INDIA’S DEMOGRAPHIC SWEET SPOT

Couple of Wharton and Harvard graduates, Nick Hale and Trevor Frost, way back in 2015-16, had this to say:

China is going to be the first country in history to be old before it’s rich. Its population will peak just below 1.5 billion in the next decade and then slowly shrink to about 1.3 billion people by mid-century. By 2050, China’s dependency ratio - that is, dependents (children and the aged) relative to people of working age—will double from 35 percent to 70 percent (the lasting effect of China’s one-child policy). This will put massive strains on the country’s nascent welfare state and struggling health system.

Demography isn’t destiny, but having a growing population with lots of working-age people is a great place to start.

On this critical dimension, India is in much stronger shape than China. By 2050, India will be the world’s largest country in terms of population by a wide margin over China, with a mind-boggling 1.5 billion people—400 million more than today. Over the next 35 years, its dependency ratio will actually decline from a bit over 50 percent today to a bit under 50 percent in 2050. Indians will live longer, so the aged population will grow considerably. With more affluence, India’s birth rate will come down too. But Indian fertility will remain high by all but African standards, and this will be a great foundational resource for the economy.

Ashutosh Purkait and Gopi Gopalakrishnan were in final semester at IIM -Ahmedabad. While Ash (Ashutosh) was more or less pally with the numbers, Gopi was in the central Hall the other day with the WEF (World Economic Forum) officials and was very clinical in his reaction to what Nick and Trevor were espousing.

Look guys I was with Jonathan and Frederick yesterday and what I understand India’s position gets very strong in 2040-41-time frame.

Let us look through this radar: It depicts the order of importance of different pillars shifting gears from 2018-19 through 2040-41 in order to reap the benefits of having a large pool of young population.

Out of the eight pillars of India’s economic opulence the dimension which is most critical to the nation’s well being is The Great Job Challenge.

India finds itself in a demographic sweet spot as a country of roughly 1.3 – 1.4 billion people with more than half of its citizens of working age. The ratio of working age population to non-working age population is expected to peak around 2041 (Economic Survey,2018-19). We have a current workforce of 473 million and about 300 million more will be added by 2040. About a million people each month join the job market, according to Labour Ministry Data.

India’s job challenge can be seen through three overlapping issues: i) the quality of human capital, ii) infrastructure and iii) labor intensive growth. The IMF (International Monetary Fund) estimates that infrastructure investment equal to roughly 1% of GDP in advanced economies produces a 1.5% GDP increase on average over four years! For India, it has been estimated that increasing infrastructure investment by 0.5% of GDP will boost growth by 1.8% in the medium to long term.

Jonathan and Fred from WEF came jumping to Gopi – hey dude, fine but listen carefully to this.

I am all ears, Gopi shot back.

Fred spoke on China and laughingly gave a slighting eye (no pun intended) on Gopi - Chinese growth has been driven by some of the world’s highest investment rates. This has in turn made possible both an infrastructure revolution of new cities, high-speed rail lines, airports and ports, and manufacturing muscle that has been the envy of the world. China has been the world’s factory for 20 years. Its ability to quickly and efficiently move what it produces domestically and around the world has been a critical component in its growth miracle.

Today, India lags far behind China on all three fronts. India invests about 30 percent of its GDP, compared with about 50 percent in China. Manufacturing is about 20 percent of the Indian economy; it is about 30 percent of China’s. China has arguably the best physical infrastructure outside the Western world. India’s looks more like the subdued country that it still is.

The discussion stopped for a moment. Fred was right – China had done enough in the past decade or two but unfortunately could not muscle up enough growth as it had anticipated when it transferred enormous population to the cities.

The growth simply did not come!!

Let’s move for lunch. Gopi was happy, as was Ashutosh.

After lunch Gopi and Ash had discussions lined up. The second pillar is the chaff of radar, Recognising India’s Urban Economy – critical to achieving developed status.

Urban economy needs urbanisation. India needs policy changes to manage urbanisation – a policy upheaval that could govern the cities to produce 70% 0f country’s GDP. Today India has population which is 31% urban.

Excuse me Gopi, we have data which says India is 26% urban, exclaims Nick.

Jonathan agrees – India’s human capital and growth targets fall into a chasm between official and true urbanisation. Rural Local Bodies (RLB) and Urban Local Bodies (ULB) are at odds and wriggle their way out of definitive statements – and that creates disparity affecting 250 million people! Much work is needed in this area as the data is hazy and the pillar is weak.

Good going for Nick and Trevor, Gopi is silent fuming at the lack of policies in place to see through this important pillar. Gosh, I need something to shout upon.

Well, you have it Gopi. India is working tirelessly towards Rewiring The Indian State – another important pillar.

India has been described as a 21st century economic and diplomatic powerhouse waiting to change gears. It quickly is ramping up civil servants to 3.6 civil servants per 100 people from the present 1.4. OECD average is 7.7!! It has police-to-citizens 129 per 100,000 figure which ideally should treble to more than 400.

The Chief Justice of India is grappling with the task of adding 70,000 judges – the increased pool would be able to service 33 million cases in better time. CJI D.Y. Chandrachud would get a Padma if he transforms the judiciary along the lines, we all want. This chief justice can deliver, Ash shouts with confidence.

India has taken steps to move the states to a digital box – Aadhar digital identity is one, digitisation of land records, direct income transfers through bank accounts are some of the many initiatives in place and are working wonderfully well.

Let’s go to our rooms buddy. We can assemble tomorrow at morning hours, smiled Jonathan.

Next morning, Gopi was beaming with joy and smiling triumphantly at Jonathan and Nick.

Good morning guys, today we start the discussion with the fourth pillar – A USD 5 trillion Economy.

India is poised to become an economic power house – it is the seventh largest economy and a GDP of USD 2.7 trillion as of 2018. According to World Bank the GDP will zoom to USD 5 trillion by 2024 and will almost treble by 2045. India has several structural advantages at the moment – a relatively young population in an ageing world, a high rate of domestic savings, a large domestic consumer market coupled with easing of food shortages and correcting energy shocks.

As China’s economy slows India can jump into the opportunity of getting into global manufacturing game as supply chains are rewired because of ongoing trade war between the US and China.

Not without certain headwinds – shouts Nick.

Gopi listens as Nick addresses –

Indian private sector investments have been weak. There are instances of excess corporate borrowing with Banks showing very weak balance sheets. Budget deficits are high.

But all of this can be controlled, Banks have a better balance sheet now shedding huge non-performing assets – thanks to Raghuram Rajan (former RBI chief) – who did a pioneering work in cuddling the seemingly bewildered Bank Chiefs, teaching them how to show a performance with pride! The Reserve Bank of India has more than USD 400 billion of foreign exchange reserves as an insurance against sudden global financial shocks.

Nick, bravo. You’re spot on and have certainly hit the Bull’s eye!! – exclaims Gopi. Rest clapped in unison. All the six participants shook hands as it was two days of intense discussions, very fruitful indeed.

Everybody agreed to re-assemble next quarter and discuss the remaining four pillars:

India’s New Data Economy, India’s Missing Infrastructure, Investing in India’s Human Capital and World Topping Energy.

Disclaimer: The names Nick Hale, Trevor Frost, Ashutosh Purkait, Gopi Gopalakrishnan, Jonathan and Frederick are imaginary and do not have any resemblance to any person(s) dead or alive.

The article has references from reviews written by World Economic Forum.