Is India's demographic dividend an illusion in the age of AI?

One of India's most significant perceived advantages over global peers is our demographic dividend. As the chart below shows, among the major global economies, we have the lowest median age.

Source: CIA World Factbook; Data for 2024

Developed countries like Japan, Germany, the US, and China are in a race against time. Their populations are aging, workforces are shrinking, and dependency ratios are rising. Even more encouragingly, a report in the Economic Times implies that this advantage will sustain for the next two decades.

The data below depicts the period of demographic dividend across major economies, highlighting when their workforce advantage peaked or is expected to end.

Source: Economic Times

The table highlights that India has one of the longest periods of workforce advantage, lasting from 2018 to 2055—a total of 37 years. This extended window offers India a significant opportunity to accelerate its economic growth.

In contrast, many developed countries such as Japan, Italy, and Spain have already completed their demographic dividend phases and are now dealing with ageing populations and the economic challenges that come with them. China, too, is nearing the end of its window by 2031, whereas India’s is just beginning.

Yes, time is on our side…but, the clock is ticking for India. A large, young workforce - seems like a golden ticket for economic growth.

So, advantage India all the way?

Here’s the twist - AI and automation are flipping the script, helping these nations stay competitive even with fewer workers. Take Monaco, with the world’s highest median age (56.9 years), thrives - not on a massive workforce, but on finance, luxury, and now, AI-driven industries like banking and hospitality.

The technology edge

Economists Robert Solow and Trevor Swan answered this in 1956 with the Solow–Swan model, which breaks growth into three key drivers:

• Capital accumulation – More investments in infrastructure, machinery, and tools = more output.

• Labour force growth – The skills, knowledge, and experience possessed by individuals, often enhanced through education and training.

• Technological progress – The ultimate multiplier! Without AI-driven innovation and automation, growth stagnates - even with more workers. For example, AI-powered scheduling systems can optimise workflows, reducing downtime and minimising waste. A report by McKinsey Global Institute indicates that AI could increase global GDP by 1.2% annually.

Still not convinced, here are some more examples:

• During the Industrial Revolution mechanised cotton spinning increased the output of an individual worker by a factor of around 500 while reducing the skill requirements

• In 1950, an individual steel factory in Gary, Indiana (USA), produced 6 million tons of steel with 30,000 workers. In 2010, it produced 7.5 million tons of steel with 5,000 workers. These jobs were not lost to offshoring but simply to automation

• In 1990, an average US auto worker produced about 7 cars a year. If you took the number of vehicles made in a year and divided it by the number of workers, it came to 7. By 2023, this number rose to 33!. In less than two decades, the number increased by more than 3x.

• Finally, look at China. The world’s factory has seen a consistent decline in the percentage of people employed in industry.

Source: Statista

And all of this was achieved with machines that do not think for themselves!

AI: The equaliser for aging economies

The ‘older’ economies, despite their aging workforces - have one key advantage - they are much richer compared to India. Aging economies have fewer workers than India, yet they are still far richer.

The impact? A lower workforce makes them more nimble and quicker to adopt and adapt to newer technologies. Higher per capita income ensures that they are able to fund innovation, hire the best talent, and have the purchasing power for more advanced goods and services.

A study conducted by Stanford University's Institute for Human-Centered AI makes it evident! The Global AI Vibrancy Rankings 2023, measures how advanced and prepared countries are in the field of AI.

Source: Global Al Vibrancy Rankings 2023; news articles

The AI divide: Why the road ahead may be tougher for developing countries

Here's the uncomfortable truth: Even if India ramps up AI investment, there are deeper structural challenges that could still hold it back — and they’re not getting enough attention.

Let’s talk about investment flows.

As robots become more productive, the return on investing in automation and traditional capital (like machines, factories, and infrastructure) shoots up. This surge in demand is happening mainly in advanced economies. As global capital chases higher productivity, capital flows toward those economies, not developing ones. That means countries like India could see a slowdown in growth, at least in the short term.

Now, consider the terms-of-trade trap.

Developing countries often specialise in sectors that rely heavily on unskilled labour—because that’s what they have in abundance. But if robots start replacing unskilled jobs while complementing high-skilled workers, it creates an imbalance. The wages of unskilled workers drop, and so does the global price of goods that rely on that labor. For countries like India, this could mean a double hit: lower wages at home and falling export prices abroad.

Impact on jobs

A 2024 IMF analysis revealed that ~40% of global employment is exposed to AI. In advanced economies, ~60% of jobs and 40% in developing markets could be affected. However, in advanced economies, half of those jobs are expected to benefit from AI integration, while the other half could face reduced labour demand. So effectively, advanced economies are looking at ~30% of jobs being affected.

On the flip side, emerging countries often lack the infrastructure and skilled workforce to harness AI's benefits. This could worsen global inequality over time.

Case studies: AI adoption in aging economies

Japan: AI in farming

Japan - where farming is one of the fastest-aging industries, with the average Japanese farmer now 68.4 years old. AI is stepping in to fill the gap, identifying diseases, pests, and weeds for early detection and prevention. Nihon Nohyaku’s Nichino AI app lets farmers snap a picture of struggling crops to receive a diagnosis and pesticide recommendations. As Kentarou Taniguchi from Nihon Nohyaku puts it: "The accuracy rate is about 70 to 80%, so it is not as good as real experts, but better than ordinary farmers."

South Korea: The robot revolution

Facing low birth rates and an aging populace, South Korea has invested heavily in AI and automation to enhance industrial efficiency. It is proving that robots are the new workforce! The country has replaced over 10% of its industrial workforce with robots, making automation a key driver of its economy. According to the 2024 World Robotics Report, South Korea now boasts a staggering 1,102 robots per 10,000 employees - one of the highest automation densities in the world.

China: From factory to AI powerhouse

Rapidly becoming a "super-aged" society, China is investing in AI to maintain its economic momentum. With initiatives like DeepSeek, China is emerging as a powerhouse in AI foundation models, shifting from being the world’s factory to a leader in large language models (LLMs). Additionally, China is making significant strides in AI-driven drug discovery, where AI-generated drugs have entered clinical trials.

France: Generative intelligence at work

France’s AI adoption is in overdrive, powered by soaring demand for generative AI. In France, usage spiked 60% from 2023 to 2024. And according to an IFOP study, over a third of users admit they’d be lost without it. From auto-generating spreadsheets to summarising meetings and optimising schedules.

Aren’t these sporadic examples?

Yes, they are. Most countries are still in the early stages of AI development. But the point is the pace of technological changes has accelerated significantly. As such, a more hands-on and aggressive approach is essential to keep pace and ensure, we are leaders not followers in this evolving landscape

What can India do?

While India benefits from a large and youthful workforce, the rapid advancement of AI presents both opportunities and challenges. India’s demographic dividend alone won’t guarantee economic success—it needs proactive policies, infrastructure, and an AI-driven strategy.

A young workforce is an advantage, but without AI investment, even labour-rich nations will fall behind. In the AI era, economic superpowers won’t just have large populations—they’ll excel at merging human potential with intelligent technology.

In conclusion

The AI revolution is here - will India lead or lag? A young workforce is an asset, but India must accelerate traditional job creation while simultaneously creating deep skills in new-age technologies. The nations winning the AI race today could dominate the global economy tomorrow. The question is - will India seize the moment or let its demographic advantage fade into irrelevance?