India on the Right Side of the Population Bulge

What growing population means for the Modi government

Feb 20

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By: Salman Rafi Sheikh

With India set to surpass China as the world’s most populous country soon with more than 1.4 billion people, the question of what it means for the country – especially, the ruling Bharatiya Janata Party government of Narendra Modi – has acquired considerable significance.

That its population is relatively young is a key reason why the Modi government doesn’t see India’s status as the world’s most populous country as a problem. Of India’s 1.4 billion people, more than 40 percent are under the age of 25. The median age in India is 28, compared to 38 in the US and 39 in China, raising considerable anxiety over concerns that it will famously grow old before it gets rich. It means India has a very large workforce that, if employed, can drive India’s economic growth.

Under normal circumstances, employing such a large population is a humongous task. How much new industry do you need? Currently, industry makes up only 14 percent of India’s GDP, with almost 45 percent of the workforce employed in agriculture and often subsistence agriculture at that. By the end of the decade, according to some estimates, India will need to create 90 million non-farm jobs. This means India needs to expand its industry massively to accommodate the bulk of its young population.

The growing global trend of supply chain diversification is going to help. For instance, India recently approved several of Apple’s suppliers from China to commence operations to create the supply chain ecosystem for producing iPhones.India received its highest annual FDI inflows of US$84.8 billion in FY 21-22, overtaking last year’s FDI by US$2.87 billion. Also, FDI equity inflows in FY 2021-22 were US$59.8 billion. Equity inflows in manufacturing increased by 76 percent in FY 2021-22 to US$ 21.34 billion compared to FY 2020-21 at US$ 12.09 billion. By contrast, China’s FDI, which was supposedly crippled by Covid-19 and a western cutback, still increased by 9 percent to US$189.13 billion year-on-year.

This shift is happening against the backdrop of growing China-US tensions, with many in Washington and the west talking of de-coupling. India, as it stands, is directly benefiting from these tensions, many global manufacturers are now thinking of following a ‘China plus one’ strategy, with India being the second home of manufacturing. To reap full benefit from this trend, the Indian government is accordingly spending 20 percent of its budget on capital investment. In recent months, the manufacturing sector in India has seen a 75 percent growth.

But India is attractive for global manufacturers also because of the favorable economic outlook. For the old industry to work and the new to come onstream, high growth levels are required. As the 2023-24 IMF report on India indicates, a growth rate of 6.8 percent is on the cards. With the administration’s public spending on the provision of goods and services also on the rise, the Modi government seems to be in a financial position to afford to have such a large population.

As mentioned above, the median age of India’s demography is its big advantage. It is a human resource with a big surplus that any government would export, as a commodity, to the whole world. Although total fertility has fallen from 6 live births per woman in 1950, it remains at about 2.10, considered the global replacement rate.

Currently, India receives about US$100 billion per annum in remittances. By exporting a lot of its (new) human resources to the rest of the world, India can continue to earn revenue and provide for its massive population.

For India, exporting this resource is not a problem. Thankfully, it has a global image that works to its advantage. It is a country with a large enough economic and geopolitical footprint and a non-aligned foreign policy that, for instance, enables it to maintain good ties with the US and Russia. It is a country with vibrant trade ties with the Gulf states. This is apart from India’s very large – and continuously expanding – diaspora in the Gulf.

This diaspora not only serves to send remittances but is also a source of investment. According to a recent report, Gulf-based Indians’ investment in real estate may rise to US$14.9 billion in the current fiscal year. The Gulf-based diaspora adds up to India’s trade ties with the region as a whole. In fact, investments from the Gulf on the whole account for almost 41 percent of the global investment in India.

All of this combines to make India possibly the world’s third-largest economy by the end of the decade. Could this have any global-level ramifications?

For sure, there are many. First of all, India’s global profile will see a massive increase. How long before India will become a member of the Group of 7 (G-7) and make it G-8? Delhi’s growing economic clout should make it impossible to justify keeping it out of the bloc, considering especially its non-aligned economic and political ties with the US and Europe.

Secondly, can India be kept out of the permanent members club of the United Nations Security Council? The Modi government will push for this status much more keenly and vigorously now than it has done thus far.

In Times of Crisis?

A lot of these projections depend upon the theory that the Indian economy will continue to grow as expected, helping the BJP government to reap political benefits. There are perhaps no serious hiccups expected, but what will happen to BJP if it fails to maintain this growth level? Will it be politically defeated?

While an outright political defeat is difficult to predict, what we can surely predict is how the BJP will respond to any eventual economic crisis tied to population growth.

BJP is a Hindu nationalist party. In a scenario of economic stagnation and sluggish growth, it will be very easy for the right-wing populist Modi government to shift the blame towards India’s non-Hindu – especially, the Muslim population – for economic troubles. This is indeed how right-wing populists operate. This would create more inter-communal tensions, polarisation, and violence – a scenario that the BJP might see as politically good for its survival in the short and long run.

In other words, India’s status as the world’s most populous country is by all definitions not a challenge for the Modi government to stay in power. India’s growth towards the world’s third-largest economy fits the overall BJP agenda of making India a ‘great’ nation-state. That this is happening under the BJP rule adds credibility to the party’s vision and policies.