Why India’s growing population is an asset to its economy

India is likely to become the world’s most populous nation this year, presenting a huge opportunity for the country’s economic growth – provided it can harness the potential of its large workforce, analysts say.

“The country will have an abundant labor supply and should therefore attract even more investment from foreign firms looking to capitalize on India’s growing manufacturing capabilities,” said Raghvendra Nath, chief executive of Ladderup Wealth Management, based in Mumbai.

“Furthermore, rising domestic consumption should help the nation weather external shocks, a fact made clear during the Covid-19 pandemic.”

With a population of more than 1.4 billion, India is expected to overtake China in the coming months.

S&P Global predicts that the South Asian country will overtake Germany and Japan by 2030 to become the world’s third-largest economy, with annual nominal gross domestic product growth averaging 6.3 percent.

Though India is feeling the heat of the global economic downturn, the country’s statistics ministry forecasts that its fiscal year-to-date GDP will grow 7 percent through the end of March, making it one of the fastest-growing economies in the world.

The population in a consumption-oriented economy and the so-called “demographic dividend” – a large number of young people – will be an important factor for the expansion.

In many developed countries, the workforce is aging rapidly as global population growth slows.

The median age in India is 28.4 years according to Worldometer. This compares to 38.3 years in the US, 38.4 years in China and 40.5 years in the UK.

“For India, the main advantage of the young working-age population is that young people can adapt quickly and keep up with the ongoing dramatic and constant technological change,” says Vidya Mahambare, professor of economics at the Great Lakes Institute of Management in Chennai.

Saket Gaurav, Chairman and Managing Director of Indian electronics and home appliances brand Elista, says: “India’s large population is one of the most important opportunities for national and international companies.”

It’s “a great growth opportunity for diverse businesses and especially for value-based businesses like ours.”

“As a large group of people can produce and consume more goods, it is expected to lead to more economic growth for the country,” says Mr. Gaurav. “We see the people of India as an asset to the company and not a liability.”

But there is still work to be done to ensure India can fully reap the rewards of its large population. Jobs must be created for the millions of Indians who enter the labor market each year – and youth must have the right skills to fill those roles.

The fact that unemployment is rising in India is a red flag. Unemployment rose to 8.30 percent in December, the highest in 16 months, according to data from the think tank Center for Monitoring Indian Economy.

“The decline in labor force participation combined with high youth unemployment points to insufficient job opportunities and a skills mismatch,” says Ms. Mahambare.

Prime Minister Narendra Modi’s government is making efforts to expand the country’s economy and create jobs, for example through its flagship program Make in India, which aims to transform the county into a manufacturing hub.

Indian Prime Minister Narendra Modi’s government is making efforts to expand the country’s economy and create more jobs. `

“India is trying hard to boost manufacturing growth and exports,” says Ms. Mahambare.

“The Manufacturing Incentive Scheme and other programs under the Make in India campaign have attracted major electronics, auto component and textile companies, among others. Information technology and the emerging biotech and pharmaceutical sectors continue to show promise.”

At the same time, the government’s Skill India initiative focuses on ensuring youth are better equipped for the needs of businesses through measures such as training and partnerships with countries like Japan to collaborate on skills development initiatives.

According to the World Economic Forum, only 5 percent of India’s workforce is formally skilled, despite being the largest and youngest in the world.

although [having 1.4 billion people] beneficial to the country’s economic growth, realizing its full potential is a major challenge

Rashid Ali, Managing Director of Ezeepay

“Work alone cannot take our economy to the next level,” says Poshak Agrawal, co-founder of Athena Education, which helps students gain admission to top-ranked universities through coaching.

“Despite the large population, the country lacks qualified workers to take on the newly developed tasks,” says Agrawal.

“Recruitment is becoming a challenge for various organizations as education in Indian colleges is more theory-centric and lacks experiential learning.”

Ensuring people have the right skills can play an important role in preventing millions of people from falling deeper into poverty, a problem that authorities are trying to address.

“I think policymakers are geared up to mitigate these challenges to a significant degree,” says Upasna Bhardwaj, senior economist at Kotak Mahindra Bank in Mumbai.

“If you look at India’s per capita income, it’s clearly on the downside and that needs to be increased.”

India’s GDP per capita in 2021 was US$2,256 according to the World Bank.

But there are also encouraging signs from the “political push that we’re seeing… we’re looking at the government’s push toward digitization, we’re looking at the government’s push to improvise the country’s manufacturing base,” says Ms. Bhardwaj.

However, such steps will not produce results overnight, she says.

India’s wealth inequality is a clear challenge and a situation that could worsen as the country’s population continues to grow. In the financial capital of Mumbai, luxurious high-rises and expensive restaurants sit alongside slums, and families of around 10 people are often crammed into rickety one-bedroom apartments.

Wealth inequality has increased in India in recent decades, and the top 10 percent of the population owns more than 60 percent of the country’s total wealth, figures from the World Inequality Database show. The bottom 50 percent of India owns only 6 percent of the nation’s wealth.

“One of the biggest disadvantages of a growing population is its negative impact on per capita income and growth,” says Mr. Nath.

“Efforts must be made to empower the vulnerable sections of Indian society by improving literacy rates, providing access to quality healthcare and ensuring they have easy access to financial services.”

He says, “If these measures don’t reach the required level, we could end up with a widening wealth gap that could jeopardize India’s growth story and reduce the country’s chances of becoming the third largest economy by 2030.”

“Although [having 1.4 billion people] beneficial to the country’s economic growth, realizing its full potential is a major challenge,” said Rashid Ali, managing director of digital payment solutions company Ezeepay.

Overall, however, the large population is a huge opportunity for companies like Ezeepay, which focuses on rural areas of India where the majority of the country’s citizens still live, he adds.

“India’s large population, given its large consumer base, offers many opportunities for businesses to capitalize. Rural youth make up more than 65 percent of the total population,” says Mr. Ali. In return, “we have actively created employment opportunities, particularly for the rural population.”

“The expected increase in population has produced a demographic dividend that offers an unprecedented opportunity for economic development,” he adds.

Much work remains to be done to ensure that India can fully reap the rewards of its large population. Jobs must be created for the millions of Indians who enter the labor market each year – and youth must have the right skills to fill those roles. `

Updated Jan 16, 2023 3:30 am