India at 2050: Leveraging its population to become the largest economy

First, India’s total population is projected to be the largest, overtaking that of China by 2023.

Second, India’s working age population in the age group of 14-65 years would also exceed China’s by 2023.

Third, India’s share of working-age population would peak at 68.9 percent by 2030, i.e., in another eight years. In absolute numbers, India will provide 104.3 crore working-age persons in 2030. Correspondingly, at 31.2 percent, India’s overall dependency ratio would be the lowest in history by 2030.

Fourth, India’s young-age dependency ratio is expected to overtake the old-age dependency ratio by 2056.

India would remain the largest provider of human resources in the world among major countries, precisely when populations in many advanced countries would be aging fast.

Growth Prospects: Some Perspectives

As the Indian economy emerges out of COVID, the remaining eight decades of the 21st century may be critical as the relative economic positions of major economies of the world may undergo significant upheaval.

As per the OECD, an organisation of mostly rich countries, India may become the second largest economy in PPP terms by 2048, overtaking the US.

In the post-COVID period, many countries are facing medium to long-term economic challenges which may undermine their growth prospects. Faced with high inflation, the US has progressively moved to a relatively high-interest rate regime which may lead to an economic slowdown if not a recession in the near future.

Also, ongoing geopolitical challenges have disturbed global trade and production patterns.

Although India is also facing high inflation, it appears to have the potential to emerge as a net beneficiary from the ongoing economic situation. If we revise India’s growth trajectory as projected by the OECD, based on realistic assumptions regarding incremental capital-output ratio (ICOR), and savings and investment rates, India would emerge as the largest economy by the 2050s.

Re-strategising Government Intervention

In order to emerge as the largest economy, India must undertake major policy initiatives aimed at increasing its tax-GDP and revenue-GDP ratio to accommodate higher expenditure on education, health, and infrastructure relative to GDP.

In particular, government expenditure on education as a percentage of GDP should be increased to 6 percent so that the growing segment of working-age population can be adequately educated, trained, and skilled.

The young-age dependency ratio is expected to remain higher than the old-age dependency ratio until 2056. After that, as the share of the elderly in the total population increases, expenditure on health would become critical.

Capital expenditure on infrastructure will also have to be increased. For this, adherence to Fiscal Responsibility and Budget Management (FRBM) targets, progressive reduction of government debt relative to GDP, and ensuring a strong balance in the revenue account are critical so that adequate fiscal space can be created for infrastructure expansion.

The share of working-age persons in India’s population is slated to keep on increasing. If they are productively employed, a virtuous cycle of growth, employment, savings, and investment can be created.

The structure of output is also predicted to change in favour of services. We expect that by the early 2050s, the share of agriculture in GDP is likely to shrink to about 5 percent, while that of industry would stabilise at nearly 20 percent. This would leave 75 percent as the share of the services sector.

Since the services sector is relatively less carbon emission intensive, this would make India not only the largest economy but also considerably climate friendly.

Dr. DK Srivastava, is Chief Policy Advisor, EY India. Views are personal and do not represent the stand of this publication.