A new report by the Government in India has warned about the impact of the country’s ageing population.

The report India's Demography at 2040: Planning Public Good Provision for the 21st Century is part of a larger Economic Survey authored by India’s Chief Economic Adviser Krishnamurthy Subramanian and his team of economists. It describes itself as a “blueprint for a $5 trillion economy”.

The current retirement age in India is 60 years old. It is at this age that individuals can begin to draw the state pension. This new report suggests that an increase in this retirement age is “inevitable” and therefore “worth signalling well in advance to prepare the workforce”.

Demographics in India

India has had a large and growing population for many years. As a result, India enjoys a “demographic dividend”, meaning that the increase in those joining the labour market is greater than the increase in those it needs to support.

This will continue for some time as more join the labour market. The working population is India will increase by about 9.7 million a year between 2021-31, but will then slow to 4.2 million a year during 2031-2041. At this point, 11 out of 22 states will start to see their working age populations fall, possibly leading to greater internal migration as workers move to where their skills are in greater demand.

This reduction in working age population is because, by 2021, India’s fertility rate will fall below the replacement rate. This means that the number of new children being born is lower than the number dying. At this point, the population in India will start to fall.

At the other end of the spectrum, India has seen big increases to the life expectancy of healthy older people. A healthy 60 year old man can expect to live for 12.5 years, whereas a woman can expect to live for 13.3 years. Although this has risen over recent years, it is far below other major economies, both developed and emerging.

The report recommends that policymakers prepare for this increasingly older population. There will be nearly 240 million aged 60 or over in 2041, compared with just over 100 million in 2011.

Because of these factors, the report recommends increasing the retirement age in a “phased manner”. It cites the examples of countries such as Germany, France and the USA that have increased the retirement age. Such a change would disproportionately affect the Southern states where populations tend to be older.

Given that life expectancy for both males and females in India is likely to continue rising, increasing the retirement age for both men and women going forward could be considered in line with the experience of other countries.
— Finance Minister Nirmala Sitharaman

Pensions in India

The state pension paid under the National Old Age Pension Scheme accounts for 0.03% of the GDP of India, or around 3.3% of government spending according to the latest budget.

This basic state pension provides just Rs 200 a month for those aged 60 or over, and just Rs 500 a month for those aged 80 or over.

Some states in India will supplement this amount. For example, those aged 60 or over in Delhi and Kerala receive an additional Rs 1800 a month. Other states are far less generous and those in Madhya Pradesh and Odisha receive only an extra Rs 100 a month.

There are other pension schemes in India such as the Employee’s Provident Fund, Public Provident Fund and other occupational pension schemes, but these all require workers to pay into them. As India has a large informal economy (81% of employment is informal in India), the National Old Age Pension Scheme is an important benefit for older people.

Younger people in India

Meanwhile, the number of Indians aged between 0-19 has already started to decline and the proportion of the population in that age group is projected to fall to 25 percent by 2041 from 41 percent in 2011. At the same time, the proportion of over 60 year olds will rise to 16% by 2041 from just 8.6% in 2011.

In relation to this reduction in the younger population, the report comments that demand for schools will fall and, as a result, schools will need to merge. There are already states in India (such as Himachal Pradesh, Uttarakhand, Andhra Pradesh and Madhya Pradesh) where 40% of schools have fewer than 50 students enrolled.

Retirement ages and the workplace

The report’s recommendation to increase the retirement age is referring to the state pension age rather than the mandatory retirement of individuals from the workplace. There is a big difference in the approach taken to retirement between the public and private sectors.

Retirement age in India: state government

The current retirement age for most government workers in India is 60, although this varies from state to state and there have been calls in some areas to raise this.

In Hyderabad, the Joint Action Committee (JAC) of Telangana Employees, gazette officers and teachers have demanded that the state government increase the retirement age from 58 years old to 61 years old with immediate effect. 

Political parties promised to make this change in their manifestos, but nothing has yet been done.

Retirement age in India: private sector

Private sector employers tend not to set retirement ages in India. Those that do tend to set ages between 58 and 65 years of age, and this can be extended at the company’s discretion.

There is no real prohibition on age discrimination and so it can be difficult for employees to challenge a retirement age.

Go to our international section to read more on age discrimination in India.