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.