About a decade ago, I had met (in a small group) a Chinese investor based in America. As the discussion turned to India’s future, he said, “China needs a China of 30 years ago.” I asked him to elaborate. He said that China grew because the world needed cheap labour and China supplied it in plenty. That, among other things, helped pull hundreds of million of Chinese out of poverty. As China moved up the income and manufacturing curve, it will need cheaper labour and there is no country better placed in numbers than India to provide that. That is how India can create millions of jobs and increase incomes. My next question was, “What does India need to do to make this happen?” His answer: “Just the basics. Get the infrastructure right, fix land and labour laws, allow flow of capital.”
Ten years later, India is getting a few things right, but much is still undone. The government is doing well in building infrastructure across the country. But job creation is anemic and income levels have been impacted because of Covid. Land and labour laws remain a challenge. China’s per capita GDP at over $14,000 is now at middle-income level while India is less than a fifth at $2,500, as shown in this chart from Economic Times.
There has been much discussion on the path forward for India. What is agreed is that India needs to move hundreds of millions of people out of subsistence agriculture to jobs in towns and cities. What is not clear is whether they will be engaged in manufacturing or services. India’s factory workers are a small percentage of the labour force. In the future, does the labour force make or serve – that is the big question. How will this transition happen?
Two parameters show the extent of poverty in India. 800 million Indians (60% of the population) are still dependent on free food from the government. The median household income in India is about Rs 20,000 ($250) from what I could estimate from this story from Business Standard based on CMIE data from February 2022. If a household earns more than Rs 40,000 ($500) a month, it is in the top 8% in India.
This is from “Whole Numbers and Half Truths” by Rukmini S published in late 2021: “India’s most recent official statistics on consumption expenditure come from the National Statistical Office (NSO), through a household survey that is designed to be nationally representative and asks people every detail of what they spend their money on. It shows that the average Indian spends a little under Rs 2,500 on average every month. Anyone in urban India who spends more than Rs 8,500 would in the top 5 per cent of the country. And these figures are from before the 2020-21 pandemic.”
She adds: “By other measures too, the majority of the country lives on very little. Just over 3 per cent of rural households have a family member who is a graduate. Over half rely on casual manual labour and fewer than 10 per cent have salaried jobs. In over 90 per cent of rural households, the top earning family member makes less than Rs 10,000 per month. Over half have no land and fewer than 5 per cent own agricultural equipment. Less than 4 per cent have access to agricultural credit of over Rs 50,000. Just 20 per cent own a vehicle and just 10 per cent own a refrigerator.”
So, what can India do to solve its income problem? Income is of course related to jobs and productivity. Can India do a China in manufacturing? Or is the world so different now (deglobalisation) that either we need a new model or we need to temper our future expectations for growth beyond the top 150-200 million (10-15%) Indians?
Let’s begin by looking at two expert views.