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Unleashing India's Manufacturing Potential: Opportunities and Challenges of a Vast Population

India's Rising Population: Surpassing China as the World's Largest Population Powerhouse

Workers iron T-shirts before packaging them at an India factory

On April 24th, the United Nations Department of Economic and Social Affairs released a statement announcing that India's population is expected to surpass 1.425 billion by the end of April 2023, making it the world's most populous country. The United Nations also acknowledged the inherent uncertainty in this estimation, stating that the specific date may vary. However, it is generally accepted that India's population will eventually surpass that of China.

The news of India's population overtaking China has been circulating for some time now. Each time such news emerges, concerns arise about whether India will seize the population dividend. When the United Nations made its predictions, the spokesperson for the Chinese Ministry of Foreign Affairs, Wang Wenbin, emphasized that a country's population dividend depends not only on its size but also on its quality. It is not solely about population but also about talent.

Today, let's explore how India's population presents both opportunities and challenges in the realm of manufacturing. As India's population surpasses that of any other country, it brings significant possibilities for the manufacturing sector. However, along with this immense potential, there are obstacles that need to be overcome for India to establish itself as a manufacturing powerhouse. In this blog post, we will delve into the opportunities that India's population provides for manufacturing growth and discuss the challenges that must be addressed.

The Opportunities of a Large Population for Manufacturing

Electricity: India's Catalyst for Market Growth and Consumption Upgrades

In the past 20 years, India has experienced a doubling in its electricity penetration rate, with 97% of households currently having access to electricity. Notably, half of India's population gained access to electricity for the first time in the past two decades. This signifies that India is currently witnessing the first wave of consumption upgrades triggered by electricity availability, resulting in significant dividends. With electricity reaching every household, the demand for consumer goods has surged. Just the purchase of one television per household amounts to a market of several hundred million units. Additionally, in recent years, India has seen substantial growth in infrastructure development, with infrastructure investments as a percentage of GDP increasing several-fold over the past decade.

Connectivity: Exploiting India's Advantage for Network-Driven Industrial Opportunities

India possesses a natural advantage in network infrastructure development. Despite having only one-third of China's land area, India has a similar population size. This leads to higher population density covered by communication towers, resulting in lower construction costs. Moreover, India boasts a staggering 750 million internet users, second only to China. However, the number of domestically developed Indian apps remains relatively low. This presents a significant industrial opportunity for India to capitalize on its vast user base and develop its own app ecosystem.

Poverty Alleviation: Unleashing the Potential of India's Rising Middle Class for Consumption Upgrades

India has made remarkable progress in reducing its poverty population. In 2016, there were 124 million people living in poverty, but by 2022, this number had decreased to 15 million—a rapid decline. Comparatively, countries like Nigeria and Congo, with economic levels similar to India, have seen their poverty populations increase over the past few decades. This reduction in poverty signifies a substantial driving force for consumption upgrades. However, this wave of consumption upgrades is still in its early stages. For instance, currently, there is only one Apple store across the entire country, which opened in April 2023.

Demographic Dividend: A Strong Labor Force Advantage

India's demographic dividend refers to the potential benefits that can be derived from its large population, particularly its young workforce, with a median age of just 28. At first glance, India's young population might seem like a significant advantage, as it has the potential to drive economic growth and productivity. However, upon closer examination, there are several challenges that come with a large population, including ensuring adequate education and skills training, providing sufficient employment opportunities, and addressing issues such as healthcare and sanitation.

The Challenges that India Races in Relation to Its Population Size

Next, let's discuss the challenges that India faces in relation to its population size. While India's population presents immense opportunities, it also poses certain hurdles that need to be addressed for sustainable growth and development.

Population Quality: Addressing Gender Disparities and Illiteracy as Challenges

India's population quality is a significant challenge, with only around 10% of women employed or actively seeking work, according to statistics from the Indian Economic Monitoring Center. This means that around 90% of Indian women are not participating in the labor market, which is three billion fewer than in China. Furthermore, India's female labor force participation rate has been decreasing over the years, despite economic growth, which is a cause of concern. Illiteracy is also a significant issue in India, with a literacy rate of only 75%. This translates to around 287 million illiterate adults in India, accounting for 37% of the world's total illiterate population. This means that many people are unable to become effective workers immediately.

Industrial Structure: Overcoming Limitations for Manufacturing and Technological Advancements

India's industrial structure is still predominantly agricultural, despite efforts to promote India as a manufacturing hub. India's industrialization and information technology levels need to be further enhanced, with the country ranking 118th in internet speed among 139 countries globally, although some progress has been made in manufacturing, such as Apple's supply chain moving to India. India mainly relies on imports for technological upgrades, and there is no internal circulation. India's infrastructure is also inadequate despite its speedy construction. China occupies 29 of the top 50 global ports in 2022, while India has no ports in the top 50. The manufacturing advantage is accumulated over decades and cannot be caught up with easily.

Infrastructure Development: Meeting the Demands and Overcoming Constraints

India's cohesiveness is partly based on the religious foundation of Hinduism. This implies that the stronger the cohesion, the greater the influence of religious culture on people, including their economic behavior. For example, India's main expressway, from New Delhi to Mumbai, should be the best-built road in India, given that it connects the political and economic centers. However, the average speed on this expressway is only 57 kilometers per hour, owing to cattle walking on it frequently. Cattle's position is too high in Hinduism's traditions, as it is one of India's three major gods, the incarnation of Shiva.

India's population offers both immense opportunities and significant challenges for the manufacturing sector. With its rising population, India has the potential to become a manufacturing powerhouse, driven by factors such as electricity penetration, connectivity, poverty alleviation, and a strong labor force. However, challenges such as gender disparities, illiteracy, the need for industrial and technological advancements, and infrastructure constraints must be overcome.

To fully unleash India's manufacturing potential, it is crucial to address these challenges and leverage the opportunities presented by its population. By focusing on gender equality, promoting education and skill development, fostering technological advancements, and investing in infrastructure, India can create an environment conducive to manufacturing growth.

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