Extreme India

Part 1 Economic Series on India

India is a small giant. “But I see it growing into a huge giant in, say, ten years,” Jaimini Bhagwati explains to me. Dr Bhagwati is a "Distinguished Fellow" at a Chankyapuri, New Delhi based think-tank called the Centre for Social & Economic Progress (CSEP) and a former Indian ambassador in Brussels. “Roads are being built, as well as ports and airports. The logistics are starting to come. Reforms are being pushed through. And everything will at some point finally come together. When? That is difficult to predict, because it’s like a snowball, as it keeps growing and growing and picking up snow from the ground and suddenly you will see this huge ball. And you will ask: where did it come from?”

India’s demographic dividend

In terms of land area and population, India is already a giant. It is 1.2 times the size of the euro zone, 77% of the EU and 1/3 that of the US. However, its population is 3, 4 and 4.1 times larger than these regions, respectively. The total population is expected to peak at 1.7 billion by 2063, compared with 1.4 billion now, and then fall to 1.53 billion by 2100. By 2044, the country will enjoy a demographic dividend: the number of 25-64-year-olds versus 65-year-olds and under 25-year-olds?– the support ratio – will fall by 17 per cent over that period. From now until 2050, the working-age population will increase by 0.9 per cent from 706 million to 902 million.

This demographic profile is in sharp contrast to most other industrialised economies and some emerging economies. The US is the proverbial exception, as it will see a further population increase from 175 million to 187 million people by 2050. In Western Europe, the working-age population will fall from 102 million today to 91 million in 2050 (-0.4%/year). In China, the working-age population will fall from 823 to 668 million, or 0.7% per year. Migration from rural China to the cities and a further rise in the labour force participation rate could however, partially offset this. In India, we will see that both elements make India's challenge even greater: providing jobs for everyone.

India is not the new China

India is often compared to the China of the 1980s. The working-age population had more than doubled by the year 2020. Combined with the opening of its market to foreign companies, China had average annual growth of 10 per cent until 2010. India currently stands at 7%. The IMF expects India to maintain a growth rate of 6 to 7 per cent in the coming years. While for China, growth is expected to decline from 5 per cent in 2023 to 3.4 per cent in 2028. The OECD published growth forecasts for 2040 projects growth of 4.4 per cent for India compared to 1.9 per cent for China.

India is not matching the scorching growth rate that China was able to maintain for decades. According to V Anantha Nageswaran , Chief Economic Advisor to the Indian government, China achieved these growth rates due to the large amount of debt it accumulated. “Adjusted for this, India has been growing stronger since the mid-90s,” he explains.

The main reason, in my view, why India has not had such growth rates in the past, nor will it in the future, is that it is a democracy. An autocracy with no public say would be the ideal place to build infrastructure faster than today and to implement the necessary reforms. In India, the fragmentation of political parties and the great diversity of the population make any reforms politically sensitive. As a result, change in India is always slower than planned. “And, although the central government under Modi enjoys a strong parliamentary majority, a constant election cycle due to staggered timelines of state elections makes it politically sensitive to unpopular reform measures”, says Shumita Sharma Deveshwar , Chief Economist India for research provider GlobalData.TSLombard . “That is why the government had to withdraw farm reforms. Furthermore political competition at the state level keeps it from implementing steps that would need to be executed by local governments. The stalled labour reforms are here a case in point.”nomist India for research provider GlobalData.TSLombard . “That is why the government had to withdraw farm reforms. Furthermore political competition at the state level keeps it from implementing steps that would need to be executed by local governments. The stalled labour reforms are here a case in point.”

A country of extremes

The diversity of its population makes India a land of contrasts. “Whatever you hear about India is true. And the opposite of that is also true. So that is where you are”, says Mukesh Malhotra , CEO of Solvay India when I tell him I’m a bit confused about India. The 27-storey 'house' of billionaire Mukesh Ambani – the first apartment to cost more than one billion dollars and the largest single-family home in the world – is located in the middle of Mumbai city where an estimated 62 per cent of the population lives in squalid slum conditions. India is one of the most unequal countries in the world, with the top 1% holding 22 per cent of the national income, compared to 13% for the poorest half of the population. “India is a land of big extremes,” acknowledges Tata Group ’s Chief Economist Roopa Purushothaman, “and this goes for a lot of things. Take for example ageing. On average we have a young population, and in some parts of North and East India, you still have relatively high fertility rates. But in South India we’re ageing even faster than France! So people there have other needs.”

The average income of the 28 states and 8 union territories (which are directly under the federal government) also varies widely. India’s average income per capita in 2021-2022 was USD 1,955. However, four states had incomes more than twice as high and two states were less than half. These states have different priorities that can be addressed by the locally elected state administration. “India is not just one country. It is too big for that and there are too many differences in culture, language, and so on,” says Amitabh Dubey , political analyst at research provider GlobalData.TSLombard . “It is good that state power is strong so that the state government can do things that are important for their own region. There is a central government, but 90% is decided by the state government.”

Highly diverse and yet one nation

Is India more like the United States than the European Union? “In Europe, you have Belgians, French, German people,” explains Raman Madhok , Economic Diplomacy Advisor of the Consul General of Belgium. “You all belong to Europe, but the way you behave is different, your food habits, how you interact. So you see that as well in India, where the people that you have met in New Delhi are different to those in Mumbai. But the big difference is that they still feel Indian, whereas your loyalty is to your country. You don't have that glue which is there in India.”

On the other hand, in terms of diversity of culture, languages and habits, it is much closer to Europe, and by quite a lot. “You know, over the last 20 years, we've added almost 30% more states. So Delhi has become a state, we have bifurcated bigger states to make them more manageable. And because of the differences in culture, habits, wealth and so on in the different states of India.” An Indian banknote illustrates this diversity perfectly. There are now 15 languages on Indian bank notes. The value of a bank note is written in a total of 17 languages from the 22 official languages. These include Hindi, English, Konkani, Kashmiri, Oriya, Nepali, Marathi, Urdu, Sanskriti, Tamil, Assamese, Bengali, Gujarati, Kannada, Malayalam, and Punjabi.

Hindi is the most widely spoken language and is the first / second language of 44% of the population. However, it should be noted that many other official languages serve as the primary language in different states and regions of the country. English is spoken by an estimated 194 million people, or 14% of the population, according to a study from 2012 (although another source puts the figure at 30% without citing a source). The number of English-speaking Indians has probably increased since 2012, but even at 194 million, India is now second only to the US in terms of the actual number of English speakers in the country. English is widely spoken in India’s major cities, such as Bangalore, Mumbai, Chennai and others and is one of India’s main advantages over, say, ?China in attracting businesses. English is, however, much less widely spoken in the more rural and northern areas, where Hindi and various local dialects are more common.

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