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Middle class to grow to 1.2 bn:ADB

India will still have a relatively young population even by 2050. Its labour force will continue to grow, before reaching nearly one billion workers by 2050.

R. Srinivasan   New Delhi     Last Updated: May 5, 2011  | 10:35 IST

India's middle class population could be as much as its current population - roughly 1.2 billion - 20 years from now, the Asian Development Bank (ADB) has said.

In its draft report 'Asia 2050: Realising the Asian Century' released ahead of its annual meeting in Hanoi later this week, the multilateral development funding agency predicts that as many as three billion Asians - a bulk of them in fast-growing economies like India and China - would be in the 'affluent' class by 2050.

Driving this growth will be consumption demand by the growing middle class.

Total middle class consumption is predicted to grow at nine per cent per year over the next 20 years in India.

While this would roughly match the growth in gross domestic product (GDP) over the same period, the key differentiator would be the quality and composition of this middle class demand.

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"Growth in today's advanced economies comes mainly from new products, and most growth happens when these new products are targeted toward and adopted by the middle class," the report says.

The result could be a dramatic increase in spending, driving growth higher. "Today, India has a tiny middle class by global standards. But if it continues its growth, 70 per cent of the Indian population could be middle class within 15 years," ADB researchers said.

Powering this growth will be the Indian workforce. Unlike Japan, where the workforce has started declining since 2000, and in contrast to China, where the growth of its youthful workingage population is already peaking and is set to dip well before India, India's demographic dividend is projected to kick in.

India will still have a relatively young population even by 2050. Its labour force will continue to grow, before reaching nearly one billion workers by 2050.

India will then have 25 per cent more workers than China. Today, it has 24 per cent fewer workers.

"This is one reason for India's projected higher economic growth than China over the longer term," the report says.

Of course, some of India's immediate neighbours like Pakistan and Afghanistan will have an even younger workforce in 2050. But they will still be near the bottom of the heap in an affluent Asia.

The reason will be the sharp difference in the quality of human capital - education and training - as well as the much higher availability of capital stock.

Small European economies like Switzerland, Norway, Denmark and Finland, have the highest capital stock per worker in the world. Japan also has a capital stock per worker above the developed country average.

But it is in the emerging Asian economies where the growth of the capital stock per worker during the past two decades has been the fastest. China, at 8.6 per cent growth in capital stock per year, and India at 8.3 per cent are among the fastest anywhere.

The downside could be this very affluence. ADB's economist, in an alternative scenario, points to the potential trap that middle- income economies like India and China could fall into.

They call it the "Middle income trap" - where rising wages and stagnant productivity increases combine to render such countries "unable to compete with low income, low wage economies in manufacturing exports and unable to compete with advanced economies in high skill innovations.

Countries which fail to make a timely transition from resourcedriven growth, with low- cost labour and capital, to productivity- driven growth led by innovation and intellectual capital, tend to get stuck in the middle, with occasional growth spurts interspersed with low or stagnant growth.

Courtesy: Mail Today

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