India may be in the midst of an expansion that would position it
as one of the three largest economies in the world. The challenges
to sustained, rapid Indian growth are being broadly understated,
though, especially during the national election season. India's
young population is a clear long-term economic strength and
projected population growth over the next two decades will all but
guarantee a decent rate of economic growth. "Decent," however, does
not translate into a meteoric rise up world rankings, nor will it
satisfy voters' very high expectations.
To meet these expectations, India must use its burgeoning labor
force properly. This makes basic education and training needs even
more pressing. There is already a pronounced shortage of adequately
skilled workers. In addition, constant state interference curbs
property rights and places firms and industries at a competitive
disadvantage, suppressing employment.
The new Indian government, and the next several governments,
should, therefore, make education and liberalization the highest
economic priorities, even above infrastructure development.
Otherwise, the oncoming demographic wave will lead to large-scale
underemployment, rather than innovation and rapid growth. Political
parties will be blamed for a flawed development agenda rather than
credited for leading India to the economic pinnacle.
A strong India is important to America for many reasons. First,
a vibrant Indian economy would benefit the U.S. and all of Asia.
Second, India is an indispensable partner in security issues in
South Asia. Third, its political example is a model for the
universality of democratic values--an appeal that constitutes
America's greatest foreign policy strength. India's rise is a new
dynamic factor in a geostrategic equation most prominently
Although the U.S. has played only a small role in the Indian
economy, it can do more to help India fulfill its promise,
benefiting the U.S. in the process. The Bush Administration
established a firm diplomatic and institutional basis for
strengthening and extending the U.S.-India partnership. The Obama
Administration should build on it.
Two Possible Futures. One quarter of India's 1.1 billion
people are under the age of 15, more than half are under age 25,
and more than two-thirds are under age 35. Almost 90 million
people--more than the combined labor forces of Britain, France, and
Italy--are expected to join the workforce by 2013. By 2025, India's population is projected to overtake China's population, and the
expansion will be concentrated among people of working age. In less
than 20 years, the population could increase by as many as 370
million, with four-fifths of the increase between 15 and 59 years
old. This will give India the largest national workforce on the
planet and by far the youngest age profile among the large
The explosion in the Indian workforce is typically presented as
marvelously good news, all but guaranteeing rapid growth for a full
generation. To some extent, this is true. More workers inevitably
add to production, consumption, saving, and GDP. However, in the
not too distant past, the challenge of productively employing that
many people would have been viewed as frightening.
Demographic expansion will not automatically bring large net
benefits. Many tens of millions of jobs that genuinely contribute
to the economy will need to be created. One assessment estimates
that a successful year for the economy requires 7 percent real
growth and creation of a staggering 15 million new positions. If
job creation is impeded or workers are ill-prepared, the
demographic blessing will become a curse, leaving tens of millions
underemployed and reducing to a crawl improvement in per capita
measurements of economic well-being.
What the U.S. Should Do. The Obama Administration should
use the U.S.-India Education Foundation--or a new organization--to
assist India with basic education and training for its expanding
labor force. In addition, U.S. government agencies should offer to
assist their Indian counterparts in identifying the elements of
market-oriented reform most effective for unleashing the Indian
economy. The private sectors in both countries should be core
participants in these discussions, which should focus on efficient
use of capital and other resources to complement labor abundance to
achieve sustained rapid growth.
The U.S. and India already have more than 20 bilateral
dialogues, of which about one-third deal primarily with economic
issues. The changes in the leadership of both countries can be an
opportunity to build on previous successes.The existing U.S. role,
what America has to offer, and the important opportunity to
maximize India's economic potential argue for policy initiatives in
education and market reform.
Conclusion. There is a mismatch between the general
assessment of India's economic strengths and weaknesses and
generally prescribed policies. Better infrastructure is certainly a
priority, but touting the advantages of a very young and rapidly
growing workforce immediately points to the primacy of basic
education. In addition, state intervention in the economy often
directly or indirectly discourages employment. In contrast, most
market reforms would cost federal and local governments almost
nothing, while producing significant benefits.
While these are sensitive areas, they are also areas in which
the U.S. can be quite helpful. The improved U.S.-India relationship
has created a conducive setting for America to reach out to an
important and rising nation.
Derek Scissors, Ph.D., is Research Fellow in
Asia Economic Policy in the Asian Studies Center at The
Heritage Foundation. Michelle Kaffenberger is former Production
Coordinator and Administrative Assistant in the Kathryn and Shelby
Cullom Davis Institute for International Studies at The Heritage