Population and Economic Development in India
‘India can reap the benefits of demographic change and achieve equitable and sustainable development for its growing population only through a holistic and integrated approach.’
The United Nations (UN) estimates that India has become the world’s most populous country, surpassing China for that dubious distinction. This presents an enormous opportunity for the country’s economic growth — provided it can harness the potential of its large workforce, analysts say.
“The country will enjoy an abundant supply of labour and, consequently, should invite even more investments from foreign firms looking to cash in on India’s growing manufacturing capabilities,” says Raghvendra Nath, managing director of Mumbai-based Ladderup Wealth Management. “Additionally, rising domestic consumption should help the nation tide over any external shocks, a fact that was well demonstrated during the Covid-19 pandemic.”
S&P Global forecasts that the South Asian country will overtake Germany and Japan to become the world’s third-largest economy by 2030, with annual nominal gross domestic product growth projected to average 6.3 percent. Although India is feeling the heat from the global economic slowdown, its GDP is projected by the country’s statistics ministry to grow by 7 percent in the current financial year to the end of March, making it one of the world’s fastest-growing economies.
Its population in a consumer-driven economy and having what is known as its “demographic dividend” — a large number of young people — will be a major factor in driving its expansion. In many developed countries, workforces are ageing rapidly as population growth slows globally.
The share of India’s working-age population to the total population will reach its highest level at 8.9% by 2030. By the year 2030, India’s dependency ratio is projected to reach its lowest point at 31.2%. The median age in India is 28.4 years, according to Worldometer. That 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 adapt fast and can keep pace with the continuing dramatic and constant technological change,” says VidyaMahambare, 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 significant opportunities for domestic and international companies.” It’s “a great growth opportunity for various companies, and especially, for value-driven companies like ours”.
“As a large set of people can produce and consume more goods, it is expected to lead to more economic growth for the country,” says Mr Gaurav. “We consider India’s population as an asset for the business rather than a liability.”
But there is still much work to be done to ensure that India can fully reap the rewards of its large population. Jobs need to be created for the millions of Indians who are joining the workforce each year — and youth need to have the right skills to fill those roles.
The fact that unemployment is on the rise in India is a red flag. Unemployment rose to 8.11 percent in March 2023, as per the Centre for Monitoring Indian Economy. India’s population growth would raise its labour force availability but that alone won’t be enough to make the economy stronger or improve fiscal outcomes, due to the quality of education in the country.
Emphasis should be on the better educational outcomes which will help India avoid potential job losses from digitalization and Artificial Intelligence in the long run, especially in services like call centres and BPOs
“The drop in labour force participation, along with a high level of unemployment among youth, suggests insufficient job opportunities and skill mismatch,” says Ms. Mahambare.
In a report on Sovereigns in South and South East Asia, titled ‘Population growth alone will not drive credit benefits for emerging economies’, the rating major said it expects continued population growth in the region to support economic expansion as working-age populations will remain large compared with younger and older citizens.
However, the availability and scale of labour inputs alone will not drive materially stronger economic strength or better fiscal outcomes. Other conditions such as strong education and quality infrastructure are also key to reaping the benefits. Only 5 percent of India’s workforce is formally skilled, despite it being the largest and youngest in the world, according to the World Economic Forum.
“The development of relevant engineering and programming expertise may actually provide employment opportunities, not only in technology-related fields but also in higher-value-added manufacturing given the increasingly complex products being produced in some of these large countries, for example, smartphones in India and electric vehicles in Vietnam,” the report said.
The government is making efforts to expand the country’s economy and create jobs, for example, through its flagship scheme Make in India, which aims to transform the country into a manufacturing centre. India is also pushing hard to increase manufacturing growth and exports.
“The production-linked incentive scheme and other schemes under the Make in India campaign have attracted large-scale electronics, auto components and textile firms, among others. The information technology and emerging biotech and pharma sectors continue to hold good promise.”
At the same time, the government’s Skill India initiative is focused on ensuring that youth are better equipped to meet the needs of companies through measures such as training and partnerships with countries including Japan to cooperate on skill development initiatives.
Conclusion:
The impact of population growth on economic development in India is likely to be mixed. In the short term, India’s growing young population could be a boon to the economy. India has a large number of people in the working-age group, which could help to drive economic growth. Additionally, India’s growing consumer base could provide a market for businesses to sell to. However, in the long term, India’s growing population could pose some challenges to economic development. India will need to create jobs for its growing workforce and provide education and healthcare to its growing population. This will require significant investment in infrastructure and social services. Additionally, India will need to find ways to manage its natural resources sustainably. Overall, the impact of population growth on economic development in India will depend on how the government manages the challenges and opportunities associated with population growth. If the government can create jobs, invest in infrastructure and social services, and manage natural resources sustainably, then India’s growing population could be a major driver of economic growth in the coming years.
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