Twelve million young people arrive on India’s job market every year; relentlessly, one million extra souls each month are looking to find work. There are two extreme ways of viewing this situation: either it’s an intractable disaster caused by massive overpopulation that is going to lead to starvation and economic meltdown, or it is the most blessed economic benefit that any country has ever experienced.
Because of its social structure – with large families and an agricultural basis, even now – a good proportion of India’s ceaselessly emergent workforce is simply absorbed into the fabric of the existing economy. The school-leaver will go to the field or behind the counter of the family business. That is not to say such a situation is economically efficient or ideal, or that it is best for a majority of the new workers, whose potential may be wasted in such unambitious occupations, adding only marginally to or even dividing the fortunes of family and country.
On the other hand India’s 7%+ growth is adding jobs to the economy, but could still be adding more, more quickly. It is a question of investment – of how much money is available, and how easily and wisely it can be put to work. If the Reserve Bank of India (RBI) lowers interest rates too quickly, by too much, credit will expand and money will slosh around and be lost over the sides of the bucket. It will also run up a (tempting) debt-fuelled boom that will have to be paid for at some point. But keep investment choked off and the funds needed to make the most of those million young people a month won’t be available, and economic opportunity will be wasted.
Investment capital is flowing ‘better’ now (faster, more powerfully – we’ll stay with the water metaphor) than under the previous UPA administration, but credit remains relatively tight. Banks are weighed down with non-performing loans from earlier years (many never to be repaid, alas), and foreign investment is still somewhat at a premium, partly down to legislative reasons and caps on FDI.
But growth capital anyway is not a panacea.
Where foreign inflows of capital do come, India sits at an advantage to China, for example, in that it has a relatively free market where the allocation of capital is less likely to ‘run off’ into pockets connected to a ruling elite and more likely to find its way into productive and profitable enterprises. Large floods of capital and credit can actually hurt unsophisticated/less diversified or more controlled economies, and has stored up a lot of hurt for China. A nation such as the UK on the other hand is able to absorb large inflows of capital because its existing mechanisms – its sophisticated financial industry, the complex ecology of its economic life – will allocate and drink up that capital pretty well, without wasting too much of it. Pour money over Zaire or Laos and you would not get such good results.
As it is, opinion on growth and prosperity is starting to swing round in India’s favour, something I have noticed in the last few months. The danger was that unleashing a credit boom would prove irresistible to Modi and to Raghuram Rajan, central banker at the RBI. That has in fact been resisted. Rajan has faced a lot of criticism, but I refer readers to Michael Pettis and his studies of the deleterious effects of too rapid credit creation in China: excessively fast growth always has to be (over)paid for in the end. In a previous incarnation Rajan (I think when at the IMF) wrote a book about the disaster of 2007, after having first predicted it – to much ridicule from ‘experts’ – and I believe that mindset remains with him. Despite a million a month coming on to the job market, artificial stimulus has mostly been resisted in India.
Indeed, natural, organic economic growth under efficient and encouraging financial conditions will stimulate well enough India’s massive and untapped internal markets over the next few years. Steady as she goes! Liam Halligan, last week in the Daily Telegraph noticed that ‘a booming India [is] almost out-pacing a slowing China as the main engine of global demand growth.’ That is only going to become more true as time goes on.
Modi himself is sanguine about the explosion in India’s working-age population. He sees it as an unalloyed good, and I agree with him. We had an enlightening conversation where he explained his view of the value of India’s population: not just the young starting out on their careers, but the old as well, whose store of experience Modi saw also as invaluable for the economy. We had begun by talking about how he wanted to increase the power of individual states in India, to free them from the grasp of Delhi’s bureaucrats. But soon he moved on to his image of the Indian people themselves:
‘We are a country with 65% of the population below 35. The demographic dividend is with us, and another type of demographic dividend is also with us but no one has noticed. That is the senior citizens, the experienced people, because now the age is increasing, longevity is increasing. There was a time when people used to die at 60; today even at the age of 80 no one thinks that he will die. So we have an extra 20, 25 years of the experienced person. So we have to think about this experienced, knowledgeable, great human pool.
‘So we are the beneficiaries of two things: at one side the energetic youth is with us and on another side we have experienced, knowledgeable – wisdom of the society. So how to link between those two? And if we have a clearer vision for this demographic dividend, we will be the beneficiary. Nowadays people are thinking about the next century as Asia’s century, so it is the duty of countries like India. It is not because we are large in population, but we are a democracy, we have a rule of law. So we can help the other Asian countries.’
Modi sees concentric pools of prosperity (still with the water metaphor, see?) – rippling out across the China Sea and the Indian Ocean, spreading the fruits of a new economic commonwealth around South Asia, and not leaving anybody on the scrap-heap. The old are just as valuable as the young, women just as valuable as men. Modi’s is an optimistic vision of the future, an energising one:
‘If India can give a benefit to the Asian countries, naturally they will accept the leadership of India. And with the help of democratic values, with the help of economic power, we can solve the poverty, we can solve the whole universe. So if with this clarity we went in for the neighbour relation, I am sure my country can do so many things. Then as far as economical government is concerned, we will have to create jobs. Job creation should be our first priority. If job creation is our priority it also means we require investment, we require manufacturing, we must expand our base. We will have to focus on export quality manufacturing. Zero defect manufacturing should be there because we have plenty of skilled manpower. If we have skilled manpower and we have the raw materials and we have the technology, we can produce zero defect products with a low cost.’
Here in Europe we should bear these words in mind, with youth unemployment at 50% in Greece and Spain and Italy (and soon France, too), and no prospect of things improving; in fact the opposite to a new, booming India.