Will India Grow Old Before it Gets Rich?

[Riaz Haq]

India's population has aged faster than expected while its economic growth has slowed over the last decade. This raises the obvious questions: Will India get old before it gets rich? Is India getting poorer relative to its peers in the emerging markets? 

India's Population Aging. Source: Semafor

As India's birth rate declines rapidly, the proportion of people age 60 and over is rising in the general population. This is particularly true of the southern states like Kerala and Tamil Nadu. Meanwhile, the expected demographic dividend from the youth bulge in the country has yet to materialize. High youth unemployment is threatening to cause serious social instability in the world's most populous country. It is also causing a massive brain drain.  

India's GDP Per Capita Compared to Emerging Markets Average. Source...

India is losing its best and brightest to the West, particularly to the United States, at an increasingly rapid pace. A 2023 study of the 1,000 top scorers in the 2010 entrance exams to the Indian Institutes of Technology (IIT) — a network of prestigious institutions of higher learning based in 23 Indian cities — revealed the scale of the problem. Around 36% migrated abroad, and of the top 100 scorers, 62% left the country, according to a report in the science journal Nature.  Nearly two-thirds of those leaving India are highly educated, having received academic or vocational training. This is the highest for any country, according to the Organization for Economic Co-operation and Development.

Annual Population Growth Rapidly Falling Across India. Source: Semafor

India has the lowest GDP per capita among the 5 BRICS nations. The country's GDP growth rate is much slower than the average for emerging markets. It means that India is becoming poorer relative to the rest of the developing world. 

GDP Per Capita Map 2024. Source: IMF

India's GDP Per Capita is Very Low. Source: BBC

The north-side geographic divide in India is growing. The southern five of India’s 28 states (Andhra Pradesh, Karnataka, Kerala, Tamil Nadu and Telangana) contain 20% of the population and contribute 31% of the GDP, according to The Economist magazine. Among startups, 46% of tech “unicorns” are southerners, particularly from Bangalore. The five southern states provide 66% of the it-services industry’s exports. The latest craze is for “global capability centers”, where multinationals assemble their global auditors, lawyers, designers, architects and other professionals: 79% of these hubs are in the south.

Indian Parliament Seats Based on Current Population. Source: Nation...

There has always been a north-south divide in India in terms of population and wealth. The south has been wealthier and less populous than the north. But the political power is still concentrated in the poorer and more populous northern states. This situation serves Prime Minister Narendra Modi and his BJP party well. But it also creates significant resentment in southern states. 

In his book "The Raisina Model", British Lord Meghand Desai says that India's breakup can not be ruled out. Specifically, he points to three issues that could lead to it:

1.  Cow protection squads are killing Muslims and jeopardizing their livelihoods.  The current agitation about beef eating and gau raksha is in the Hindi belt just an excuse for attacking Muslims blatantly. As most slaughterhouses in UP are Muslim-owned, owners and employees of these places are prime targets.

2. India has still not fashioned a narrative about its nationhood which can satisfy all. The two rival narratives—secular and Hindu nation—are both centered in the Hindi belt extending to Gujarat and Maharashtra at the most. This area comprises 51% of the total population and around 45% of the Muslims in India.

3. India has avoided equal treatment of unequal units. Representation in the Rajya Sabha (Upper House of Parliament) is proportional to population size. The larger states dominate both Houses of Parliament. It would be difficult for small states to object, much less initiate reform. In future, small states could unite to present their case for better treatment. 

Related Links:

Haq's Musings

South Asia Investor Review

Guess Why Pakistani Analyst Uzair Younus is Making Headlines in India!

Ambassador Kishore Mahbubani: America Does Not Respect India

World Happiness Report: India Among Saddest Nations of the World

Balakot and Kashmir: Fact Checkers Expose Indian Lies

WB Poverty Update: India Biggest Contributor to Increase in Poverty

India in Crisis: Unemployment, Hunger Persist After Waves of Covid

Modi's Blunders and Delusions 

India's Israel Envy: What If Modi Attacks Pakistan?

Project Azm: Pakistan to Develop 5th Generation Fighter Jet

Pakistan Navy Modernization

Pakistan's Sea-Based Second Strike Capability

Who Won the 1965 War? India or Pakistan?

Is the West Unwittingly Helping Modi Realize His Akhand Bharat Hind...

Has Pakistan Lost All Wars? 

Riaz Haq's Youtube Channel

PakAlumni Social Network

[Riaz Haq]

Pakistan’s Top Talent Is Leaving the Country in Record Numbers

https://www.bloomberg.com/news/features/2024-10-31/pakistan-s-brigh...

Economic hardship has pushed skilled workers to move abroad, hollowing out banks, hospitals and multinational companies.

One million skilled workers — doctors, engineers, accountants and managers, among others — left Pakistan over the past three years alone, according to a government tally. That makes Pakistan one of the top 10 countries for emigration.

