Can India build a new future?

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India Will Struggle to Cash In on Its Demographics

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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A crucial yet sometimes overlooked driver of economic growth, Morgan Stanley's Ruchir Sharma wrote in the March/April issue of Foreign Affairs, is growth in the working-age population. Over the next decade, India is expected to be the leader by that metric among the world's 10 biggest economies.

In a global economy in need of growth, then, India -- home to 18 percent of the world's working-age population -- looks like it may be able to provide some. But don't get too excited about that: Sharma suggests that 2 percent annual growth in a country's working-age population may be the minimum for a sustained economic boom, and India's working-age population hasn't grown that fast since 2006. The growth rate is in fact steadily falling; in 2027 the annual increase is projected to drop below 1 percent.

Still, slowing population growth isn't all bad news for India. New York Times reporter Somini Sengupta writes:

By 2030, India is projected to reach its demographic sweet spot. That's when the majority of its population will be working age, with a relatively small share of children and elderly to care for.

That's from "The End of Karma: Hope and Fury Among India's Young," Sengupta's new book about what she calls "noonday's children," the generation that has grown up since 1991 -- when India began reforming its economy and opening it to the world.  The book is a series of stories about these young Indians, with ample portions of hope, despair, humor, love, contradiction and all those ingredients that make narratives compelling. Really, it's great.

Still, it didn't make me particularly sanguine about India's ability to take full advantage of the "demographic dividend" described by Sengupta above. The reason is that while India's working-age population is immense and growing, a lot of those working-age Indians don't seem to be working -- at least not in ways that bring economic growth and social progress. You can see that in the book, as Sengupta describes rural regions still largely cut off from the national economy and relatively affluent urban residents who see no point in looking for jobs. And you can see it even more strongly in the data.

Here, for example, is the labor-force participation rate for working-age women in the world's 10 most populous countries:

Only neighboring Pakistan, a relative economic laggard with lower per-capita income and much-lower economic growth than India, scores lower. Bangladesh, another neighbor, has more than twice the labor-force participation among working-age women that India does. Among the countries seen as potential drivers of the world's economic future, India has proved anomalously incapable of bringing women into the labor force.

India's economy also still hasn't created all that many jobs, in the sense of paid, regular employment. And while it's normal for less developed countries to lag in wage-and-salary work, the contrast between India and China over the past quarter-century is pretty dramatic.

It's not that there aren't any good jobs being created in India. Here, for example, is the percentage of workers in high-skill occupations in India and in China:

India has lots of low-skill workers, too, and their share of the workforce has remained more or less constant. What's been getting squeezed are the medium-skill occupations -- operating machinery, driving vehicles, doing clerical work and so on.

This middle-skill squeeze has been a global phenomenon as automation takes over many routine job tasks, but India started out in 1991 with a percentage of middle-skill jobs that was smaller than the global norm, and has continued to lag. While the highly educated top tier of the labor force is doing well, the country seems to have missed the boom in middle-skill wage-and-salary jobs, many of them in manufacturing, that created a big new middle class -- and brought economic growth and social progress -- in China and other Asian countries. India is becoming a post-industrial society without ever fully reaping the benefits of industrialization.

India could surely do more to get its people into better jobs. Legal uncertainty and misguided government policies discourage job creation, while the transportation infrastructure and educational system are in need of giant upgrades. Prime Minister Narendra Modi's government has been working on some of these things, infrastructure investment in particular. It has also continued an existing effort to connect more Indians to the national economy through the Aadhaar national identification number system, which is now being followed up with a project to link all Indians in a digital-payments network.

I certainly wouldn't give up hope. Still, the record up to now isn't encouraging. India has lots of people -- about 860 million as of 2015, with more on the way -- who are the right age to work. But it's not clear that it has the right work for all of them.

  1. The name is a reference/homage to Salman Rushdie's novel "Midnight's Children," about the generation born at the time of India's independence in 1947.

  2. This is definitely true for the BRIC (Brazil, Russia, India, China) nations, as you can see from the above chart. It's also true of the MINTs (Mexico, Indonesia, Nigeria and Turkey), although Turkey's 32 percent participation rate is at least close to India's. Among the CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa), Egypt does have a lower working-age female labor-force participation rate, at 26 percent.

  3. The numbers in this and all subsequent charts in this column come from the supporting data file that can be downloaded at the International Labour Organization's World Employment and Social Outlook - Trends 2015. There's a 2016 version of the publication with its own supporting data sets, but they don't contain all the same information.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Justin Fox at justinfox@bloomberg.net

To contact the editor responsible for this story:
Zara Kessler at zkessler@bloomberg.net