India’s Demographic Dividend: The Millennials’ Savings Conundrum

Abstract

India’s working-age group has been over 60 per cent of its population for over two decades, with a record high of 66 per cent in 2018. The gross domestic savings (GDS), yet, plummeted during the previous decade, recording a low of 29.34 per cent in 2018. This is a divergence from the demographic theories which indicate that a rising working-age population will increase savings. Past research on India’s demographic transitioning implications on economic growth and demographic dividend focused on the working-age group. This article brings in a new dimension to existing studies and analyses savings trends by examining working-age youth, and the millennials within this subgroup, in particular. By considering data from between 1980 and 2017, the article investigates the influence of these two demographic variables on the GDS, along with key macroeconomic variables. The estimation techniques applied are the autoregressive distributed lag (ARDL) cointegration technique and the vector error correction model (ECM). The results indicate that the millennial youth’s influence on GDS is statistically significant. Though the long-term influence of the millennial youth working-age group indicates a positive effect on GDS, the adverse impact reflected in the short run may be pointing towards the future financial sustainability of this segment. Although youth savings are expected to be the lowest in the working-age segment, the significant fall in the youth ratio of employment-to-population in the 20–29 years segment, especially since 2005 onwards, raises the thrust for youth policies that can unravel the millennial savings conundrum and thereby pave the way for India’s demographic dividend.