India set to drive Asia’s economic growth till 2050

02 October 2017 Consultancy.in

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.

Working age as a percentage of total population - Japan, China, 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.

Median age in 2017

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.

Peak potential workforce - Japan, China, India

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.

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Public and private innovation are driving India's substantial digital economy

01 April 2019 Consultancy.in

New analysis from global management consultancy McKinsey & Company has reinforced what many experts have been indicating in recent times, that India is amongst the largest digital economies in the world. On a number of metrics, India is second only to China in terms of digital consumption.

The analysis comes against the backdrop of reports from a number of major consulting firms about India’s rapidly digitalising economy. In 2017, the Boston Consulting Group placed India’s population of online users at approximately 400 million, and predicted that it would reach 850 million by 2025.

Since then, experts have focused on what the emergence of such a large digital market means for various sectors, and how they are likely to grow and evolve in this context. McKinsey’s latest study offers a comparative analysis of India’s digital market against other major economies in the world.

India's global digital position

The highlight of the report is the role that the Aadhaar initiative from the Indian government has played in the development of this digital economy. Aadhaar was launched in 2009, and is essentially a digital identity mechanism that has registered as many as 1.2 billion people in accordance with their biometric information. 

The presence of such a digital identity has spelled growth for a number of other sectors that have fed off of this substantial database. The digital banking segment is one example. By the start of last year – nine years after the introduction of Aadhaar, nearly 900 million bank accounts were linked to Aadhaar information.

Not only does this represent monumental growth over less than a decade, but the number also nearly doubled since the previous year, when the number of linked bank accounts stood at just under 400 million. The digital identity database generated under Aadhaar has grown into the largest of its kind in the world.

Global digital adopters

The report attributes the overall digital growth in the country to a number of other government initiatives as well, including the Goods and Services Tax that was established in 2013, and has created a unified and harmonized database for over 10 million firms that pay indirect tax to the government.

Consequences of this expansion in the digital sphere have spread far beyond the sectors most directly affected, and India has become the second largest digital economy in the world behind only China on a number of metrics. These include the number of application downloads as well as the number of wireless phone subscribers.

The latter has been the result of the Reliance Jio initiative, which has tremendously increased the accessibility of mobile data by offering extremely cheap data plans across the urban and rural landscape. The number of internet subscribers has also grown to the second largest in the world as a result, currently at 560 million according to McKinsey.

Falling data prices in India

Increased prosperity has also led to a boom in the number of smartphones being purchased in India, currently at nearly 355 million in India, behind only China. The same global position is applicable when comparing the volume of social media engagement in India. Alongside government initiatives, the report attributes this scenario to innovation in the private sector as well.

“Global and local digital businesses have recognized the opportunity in India and are creating services tailored to its consumers and unique operating conditions. Media companies are making content available in India’s 22 official languages, for example,” says the report.