The world's fastest growing large economy is not growing fast enough. This may seem like an absurd description for India, an economy that the International Monetary Fund expects to expand by 7.3 percent in the fiscal year to March 2019 and 7.5 percent in the next year. But the reality is that India, even at its current pace, is struggling to create enough new jobs for its huge workforce or enough wealth to broaden its middle class.
With its demographic tailwind and enormous development needs, Asia's third-largest economy should grow double-digit. India reluctant its glacial economic reforms, a fragile banking sector, rigid labor legislation and a patchy education system that gives limited skills to the 12 million that appear every year on the labor market.
Prime Minister Narendra Modi is trying to tackle these challenges. Yet analysts agree that more needs to be done to open the economy, attract foreign capital and generate the kind of wealth and business opportunities that broadened the middle class in China, of which the 12.2 trillion economy has more than four times as large as India ($ 2.6 trillion).
"It has not embraced global trade and foreign direct investment in how China has aggressively succeeded," said Jim O'Neil, a former Goldman Sachs asset manager and ex-commercial secretary of the British Treasury.
"India has created great wealth for a limited number of people with the highest income level, but has not yet created a hundred million millions of middle-income class," he said.
The latest wrist check for the economy of India came Friday. The gross domestic product grew by 8.2 percent in the three months up to and including June compared to a year earlier. That was the fastest pace in nine quarters.
Reforms and fiscal prudence are good for the economy and this growth in an environment of global turmoil represents the potential of India, said Finance Minister Arun Jaitley via Twitter messages.
In anticipation of the data, India's rupee dropped below 71 to a US dollar, a new low that could potentially deter foreign investors, inhibit imported inflation and immediate intervention from the central bank – all with implications for growth in the coming years. months.
With more than 90 percent of the Indian workforce employed in the nation's informal economy, the government has struggled to produce reliable labor data to even get an accurate picture of unemployment in India. A glimpse into how hard the labor market is, came in March, when the government announced 90,000 vacancies at state-run Indian Railways, the largest civilian employer in the country, and applied for as many as 28 million people.
India should enjoy a demographically driven economic dividend at this stage of its development. It is one of the youngest countries in the world with an average age of 28, compared with China 37 and 47 in Japan.
Nevertheless, the economic benefits of favorable demographic data are not automatic. Much depends on whether the government can use that dividend and overcome the skills shortage of the population. And the time is ticking – in 2040, the share of the population that is in working age will begin to decline.
The invalid jobs can damage the image of the country as an investment destination, cause social unrest and threaten the re-election of Prime Minister Modi early next year. This explains why job creation is a top priority for Modi after promising a campaign to create 10 million jobs each year.
In his defense Modi said that there are sufficient jobs and that the data does not correctly reflect job creation during his tenure. However, there are also indications that Modi's policy has caused economic setbacks.
Data from the private research firm, the Center for Monitoring of the Indian Economy Pvt, show that 1.5 million jobs were immediately lost after a ban on banknotes denominated in large quantities had been imposed at the end of 2016. And the chaotic introduction of a consumption tax in July last year had a negative impact on labor. intensive sectors such as agriculture and construction.
These double blows dragged the growth of India to a substandard 6.6 percent in the financial year ending in March 2018.
Eswar Prasad, a professor at Cornell University and an ex-IMF official, said that sustained growth of 7-7.5 percent will lead to a healthy increase in per capita income over time.