India set to drive Asia’s economic growth till 2050

India is on the verge of becoming the driver of the Asian economy over the next five decades or so, surpassing those of China and Japan, according to a new report. Such an outcome, however, is subject to institutional capacity development. The report bases its claims primarily on the demographic dynamics within these countries.

In a report reminiscent of Thompson’s theory of demographic transition, whereby as a market develops to its fullest, birth-rates fall and life-expectancy increases, Deloitte has provided analysis on the projected trends amongst Asia’s top economies, detailing informed speculation on the economic impacts of these figures. The report, titled ‘Ageing Tigers, Hidden Dragons’ projects that India is on the cusp of becoming the main driver of economic growth across Asia, provided that the country improves its institutional apparatus.

The report from the Big Four consulting firm operates within the premise of three waves of economic growth in Asia, the third of which is set to begin in the next few years. The first wave of growth, as per the report, was driven by Japan till the 1990s, followed by a phenomenal wave of growth driven by China leading up to current times. The next wave, beginning in the current decade, will be driven by India.

The primary correlation drawn by the report lies between the portion of a population in the working age (15-64) and its economic performance. As a nation’s working age population expands, its economic performance improves. On the other hand, economic prosperity is often accompanied by an ageing population, primarily as a result of decreasing birth rates and an increase in life expectancy. The two phenomena combine to form what the report describes as a ‘virtuous cycle,’ where the economic prosperity resulting from an increase in working age population results in an overall improvement and diversification of the same.

Now, Japan’s once booming population, which peaked in the 1990s, has aged considerably with a median age of 47.1, primarily as a result of the lowest birth rate in the world (1.4 children per mother) coupled with high life-expectancy. Meanwhile, China’s substantial working population is also ageing, with a median age of 37.6, and the effects of their one-child policy since 1979 have created a scenario where the next generation is much smaller than the current one.

While both workforces have passed their peak, the Indian labour market is currently beginning its ascension. India’s workforce currently stands at 885 million people, however this could reach 1.08 billion by 2037, and an even larger 1.12 billion by the halfway mark of the century. Over the next decade itself, the workforce will grow by a projected 115 million, which amounts to more than half of the 225 million people projected to join the workforce across the whole of Asia. Moreover, this growth coincides with a decline of 5 million in Japan’s workforce and 21 million in that of China.

Alongside the sheer growth in quantity, the report also predicts promising improvements in the quality of India’s workforce in years to come. As per the report, “These new workers will be much better trained and educated than the existing Indian workforce, and there will be rising economic potential coming alongside that, thanks to an increased share of women in the workforce, as well as an increased ability and interest in working for longer.” In essence, India will see improvement over the 3Ps of demographics, i.e. Population, Participation and Productivity. “The next 50 years will therefore be an Indian summer that redraws the face of global economic power,” states the report.

The report also highlights some factors of India’s demographics that are unique when compared to other countries. Firstly, the ratio between the working age population and the non working age population in India is likely to peak at a level that is much lower than that of Brazil or China. However, the second unique feature for India is that it will also remain at its peak for much longer than the other countries.

However, the corelation between the expanding workforce and the economic benefits should not to be taken for granted. According to the report, an increase in population without the sufficient insitutional capacity simply breeds unemployment and, subsequently, social unrest.

A major priority is to bring about greater gender inequality in the workforce. Counter-intuitively, the percentage of women in the Indian workforce has fallen over over the last ten years from 37% to 27% – a trend that is also consistent with other Asian countries including China, Japan and Thailand among others. In order to truly optimise its growing working age population, India will have incorporate the female members of this population into the workforce.