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India races to get rich before it gets old as population surpasses China's

How quickly India boosts its proportion of city dwellers and whether it can create enough quality jobs to accommodate the shift carries crucial significance for its growth needs

India, India population

Photo: Bloomberg

By Vrishti Beniwal, Shruti Mahajan, Eltaf Najafizada and Ruchi Bhatia

A fleeting moment in western India on the evening of March 8 will remain etched in Nikita Punjabi’s memory forever: The first glimpse of her newborn daughter as the doctor held her up after delivery. 

Aniket Rai, nervously waiting during the birth, cried tears of joy when the nurse told him he had a baby girl. “It was surreal feeling... Unparalleled. I cannot describe it really, it can only be felt.” 

Their baby, Prisha — which means god’s gift — is but one of the millions born across India so far this year who have contributed to the historic milestone of passing mainland China’s population. That comes just a few years after India snatched the title of world’s fastest-growing major economy from its northern neighbor. 

But labels alone won’t be enough for India to take over as the world’s biggest growth driver, just as having the most people wasn’t enough for China until it carried out economic reforms from the late 1970s.
Bloomberg Economics says India needs to advance on four broad fronts — urbanization, infrastructure, up-skilling and broadening its labor force, and boosting manufacturing — to fully cash in on its demographic dividend and reshape the global economy in the process.

“The country is young, English speaking and the rising labor force is already supporting the government’s ‘Make in India’ initiative,” said Abhishek Gupta, senior India economist with Bloomberg Economics. “Geopolitical tailwinds are also helping.”

How quickly India boosts its proportion of city dwellers and whether it can create enough quality jobs to accommodate the shift carries crucial significance for its growth needs. 
Over the period to 2040, India will likely add 270 million people to its urban population, according to the International Energy Authority.

The shift is already on display in India’s megacities. Shiny new apartment buildings dot the capital Delhi as the newly wealthy ramp up realty investments. A top developer recently sold $1 billion of luxury homes in three days in Gurugram, one of Delhi’s satellite cities.

But public services are still poor — India’s Supreme Court has even warned that air traffic controllers might be forced to steer planes around the massive garbage dumps on Delhi’s outskirts if they get any bigger. 

Yukon Huang, senior fellow at Carnegie Endowment for International Peace, said India will need to follow the path of China and South Korea in making its cities modern and efficient. Over the past four decades, a four-fold increase in urbanization neatly “correlated with the increase in productivity of labor in both countries,” he said. 

For urbanization to pay economic dividends, infrastructure investment will be needed on a massive scale. There has been progress — since Prime Minister Narendra Modi’s election win in 2014, the number of domestic air passengers has roughly doubled and the national highway network expanded more than 50%. 

On the technology front, India’s digital infrastructure is among the most advanced in the world. In just a few years, almost every Indian has received a national identity card — called Aadhaar — linked to everything from rental leases to bank accounts and social welfare benefits.

Among Modi and his Bharatiya Janata Party’s most significant achievements has been forging a single economic zone from India’s messy federal and state taxes. That’s helped with revenue collection, which hit a high last year, providing funds for new airports, roads and the like.

But on other measures, China is still far ahead. Though India has some of the lowest phone tariff rates in the world, internet usage trails China, which has also zoomed past India on everything from air carrier departures to container port traffic.
“Infrastructure suffers from decades of underinvestment, a weak inter-modal system, over-reliance on roads for freight transport and inefficient work practices,” said Priyanka Kishore, economic director at IMA Asia, which runs leading peer group forums for Asia’s business leaders. 

Education is another stumbling block. Many degrees are essentially worthless and a skills mismatch has jeopardized growth. Half of all graduates in India are unemployable, according to a study by Wheebox, a group that advises businesses. Unemployment is stubbornly high at around 7%.

“India has a serious learning crisis,” said Shumita Deveshwar, India research senior director at TS Lombard.

India boosted educational spending by 13% this year, the highest ever, to 1.1 trillion rupees ($13.4 billion) and is aiming to improve digital education and address educational deficiencies.

But there is still much to be done, especially when it comes to female participation in the workforce. Between 2010 and 2020, the proportion of working women in India dropped from 26% to 19%, according to data compiled by the World Bank. 
Though they make up 48% of the population, Indian women contribute only around 17% of GDP, compared to 40% in China. Closing the employment gap between men and women could expand India’s GDP by close to a third by 2050, which equates to nearly $6 trillion in constant US dollar terms, according to a recent analysis from Bloomberg Economics. 

Four decades ago, China and India were both largely agrarian-based economies. But as the Western world outsourced production of everything from toys to TVs and tools, China seized a moment that India missed. Today, manufacturing comprises more than a quarter of China’s economy, compared to just 14% for India.
Increasing rivalry between the US and China is giving Modi’s government a new shot at boosting its manufacturing share to a targeted quarter of GDP. And there are pockets of progress. Apple Inc.’s three key Taiwanese suppliers won incentives from India to boost smartphone production and exports. The California-based company now makes almost 7% of its iPhones in India, Bloomberg News reported recently, up from about 1% in 2021. 

“The political and democratic set up in the country is more conducive for global investment than China,” said Sanjay Kumar Mohanty, a professor at the International Institute for Population Sciences in Mumbai.

But moving up the value chain won’t be easy. Labor laws are still restrictive and compared to nations like Bangladesh or Vietnam, India has been less successful in creating the highly-efficient industrial parks preferred by many global manufacturers.

Hope and Fear
Rapid progress on urbanization, infrastructure, human development and manufacturing will be needed for decades, not just years, as the population continues to swell. It’s expected to reach 1.67 billion by 2050 — that’s another 250 million people, or roughly the size of Indonesia.

Health care is just one illustrative pressure point. Today, India has about five hospital beds per 10,000 people. The ratio in China is about eight times that, and analysts say India will take decades just to reach the level where China currently stands.

The demographic window won’t be open forever either. India’s population could start declining in 2047 and fall to 1 billion people by 2100, according to UN estimates.

The UN’s base case sees China’s population at 1.3 billion by 2050. Unlike demographers, economists tend to avoid forecasting decades into the future, so it’s tough to find any estimates of India overtaking China’s GDP. But if India can keep growing at around 7% and its currency holds firm, it should zoom past Germany and Japan to a third place ranking by 2030.

For the Modi administration, there is no doubt this is India’s moment.

With 1.428 billion people, India has passed mainland China’s population, which stands at 1.425 billion, according to UN data released Wednesday. The nation will soon overtake China and Hong Kong combined.

“This is not just about beating our chest on rankings, in the end it is about providing a better quality of life for all Indians and also to create a system which allows for innovation, risk taking, entrepreneurship and so on,” said Sanjeev Sanyal, an economic adviser to Modi. 

Baby Prisha’s parents are also optimistic. 

“Our country is seeing such fast-paced growth,” said Rai, an assistant vice president at Barclays who plans to raise his family in the city of Pune. “It’s a great era for Prisha to have been born.” 

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First Published: Apr 20 2023 | 10:17 AM IST

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