This week, the world was informed that India had overtaken China to emerge as the most populous nation on earth. Context is critical for comprehending the tectonic event. China hosts a population of 142.57 crore in a land area of 9.424 million sq km and its gross domestic product is estimated at $19.3 trillion.
India now hosts 142.86 crore people in 3.287 million sq km and its GDP is around $3.7 trillion. Effectively India today hosts more people than China in roughly one-third of the geographical area and sustains the populace on one-sixth of China’s GDP.
The imagery sketched by data highlights the magnitude of the test faced by India. Indeed the India challenge mirrors the demographic disruption faced by the world. In the next three decades world population is expected to touch 9.7 billion. The working-age population is shrinking in advanced economies and expanding in less developed ones. In India, the developed states in the south are ageing while the less developed northern states are bulging with young cohorts.
The debate in the big tent is whether India can harvest the demographic dividend promised by an expanding working-age population. As a longtime observer of demographic trends and their implications, this column had in May 2014 observed that “demography is not destiny and could well be a ticking time bomb”.
On the face of it India is currently the fastest-growing large economy and is the fifth largest in the world. Consider the data map of potential. It has a working-age population of around 950 million and adds roughly around 10 million persons to its workforce. The persistent puzzle is the sub-par participation rates of working-age persons. Nearly four out of ten working-age males and three of four females are staying out.
The big question is can India combine the scale of its market and working age cohort to propel consumption, investment and growth. It is true the evolution of the gig economy and investment in infrastructure has triggered downstream effects. It is equally true that 42 per cent of India’s labour force depends on agriculture which accounts for a sixth of the national income. This fault line between urban and rural India distinguishes India’s potential and its reality.
It could be argued that if China could leverage its demographics why can’t India? History may well rhyme but the conditions vary. China invested in health and education. It boasts of a literacy rate of 95 plus per cent. China crossed the literacy rate of 78 per cent in 1990 – India is still at 77 per cent. The new economy calls for better schooling and skills -- the average Indian spends barely 6.3 years in schooling whereas the average Chinese worker has spent about 8.4 years and an American 13 years in schooling.
China sequenced its reforms by first enabling agriculture and then under Deng Xiao Ping opened up industry for foreign investment. The results are manifest in data. China recorded double-digit GDP growth for nearly ten of 20 years between 1990 and 2020 – in 1990 India and China were similarly placed at roughly $320 billion and $ 360 billion.
In two decades China has exported its way to prosperity. Without doubt, China also had the advantage of peace dividends and attendant tailwinds – rising demand in advanced economies, higher capital flows and rising global trade. It grew furiously at a time climate change was still a theory.
India, in stark contrast, faces headwinds. Its economy must navigate past conflicting compulsions arising out of geopolitics. The return of economic nationalism, the fragmentation of trade, the newly announced industrial policies of advanced economies shrink the potential for global growth. Add to this the triad of disruptions – demography, climate change and accelerated adoption of technology.
Consumption in advanced economies provided the base for China’s growth and now these countries are aging rapidly. The rising concern on climate change has narrowed options in how growth will be fuelled. Rapid advancements in technology threaten existing business models – just this week the debate is whether AI could possibly shrink opportunities for India’s software sector and trigger a “jobocalypse”.
India is poised at an inflection point and this is verily the carpe diem moment. British think-tank CEBR estimates that given the potential, India’s GDP could touch $ 10 trillion by 2035. India can leverage its market size clout to woo investments and shift labour out of farms to factories. This calls for competitive reforms at the state level – every factor of productivity is shackled by archaic laws and regulatory cholesterol. India also needs a viable public-private skills training model – to train the youth for Indian and global opportunities.
There are embedded blessings too. India has leap-frogged ahead of many advanced economies in creating a digital physical infrastructure lauded by the world. The stack of services could form the neural network to catalyse transformation in education and healthcare. Data pouring out of digitalization can be harnessed to expand credit to home enterprises. Solving the energy challenge with wind, solar and tidal power can create global population-scale business models.
Whether demography turns out to be a destiny or a disaster depends largely on the interface of politics and economics, how policies evolve at the intersection of challenge and opportunity.
Shankkar Aiyar
Author of The Gated Republic, Aadhaar: A Biometric History of India’s 12 Digit Revolution, and Accidental India
(shankkar.aiyar@gmail.com)