You could say both of the Indian economy and you would be right. We are not merely the fastest growing major economy, we are also the most populous nation now, as the Financial Times recently reported. They said India is likely to overtake China as the world’s most populous nation sometime this month, or at least by mid-year. We had been expecting this to occur sometime soon, so it should come as no surprise.
According to Worldometers, powered by UN data, India’s population has already crossed 1.4 billion people, just shy of China’s population. And while it is also reported that India’s rate of population growth has slowed considerably in the last decade particularly, the population growth continues to be significant. More than the overall rate of population growth, it is also important to look at which economic sections are contributing most to this population increase and which states, as well. If, as has been historically true of India that the most vulnerable sections of society and the rural poor are still recording the highest population growth, it means that India cannot afford to consider population growth control, done. Advocacy and family planning programmes must continue to focus on the states and economic sections that need them for many more decades.
However, all this is pointless academic discussion without conducting a decennial population census, which was due in 2020/21. Two years have gone by and not a word from the government or the media about it. How we can afford to ignore such an important activity that ought to guide policymaking for the next decade, is inexplicable. No think-tanks and intellectuals who otherwise write regularly on economic matters have bothered to voice their concern. Countries usually delay the census only in times of war, and India is thankfully not in one. The pandemic cannot be an excuse for not conducting it, because most countries, including ones like the US that were affected worse by the Covid-19 pandemic – conducted their census by 2021.
We must examine the significance of this most populous nation tag that India will now wear, and I hope not with a sense of pride. In the first decade of this millennium, India was already being hailed as a young economy – where a significant proportion of the population – as much as 65% – was under the age of 25. It was being called India’s demographic dividend and it held great promise for the country’s economic growth, its innovation prospects and its future dynamism. India’s median age is still under 30 years at 28.4 years according to Worldometers.info. And with 67.51% of India’s population in the 15-64 years age group – universally considered working age population – India still does have a demographic dividend, at least on paper. It’s another matter that we have already squandered most of it, with unemployment stubborn at 7-8% for several decades now. Youth unemployment must be even higher. According to CMIE, the unemployment rate in India after soaring to the mid-20% range during the pandemic is now back at 7-8%, its historical average. The latest CMIE figure for unemployment all-India as of May 3, 2023 is 7.9%.
Ordinarily, the 15-64 age group forming 67.51% of the population ought to mean a large workforce, gainfully employed and actively contributing to the economy, paying their fair share of taxes and raising their standards of living. It ought to be a boon; instead with youth unemployment in India at 23.9% in 2021 according to World Bank data, it is turning out to be a bane, destroying any hope of India reaping a demographic dividend.
Besides, with the labour force participation rate in India dropping precipitously in the past decade and more, to 49% and even lower for women at 23% in 2021, more than half of working age India is not at work, as I keep writing on my blog. Add to this the fact that around 90% of the employment in India is in the informal sector, which has retrenched hugely in the wake of the demonetization drive and the Covid-19 pandemic, and the prospects for economic growth and progress look grim.
Ordinarily, all this ought to also mean that a large population cohort in the middle-class, or with the potential to join it soon, increases the productive capacity of a nation. This is important in terms of what the country achieves in terms of knowledge accumulation and technical knowhow, innovation capacity and scientific progress. In this lies India’s, as indeed any country’s raising of skill standards and earning capacity, which is the path to improving standards of living.
Of course, there are many who in recent years have written a lot about the two Indias. The urban, educated affluent India that is making progress, and the rural, uneducated and unskilled Bharat, which is being left behind. There are also others who conjecture about the size of the Indian middle class, and I was surprised to read a Livemint article on Twitter recently, which I shared on LinkedIn with my comments. It was a terribly glib piece based on research by PRICE (founded by Rajesh Shukla formerly of NCAER) that defines the Indian middle class as anyone earning between Rs 5-30 lakh per annum, with no other qualifiers. When I later visited the website of NCAER, I was even more surprised to not see any study of the Indian middle class, when this ought to be the subject of a large and in-depth study every five years at least, and there ought to be a way to gauge progress and upward mobility where it presents itself and sliding back, wherever that occurs.
I do not subscribe to a view of a homogenous and monolithic middle class, as I have always observed the many economic strata of income and class circumscribed by other factors such as education, occupation, media consumption, leisure interests, spending and saving patterns, double-or single income household, political, cultural and social awareness and exposure, etc.
I think there are several middle-classes in India, by which I mean a skilled and educated household, with members pursuing education or employment, and contributing to the economy, to varying degrees. As I have written before, they also contribute in terms of their vote, their share of voice, their work capabilities and their capacity for change and progress. All middle-classes taken together, they present a formidable force for change, progress and as growth engine. They are also a huge potential market for a variety of goods and services that India produces and imports.
It is in the last dimension that India lags almost all its peers who are also developing and emerging economies. And what holds us back is our lack of good and well-paying jobs, across all levels. And not employing enough women, as I have written before on my blog. When talking of population growth, a comparison with China, our neighbour, is inevitable. We are awestruck by China’s rapid economic growth, but we must also accept that the distribution of that growth is better than in India. China’s middle class has grown by 47.7% and is estimated at 707 million people, according to CSIS ChinaPower Project and Pew Research with most of them at the lower end of the middle class. What’s more, it is a middle-class with immense purchasing power, driven by the upper-middle middle class and that is what gives its market economy greater strength than India’s. I am not sure I agree with the way the middle class has been defined in this study in terms of only income and spending.
