India ended 2010 with a population of 1.21 billion. The population is expected to hit 1.37 billion by 2020 and 1.48 billion in 2030. At that point, India’s population will overtake China’s.
Now consider this: The number of people in the working-age population aged 15 to 64 is expected to increase from 781 million in 2010 to 916 million in 2020 to a staggering 1.02 billion in 2030.
And this: Half the population of India was younger than 25 in 2010. That will only change to half the population being under 28 in 2030.
So, India will remain a very young country for the next 20 years. These favorable demographic statistics in India point to the potential of a large ‘demographic dividend’ where the enormous size of the young, working population could turbo-charge the prosperity of the country.
China in just 15 years, between 1995 and 2010, leveraged its ‘demographic dividend’ to build the world’s second-largest economy after the U.S. and will overtake the U.S. within the next 20 years. Chinese nominal per capita gross domestic product in dollars increased seven-fold between 1995 and 2010!
Can India ride the same winds? We don’t mean overtaking China or the U.S. That simply will not happen.Â But can India leverage its demographic dividend into a substantial economic payoff which will significantly change the lives of hundreds of millions of the poor?
There will be a payoff but it will not be as large as China’s. The best India can hope for is that nominal per capita GDP in dollars will increase by a factor of 3.5 to 4 between 2010 and 2025, about half what China achieved between 1995 and 2010. Even though India is a young country, the age dependency ratio still favors China over India till 2025. (The ratio is the proportion of people too young or too old to work to the number of working-age adults.)
Both countries have momentum but China’s structural factors are far superior to India’s so India will not get the same leverage.
India’s sector GDP is split 17%, 28%, and 55% in agriculture, services, and industry, respectively. The employed workforce split 52%, 14%, 34%, respectively. The disproportionate services GDP contribution is an anomaly in a poorer country like India. The vast majority of service employment in India is in low-level and low-paying industries. The contribution of higher-level industries to the services GDP is driven by the information technology and software sectors which do not employ large numbers of people.
Equally worrisome is the low percentage of employment in industry, which should be the GDP driver of a poorer country like India. Industrial employment in factories is more directly connected to real productivity growth than agricultural or low-level service employment.
There is some talk that India should focus on the ‘knowledge economy’ instead of the ‘manufacturing economy’ given that the country is badly trailing China in manufacturing. We believe this is wishful thinking.
India needs hundreds of millions of productive, decent-wage jobs which can only be provided by industrial employment. Even if production of such goods is not of exportable quality, it will still provide gainful employment. The ‘knowledge economy,’ which will employ far fewer people, can serve as the export engine.
The agricultural sector, which employs over 50% of the workforce, is extremely inefficient. Agricultural inefficiency is a combination of small farms, poor land management, dependence on the vagaries of water supply whether it be rains or ground water, a poor supply chain that wastes food and provides low remuneration to farmers, and in some cases low prices paid by the government, which reduces the incentive to produce crops.
Overall, only around 60% of the population available to work is working, which compares poorly to China’s number of 85%.
The vast majority of employment is in enterprises with fewer than 10 employees, and in the informal sector, which is a major cause for the low productivity. The data reflect that India’s workforce is only half as productive as China’s in all three sectors (agriculture, industry, and services).
The combination of fewer people working and not working efficiently is a double whammy.
An excellent insiders’ account on China and India. Demographic dividend is not just number of right people but a combination of things: education, motivation, efficiency, infrastructure, government, family…Another ecosystem in other words.