
Less developed regions 40.1 33.9 28.4 25.9 23.9
Least developed regions na na na na na
Asia 37.9 32.7 27.2 24.5 22.3
Eastern Asia 30.4 25.8 20.5