How India’s Economy Is Growing At A Faster Pace Than China

India is facing an
important election year. And outside of recent tensions with
Pakistan, the economy remains a key campaign issue. India’s economy is the fastest growing
large economy in the world. It’s also a big country
with a big population. The United Nations expects India’s
current population of 1.3 billion to keep growing and
surpass China by 2024. But it’s got some big problems. A few years ago the country’s
current prime minister Narendra Modi promised to add 10 million jobs
to help boost the economy. That hasn’t really happened. The unemployment rate instead sits
at a 45 year high. And GDP per capita, which is a
measure of wealth across the country, lags behind rivals like China
by a wide margin. Can India keep growing at
such a fast pace? And if it does, at what cost? Here’s how India became the fastest
growing large economy in the world. The story of India: The modern
day economic powerhouse starts right after the country’s independence from
Great Britain in 1947. Immediately afterward India adopted
a closed economy. It was essentially
a socialist country. For years India’s economy remained stagnant
due to a number of socialist policies it copied from the
Soviet Union, like five year plans. It also nationalized major
industries like mining, insurance, telecommunications, and, eventually, most
of the banking sector. Poverty and corruption
were big problems. Overzealous regulation
stifled corruption. The country’s socialist style economy
continued to sputter until 1991. That was the
year everything changed. The Soviet Union, a major
trading partner, had collapsed. And the first Gulf War disrupted the
flow of cash coming from Indian workers in the Middle East. So when you come to about 1990
India is still a very poor country. 1991 was a watershed year
when economic reforms were launched substantially when globalization
began to happen. That year, India’s international credit rating
was downgraded to get a loan from the World Bank and IMF. The country implemented a
plan of economic reform. India would open markets up to
foreign competition, reduce the budget deficit, and eliminate restrictions on
foreign investment making it easier for entrepreneurs and Indian
businesses to get funding. And that process sort of
continued until about 2004. All the command and control systems
were dismantled; the foreign trade was opened up, and then the Indian
economy began to grow a bit faster. And particularly
starting from about 2003, the economy really took off. So if you take about 15 year
period from 2003 onwards, the economy grew almost seven and
a half percent. A big reason India’s economy took
off was because of the country’s growing I.T. sector. Following a liberalized
economy, Indian entrepreneurs quickly realized that the I.T. sector could become
a lucrative business. Private engineering schools started popping
up creating large numbers of workers eager for jobs with
lower salaries compared to U.S. I.T. workers. U.S. companies Citibank and Texas
Instruments took notice and hired some of the talent validating
the country’s new sector. By 2007, India’s I.T. sector was posting revenues of 23.5 billion. By 2018, it was bringing in 167 billion. I.T. companies are now
India’s biggest private employers. Another big reason why India’s economy kept growing at such a rapid pace lies in simple demographics. India is home to more than 1.3 billion people and much of the population is relatively young and working. Experts call it
‘the demographic dividend’. Asia’s elderly population is expected to
blow up in the coming years. India, however, is
bucking that trend. 65 percent of its population is
below the age of 35. Deloitte, the global consulting firm,
predicts India could supply more than half of Asia’s workforce
in the coming decade. India is now the sixth largest economy. The IMF predicts it could soon
overtake the United Kingdom, its former colonizer and
total GDP output. But the country is
facing a few hurdles. Job growth is a big one. India’s current Prime Minister Narendra
Modi faces criticism for not adding the 10 million jobs he
promised in his 2014 campaign. In November 2016, he suddenly announced that 500 and 1000 rupee notes would be taken out of circulation. The economy faced a severe cash
shortage and some economists argue the move cost the economy about 1.5 million jobs. Despite India’s reputation as a tech
and services hub, the country’s workforce remains largely in
the informal sector. About 81 percent of India’s workers
ply their trades in the informal economy. That means jobs like
street vendors, auto rickshaw drivers or household help paid in cash. Some economists say if India wants
to progress to a developed economy it needs the informal sector to
become better integrated with the financial sector. A lot of the economy is
actually in the informal sector. Just to give you an example: In
India, 95 percent of enterprises in India employ five or fewer people. So these are
really mom-and-pop stores. That’s about the informality
at which it operates. While India’s economy is booming, its
unemployment rate is at a 45 year high, a sign that jobs are
not being created at the same pace. Economists call this
jobless growth. It’s when the economy grows but generates
jobs at a rate below its potential. The agriculture industry is
a massive employer in India but it’s not seeing the same
kind of growth as other sectors. That could lead to putting millions
of young workers out of work. Experts say the unresolved issue of
jobless growth and failure to reskill workers could hurt the
economy in the future. Indian job problem is it has to
do with the availability of good jobs; jobs that pay reasonable wages and
this is particularly true for workers at the low end of the
visa distribution that when you look at unskilled or low skilled workers there
are not enough well-paid jobs. The World Economic Forum says India
needs to work on infrastructure development and urbanizing regions of the
country if it wants to stay on pace. Poverty also remains a big problem. 12.4 percent of the country lives
at the international poverty level surviving on less than one U.S. dollar and 90 cents a day. However the country has made progress. In between 2005 and 2016, 271
million people moved out of poverty, halving the poverty rate
to 28 percent. India’s rapidly changing demographics may
help it become an economic superpower. But it’s also
creating big obstacles. India is a big, messy democracy and
if large swaths of the population feel left out of economic growth,
it could lead to political unrest. All in all though, India’s economy
is not showing any signs of slowing down just yet.

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