Asad Ejaz Butt is one of Pakistan’s best and brightest. After completing graduate studies in Canada, the economist returned home with a drive to contribute to his home country and its development.

Yet prestigious jobs working under two finance ministers weren’t enough to pay the bills. Over the past few years, as Pakistan’s inflation outranked any other nation in Asia, Butt couldn’t afford basic necessities, including rent. So he left his highly coveted government job and moved back to North America — to buy time and complete another advanced degree.

------------------------
https://youtu.be/YAeOOpk0OEI?si=thP0nkD0AL5l-ZwU

A growing number of skilled workers are leaving Pakistan, seeking opportunities abroad as their country faces one of Asia’s highest inflation rates, rising food and energy prices and a devalued currency.

To address the dire economic situation, the government has implemented unpopular reforms, including raising corporate tax rates and utility prices. These measures are part of Pakistan’s latest $7 billion loan deal with the International Monetary Fund, aimed at averting national bankruptcy.

But the result of all this has been an increasing number of would-be taxpayers emigrating to wealthier nations. So what does that mean for the country’s economic and political prospects?

[Riaz Haq]

Weakness In India's Economy Is Showing In Quarterly Corporate Earnings - Bloomberg

https://www.bloomberg.com/news/articles/2024-11-04/india-market-buz...

It's raining earnings downgrades as economy slows

Read more at: https://www.ndtvprofit.com/markets/india-inc-faces-mounting-earning...

This is the highest proportion since early 2020, when the Covid-19 pandemic upended economic activity for months. Jefferies now forecasts that the earnings of Nifty companies will grow at just 10% in the year ending March.

India Inc. Faces Mounting Earnings Downgrades As Growth Slowdown Weighs Jefferies has cut fiscal 2025 earnings estimates for over 60% of the 98 companies it covers which reported second quarter earnings.

Global brokerage firm Jefferies has cut fiscal 2025 earnings estimates for over 60% of the 98 companies it covers which reported second quarter earnings. This is so far the highest downgrade ratio since early 2020, Jefferies said in a note on Oct. 30. "Above normal rains and weak government spending has impacted earnings outcomes," Jefferies said. A clear trend should emerge in the December quarter

For the 98 September 2024 quarter results that Jefferies analysed from their coverage universe, earnings downgrades (63%) were more than earnings upgrades (32%). Meaningful earnings per share downgrades were seen in most cement, oil & lending financials, mid-caps, auto and consumer staples players, it said.

The rising downgrades come as a result of a slowing economy with companies facing severe pressure from weakening urban demand. In recent post-earnings commentaries, heads of these companies have rued the slowing consumption of essentials such as food and shampoo to cars and bikes. Contrary to the Reserve Bank of India's optimistic forecast, Nomura Global Markets Research believes that India's economy

"This is probably the worst earnings cycle that we have seen going into Diwali in a long, long time," according to Rahul Arora, chief executive officer at Nirmal Bang Institutional Equities "What is very evident is that the rural economy is in a mess." Hindustan Unilever Ltd. coming with 2–3% volume growth, a low number from two-wheeler manufacturers, and even certain consumer discretionary company

[Riaz Haq]

India ‘clearly has a problem’ finding new drivers for economic growth, JPMorgan’s Jahangir Aziz says

https://www.cnbc.com/2024/07/24/india-clearly-has-a-problem-finding...

India “clearly has a problem” figuring out new drivers for its economic growth even as its economy expands at a fast clip, JPMorgan’s Jahangir Aziz said, following the country’s union budget.

India’s chief economic advisor V Anantha Nageswaran said Monday that the economy is expected to grow at 6.5% to 7% in financial year 2025, lower than the Reserve Bank of India’s 7.2% growth forecast.


India “clearly has a problem” figuring out new drivers for its economic growth even as its economy expands at a fast pace, JPMorgan’s Jahangir Aziz said, following the country’s union budget.

“If you look at India over the last two years post the pandemic, recorded growth has been strong. But if you look at the drivers of growth, it’s essentially these two: Public infrastructure and services export,” Aziz, chief emerging markets economist at JPM, told CNBC’s “Street Signs Asia” on Tuesday.

The country’s finance minister on Tuesday said capital expenditure for fiscal year 2025 will be 11.11 trillion Indian rupees ($133.9 billion) — or 3.4% of GDP — backing India’s ambitions to enhance its physical and digital infrastructure as it strives to become a developed nation by 2047.

According to estimates by the Ministry of Commerce and Industry, India’s services exports will likely hit $30.3 billion in June, compared with $27.8 billion in the same month last year.

“Services export is sort of stabilizing at a high level, it isn’t growing as fast as it was a couple years back,” Aziz said, adding that the government should focus on increasing private investments and boosting consumption.

