By Chris Miles, head of UK and Ireland client group at Capital Group
India recently overtook China as the world’s most populous country and is set to become the largest contributor to the global working age cohort over the next 20 to 25 years. Estimates suggest India’s working age population will increase by 63 million by 2030 and 128 million by 2040.
Some 43% of India’s population is below 25 years old and its median age is just below 29, with the working age number predicted to climb above 1.1 billion by 2040 (equating to 69% of the total). Per capita GDP is expected to rise, doubling to $5000 in the next decade, and that will be a major driver of consumption, with discretionary spending likely to rise faster than staples.
However, good jobs are a challenge for India, as is attracting young people to the manufacturing sector without a reset in wages.
With 69% of the Indian population at working age by 2040 and 46% of workers engaged in agriculture, which accounts for 17% of GDP, India is at a classic stage of enjoying its demographic dividend as workers move from rural to urban areas.
This migration into jobs in the secondary and tertiary sector should result in productivity rises, but while household earnings grow, wage growth in is modest as there is ample supply of cheap labour.
While the share of agriculture in employment declined from 60% in 2000 to 49% by 2012, the share of manufacturing only rose from 10% to 13% and is stagnant. To reach the goal of the Lewis turning point in the next 15 years, India will need to absorb 16 million people in new jobs at increasing levels of productivity every year.
While India created 169 million new jobs between 2018 and 2024, 78% of the incremental employment is in agriculture (52%), construction (13%) and trade, hotels and restaurants (13%). Some 75% of the new employment was self-employed and an additional 6% are casual labourers.
Despite that stagnancy in manufacturing, however, there are positive signs in the sector. The pandemic and geopolitical developments over recent years have suggested India’s manufacturing could see a surge as the world tries to build resilience in its supply chains, although there is also an ongoing shift towards deglobalisation and reshoring.
While India looks unlikely to replicate the success of Asian Tigers like Taiwan in this space, we are seeing signs of a low-end manufacturing ecosystem start to develop, including mobile phone assembly.
Meanwhile, India’s fertility rate may be declining faster than other parts of the world when at a similar stage of development and prosperity; barring a few large states, most Indian states are estimated to have a fertility rate below replacement levels of 2.1.
The country is also set to have the largest cohort of elderly people in the world over the next two decades, with its population of over 65s growing from 104 million (7% of the total) in 2024 to 247 million by 2050 (15%).
In the same period, the number of children (0-14 years) will shrink from 357 million (25% of the population) to just below 300 million (18%).
That equates to India already peaking in population growth. In 2021, it added 20 million to its population, but by 2023, growth was down to 12.7 million. As per United Nations Development Programme forecasts, India’s working age proportion of total population will start declining from 2045 onwards.
If India is unable to gainfully employ its youth and meet their aspirations, then social unrest is a risk and the demographic dividend may well turn into a nightmare.
There are other challenges – deglobalisation, reshoring, climate change, technology advancements, AI and automation, as well as internal issues like the north-south divide, and poor education, skilling and healthcare outcomes. None of these, in itself, will derail the India story but they can certainly cause a dent.