Shabash India? India in the global economy

At a cricket match in India you will here cries of “shabash!”, as the batsmen clad in pure white (or brilliant green, sky bue orange orange) wallops the ball out of the ground for six runs. It means “Good on ya’ mate” in Australian (or well done, bravo).

In an earlier post, it was argued that the recent news of an economic growth slowdown in China was consistent with the aging of China’s population and the end of its demographic dividend. And TH wondered whether we could soon be saying shabash India as it becomes the next major driver of global growth?.

There are lots of reasons to be optimistic. Let’s start with the same UN demographic data used in the earlier post.  The first chart shows the end of China’s demographic dividend is due to start sometime soon.  India, on the other hand, the share of the working-aged in India’s total population is still growing and is not forecast to start its reversal until somewhere around 2040.

Consequently, the share of world’s working age population that lives in India is set to continue its rise while China’s will continue its downward trend.  Once you account for participation rates, the change is even more dramatic.  Right now about one quarter of the world’s workers are in China, that falls to below 20% by around 2030, at the same time India the share of the world’s employed that reside in India will rise from around 17% to around 21%.

 

In 6 to 7 years, the contribution from China to global employment growth (currently around 0.2% per year) is set to become negative, while India will account for about half a percent to global employment growth of 1.5%. India looks set to continue to account for around one third of global employment growth for the next 3 to 4 decades.

But, just as there are reasons for optimism, there are many reasons for caution. India faces many challenges.  The quality of India’s workforce is one of those challenges. Take youth literacy for example. Youth literacy is important, because it tells you about the productivity of the next generation of workers, and compared to many of its peers, India is struggling.  At just over 80%, the youth literacy rate in India in 2007 was lower than it was in Sri Lanka, Brazil, China, and Indonesia way back in 1970. So to the extent that global employment growth is being driven by Indian workers rather Chinese workers, the contribution to global GDP growth will likely be somewhat smaller. This point is reinforced by data from Penn World Tables on output per worker. GDP (adjusted for cost of living) per worker is about $11,300 in China and $7,500 in India. So unless something dramatic happens in the next 5 years, the effect on global growth will be modest at best when the globe starts relying on Indian workers to replace retiring Chinese workers in 2018.

There are many other factors at play too.  India’s labour market laws introduce notorious rigidities that impede growth and its governance of property rights makes it difficult for innovators to leverage capital into productivity growth.  So, from where Torrens sits, its too so to say Shabash India.

The real question is how quickly can India close the literacy gap, improve labour market regulations, and improve the institutions that could help transform India’s vast wealth into innovation and productivity enhancing growth. But, those are issues for another post.

Shabaash India is also the name of an Indian reality TV show:

One thought on “Shabash India? India in the global economy

  1. There are plenty more countries in Asia then just China and India. Just got back from Vietnam, talk about economic boom, the place is going off. Sure they don’t have the same mega-populations, but taken on their own merits they are little powerhouses of economic drive.

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