India Resists the BRIC Slowdown

This year India is expected to grow faster than China. Behind this trend we can see several key economic and social trends which place India at an advantage vis-à-vis its BRIC counterparts. Added to which, the very fact that it is growing from a low base across many indicators gives it an edge – if it can capitalise on the catch-up effect.

Real GDP Growth in BRIC: 2010-2015

BRIC GDP

Source: Euromonitor International from national statistics/Eurostat/OECD/UN/IMF

Note: Data for 2015 are forecast

 

A high proportion of working age

One of India’s key advantages is its working age population. It is the only one of the BRIC countries whose working age population is growing as a proportion of the population overall. By 2030 it will overtake Brazil to have the largest share of working age of the BRIC at 67.9% of total population. This large proportion of working age is good for the economy because it is this demographic which contribute most – in terms of being most productive and of being the heaviest consumers. One of China’s main pillars of economic growth has been its large working age population, but this engine of growth is now stuttering – to visible effect.

Working Age Population in BRIC: 2000-2030

Working pop

Source: Euromonitor International from national statistics/UN

India also has by far the smallest proportion of those aged 65+ in its population. This is due to high birth rates but also, less happily, to low life expectancy. A high old age dependency ratio can exert pressure on government finances and also on those remaining in the labour market, squeezing discretionary expenditure.

Fast-growing urban centres

Another demographic change which is a driver of growth, is urbanisation. India has the largest share of rural population of the BRIC economies but its rural population is set to peak in 2025. Its smaller cities in particular are booming – Malappuram, a city of 1.9 million inhabitants in Kerala, is expected to see the strongest growth in consumer expenditure to 2030. Thiruvanthapuram, also in Kerala, with 1.8 million inhabitants will see the third-strongest growth.  Eight of the fastest-growing ten BRIC cities, in terms of consumer expenditure, are Indian.

Top 10 Fastest-growing BRIC Cities: 2015-2030

Fast Cities

Source: Euromonitor International from national statistics

Note: Data are forecast in real terms

Not everything is rosy

Of course India stands out for some less encouraging reasons too. It has the highest unemployment rate in the BRIC and the weakest government finances. Its export sector is lacklustre and it runs a large merchandise trade deficit. Productivity is also weak. India receives the highest proportion of its GDP from agriculture of the four countries, and almost 50% of the employed population work in the sector. Electricity production is also a significant flaw, with India lagging both in terms of quantity and quality of supply. India also ranks worst in terms of its business environment in the World Bank’s Ease of Doing Business in 2015 report – the difficult business environment is a huge limitation on growth. Finally, poverty is widespread – three times as many households in India live on disposable incomes of less than US$2,500 per year than in China.

Household Disposable Income Distribution: 2014

Disposable income distribution

Source: Euromonitor International from national statistics

The new China?

India has many of the underlying strengths that should propel growth but it still needs to work to capitalise on these natural advantages.  A large, working age population is only an asset if the workforce is educated with the right skills, and if there are enough jobs created to satisfy new market entrants. If not, it soon becomes a challenge. Urbanisation is a similar double-edged sword – it is only beneficial to the economy if the towns and cities can expand to absorb newcomers without exerting undue pressure on infrastructure and public services.  India has benefitted from low oil prices but reform of the business environment is crucial to India’s future success. This is why we see India’s growth remaining higher than China’s, but decelerating to nearer 6.0% in the coming years.

Real GDP Growth in India and China: 2000-2020

GDP Growth India China

 

 

 

 

 

 

 

 

 

Source: Euromonitor International from national statistics/Eurostat/OECD/UN/International Monetary Fund (IMF), World Economic Outlook (WEO)

Note: Data from 2015 onwards are forecast 

 

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