“It is going to be very difficult for India to keep sustaining the 6% to 7% growth rate just on public infrastructure and on services export … The question is, can India broaden its growth drivers to consumption, but more importantly private investment? We haven’t seen that happen in a long, long time.”

India’s chief economic advisor V Anantha Nageswaran said Monday that the economy is expected to grow at 6.5% to 7% in financial year 2025, lower than the Reserve Bank of India’s 7.2% growth forecast.

According to the International Monetary Fund’s latest World Economic Outlook, the country’s growth is predicted to decline to 6.5% in 2025.

Although India’s large youth population is steering the country toward becoming the world’s third largest consumer market by 2027, consumption is unlikely to increase if high unemployment stands in the way, warned Raghuram Rajan, professor at the University of Chicago Booth School and former governor of the Reserve Bank of India.

The country’s unemployment rate climbed to 9.2% in June, from 7% the month before, according to the Centre for Monitoring Indian Economy.

“You’ve seen consumption growth relatively tepid over the last few quarters, and unless people feel more confident that they have jobs, that they are well paying jobs, you are going to see that be a drag on growth,” Rajan said.

He questioned the employment initiatives such as pledging to train 2 million young people over five years, and providing a month’s worth of wages of about 15,000 rupees ($179) to first-time employees entering the workforce, announced in Tuesday’s budget.

“Are they of the magnitude that India requires given the enormous concerns about joblessness?”

[Riaz Haq]

Foreign investors fear India’s stock market boom may be over

International investors pull out more than $10bn from Indian stocks as indices record largest fall since March 2020

https://www.ft.com/content/d7ba1339-5326-4265-a360-04574a9239c0



Foreign investors pulled more than $10bn out of Indian stocks in October, the biggest monthly exodus since the start of the coronavirus pandemic, on growing concerns that the market’s huge bull run may finally be coming to an end as the economy slows. India’s two main share indices last month posted their worst monthly losses since March 2020 while the rupee fell close to a record low against the US dollar, as international interest cools in what was one of the hottest global markets. Investors increasingly fear that Indian shares, which have more than tripled since March 2020, could now struggle in the face of weak corporate earnings, signs of an economic slowdown and moves by the central bank to curb exuberant retail lending.



“It’s a pretty classic cyclical economic downturn in India,” said Saurabh Mukherjea, chief investment officer at Marcellus Investment Managers in Mumbai. “The question is if it’s a few quarters or a more prolonged affair,” said Mukherjea. He has been buying defensive stocks in sectors such as information technology and pharmaceuticals, which he believes will perform in “times of uncertainty”. Investors have also sold down their positions to brace for volatility around the US elections and to free up money to chase the recent stimulus-driven rally in Chinese shares. Following October’s outflow, net inflows from foreign investors for this year have dropped to just $2bn, according to stock exchange data. Even as money was still coming in earlier this year, foreign ownership of India’s stock market dropped to a 12-year low amid an Indian retail investor frenzy for shares. A warning sign came in August with data showing that Indian GDP grew 6.7 per cent in the three months to June, its slowest rate in five quarters. India’s “growth glass looks half-empty”, said Nomura economists last month. After hitting a series of record highs this year, the Nifty 50 index of blue-chip Indian stocks fell 6.2 per cent in October. The Sensex meanwhile fell 5.8 per cent, its worst month since March 2020. Even so, the MSCI India trades at 24 times forward earnings, just ahead of the roughly 23 times for the US’s S&P 500 index.



Also driving stocks lower is a wide swath of Indian industry reporting sluggish earnings, with misses so far exceeding earnings beats, according to Goldman Sachs, whose analysts have lowered their rating on the country’s equities from “overweight” to “neutral”.





“We track the extent of downgrades on earnings. What we are seeing in India is fairly intense. Even [some] consumer staples are missing numbers,” said Sunil Tirumalai, chief emerging markets strategist at UBS. Data has indicated consumer confidence is slowing; Indian vehicle sales have dipped in recent months, while bellwethers such as Hindustan Unilever, the seller of Dove soap and Cornetto ice cream, had “muted” industry-wide demand growth, chief financial officer Ritesh Tiwari told analysts. An inflection point for the glut of Indian companies coming to market in 2024 came with the highly symbolic $3.3bn listing of Hyundai’s Indian business on local stock bourses in October. Asia’s largest float this year was poorly received by retail investors, who were put off by its elevated valuation and an industry-wide vehicle sales slowdown. Executives at Citigroup, one of Hyundai’s Indian bookrunners, nevertheless defended the listing and played down fears of a wider downturn. “A temporary softness of one season or two months is not necessarily determining what our view on the outlook is for 2025,” Rahul Saraf, head of India investment banking at Citi, told reporters last month. Other “large” clients are “very keen” to explore an Indian IPO, he added. “I think they’re actually encouraged with the listing of Hyundai [rather] than being discouraged.”