China lifted 400-600 million people out of poverty in the first decade of this century, and it is quite likely that most of these people are now part of China’s middle-class. Brazil also lifted around 400 million out of poverty in the same time period, employing a very successful conditional cash transfer programme called Bolsa Familia based on certain education and health behaviour compliance. India lifted 200 million out of poverty in the first decade of this millennium, but one is not very sure how many of these people have joined the middle class. In fact, it is quite likely that with the Covid-19 pandemic, many of the vulnerable population might have slid back into poverty (living on US $ 3.20 a day), if not extreme poverty (living on US $1.90 a day). On the other hand, we have economists arguing in an IMF Working Paper cited in an article that poverty has dropped to 1% in India by adjusting for the free foodgrain distribution that the Indian government provided to the poor during the Covid pandemic. I think this logic is perverse, as it was an essential temporary measure at the time; it’s another matter that prime minister Modi has made it permanent under his banner.
So, which will it be by at least 2030 for India: world’s most populous nation, or the world’s largest and most dynamic market?
It all depends on what policies the Indian government puts in place to make our huge and young population more capable and productive members of society as well as generating demand for a whole range of products and services that help to raise standards of living and upward mobility in the Indian economy. Everybody, especially in policymaking circles, knows what needs to be done. Yet summoning the political will to prioritise the right decisions strategically, and allocating resources – both financial and manpower – to ensure the right outcomes seem to always fail us.
At the risk of repeating myself, I will once again prioritise the areas that need urgent and adequate attention, that will help us on our journey to becoming one of the world’s largest and most productive nations.
- Increase and improve access to better quality education and healthcare across the country. There is simply no substitute for this.
- Think of ways to incentivize private sector investment linked to employment generation on a large scale
- Improve skill development and vocational training leading to productive employment
- Encourage women to join the workforce and take up employment across industries and at all levels
- Formalise the Indian economy – not through measures like demonetization, though, for which the Indian economy is still paying a heavy price
For years, we have known that the path to sustained economic growth is to reduce dependence on the primary sector (agriculture) for employment and shift more employment to the secondary and tertiary sectors (manufacturing and services). India’s agriculture sector contributes around 15% to GDP, but employed 43% of the workforce in 2019, according to World Bank, which is not a very good allocation of human resources. And when you consider that a large portion of the 43% are landless farmers, or agricultural labourers, the situation is even more dire. In comparison, the percentage employed in agriculture in Brazil is only 9%, when the country is a huge producer and exporter of agricultural produce. In China, the percentage employed in agriculture is 25% in 2019.
Similarly, for manufacturing which contributes less than 20% of India’s GDP, employment is to the tune of 20-25%. World Bank data has a figure for Indian industry’s share of employment which is 25%, and manufacturing is a large subset of industry. While India tries to raise manufacturing’s share of GDP, we must also increase its share of employment. Instead of schemes like PLI which incentivizes private sector investment in manufacturing based on production, we ought to incentivize it based on employment generation.
We are thrilled to bits about Apple’s investment and performance in India, and it is indeed a good sign that the company finally sees potential in the Indian market. However, we need to make sure that Apple’s make-in-India does for Indian workers and their skills, what it has done for China’s. Where, Tim Cook says he finds the largest pool of highly skilled high-tech workers that he cannot find elsewhere, not even in the US. Our aim ought to be to achieve that kind of status as a nation.
Services, which generates 55% or more of our GDP also employs around 32% of our working population in 2019 according to World Bank. Here, the focus ought to be on those services that are required for India to become a more competitive 21st century economy. From financial services and information technology, to telecom, air transport, supply chain management and logistics, infrastructure and engineering services, education and healthcare, India needs to move up the value chain and become more competitive and attractive as an investment destination.
And while we might provide a labour cost arbitrage for many overseas investors, whether in manufacturing or in services, the objective ought to always be to upskill workers and raise wages over time. Instead, we are introducing labour laws that make it easier to hire and fire workers, and to reserve a large quota for local workers in each state. To be truly competitive, however, you have to raise skill levels and remunerate workers well; if workers find adequate well-paying jobs in their home state, they would never have to seek employment elsewhere. Already, companies have most of their manufacturing workers on contract basis and not on their payrolls, as I have written before. With no annual benefits, and perhaps little to no training or skill upgradation – and no obligation to provide any – we are perhaps going in the opposite direction from China’s. Besides, India, like the rest of the world faces huge challenges in the form of AI, automation and the gig economy, all of which make the lives of workers and employees highly precarious. Enough safeguards need to be built into our labour laws to protect the workforce from the possible swingeing effects.
And finally, knowing that almost 90% of India’s employment is in the informal sector, we clearly need to formalize the economy in stages. If we do this in a way that also helps our MSMEs grow and become more competitive, we will be generating better quality jobs with prospects for growth and making our economy overall more competitive. I had already shared my thoughts on how we can better compete with China and the rest of the world by focusing on MSMEs with specialization in niche areas, in a podcast on my blog long ago.
The path from world’s most populous nation to world’s largest market is via a massive employment generation drive, training and upskilling as well as investments in education and healthcare. It will come from sharper and strategic focus on important sectors for growth and mobilizing India’s educated and skilled women. Pouring millions in capex and cement in road infrastructure and neglecting priority areas will not get us there.
Peripatetic Perch 