How Demographics Are the Key to India’s Growth

One in every six people on Earth is Indian. And with over 1.3 billion people, its population will soon overtake China. Once a hindrance to growth, we believe India’s mass of people will be its greatest asset in the future. The reason lies in demographics. Indians are young, with over 65% of the population under 35. The majority are highly educated and fluent in English. India’s workforce will be the world’s largest within the next 15 years. Over 70% of the population live in rural areas with massive potential for urbanization. The potential demand for a variety of goods and services from a large and expanding middle class is huge.

The U.S. government forecasts that India will be third largest economy by 2030, behind the U.S. and China but ahead of Japan.

However, as high-speed India powers ahead, there is a danger that some passengers are left behind. Unresolved issues may come back to bite a future, prosperous India. Growth without redistribution will leave millions in poverty and only widen income inequality. Greater employment opportunities without enlightened attitudes to gender equality will curtail female advancement where it is most needed. Economic advancement without equality of opportunity will only aggravate contemptuous attitudes to the lower castes and raise the fundamental question of what defines development. As India moves forward, we believe it needs to heed the lessons of the past and make growth inclusive for all.

Market Realist – Demographics are the key to India’s growth story. India’s strength in numbers is one of its biggest advantages over the rest of the world. Though population is largely considered to drag down economic growth, this is definitely not true in India’s case for one simple reason: India is young! According to a United Nations report from 2014, with 356 million between 10 and 24 years old, India (IFN) has the world’s largest youth population. The median age in India in 2015 was 27.3 years, much less than most of the developed world, which is saddled with a graying workforce. The previous map shows the world by median age.

An older population is usually associated with lower labor productivity levels, higher entitlement spending, less output, a lower propensity to consume, and consequently, muted economic growth.

The old age dependency ratio measures the ratio of people above 64 years old with those in the working age population between 15 and 64 years old. The above graph shows the old age dependency ratio of various developing and developed nations.

Emerging nations (FEO) (EEM) like Brazil (EWZ) at 11%, China (FXI) (ASHR) at 13%, Russia (RSX) at 19%, have lower old age dependency ratios than those in the developed world (EFA). The ratio is the highest in Japan (DXJ), where it stands at a whopping 42%. The US has an old age dependency ratio of 22%. India (INDA), on the other hand, has the lowest old age dependency ratio at 9%. Since a younger population is usually considered synonymous with innovation, productivity, and growth, this puts India at a huge advantage. If this human capital is properly harnessed and investments are made in health and education, India could become a force to reckon with.