Demographic changes could create a new era of UK-India relations

07 December 2018 Authored by Consultancy.uk

As India looks for a boost to its national employment, with a young and growing population capable of buoying its economy into the second largest in the world by 2050, UK investment presents a major opportunity, according to a new study. Businesses from the UK setting up shop there could help create a chunk of the 100 million jobs needed to harness the power of the India’s working age population by 2027.

Economists have for some time been suggesting that the emerging markets known as the E7 could grow around twice as fast as advanced economies, or the traditional G7, on average. As a result, earlier in the year, Big Four firm PwC’s World 2050 report projected China and India to be the two largest economies (by GDP) in the world by 2050.

This would constitute an eight point rise in the proportion of global wealth which India currently holds. At present, India accounts for 7% of the world’s GDP; however by 2050, PwC asserts that it could make up 15% of that figure, leapfrogging the EU, which is likely to see its share of the global economy fall to 9%. However, if that is to occur, a number of changes still need to take place.

Share of the world GDP (PPPs) from 2016 to 2050

India’s population has a large, young demography and a median age of 27.6. Contrary to the majority of Western economies as well as China and other Asian leaders, over the coming years India’s median age will continue to decrease as the population increases. This places it in a unique position which provides both challenges and opportunities. India will need to create nearly 100 million jobs by 2027 to absorb the growth in the working age population, while businesses in many leading nations are facing talent shortages thanks to ageing populations.

According to PwC, here is the crux of the matter. If India fails to provide gainful employment for its growing young population, it may well fall into jobless growth, which will majorly hamper its potential to expand as consumer power in the country stagnates. However, if India can find these jobs, the nation’s growth can accelerate dramatically and be inclusive. Meanwhile, the UK is preparing to leave the EU, further diminishing its access to labour from overseas, while a growing proportion of Britain’s workforce approaches retirement. This therefore represents a golden opportunity for UK-India business relations.

GDP in PPP terms (US$ trillions)

Moving jobs offshore has long been a way for Western companies to cut their labour costs; however PwC’s analysis suggests that migrating jobs to India for this reason alone would be a missed opportunity. According to the firm’s analysis, a major attraction to India for UK businesses is its pace of expansion and the country’s young demographics.  India’s 1.3 billion-strong population includes a large, educated workforce that’s young, skilled and progressive. India is also a world leader in high-value, high-tech industries, ranking third in the world for active ‘unicorns’  – startups valued at over $1 billion.

With the UK preparing to leave the EU, Indian firms also see opportunity for new trade deals. UK businesses have already invested £17.5 billion in India since 2000, and employ almost 800,000 people. As London remains Europe’s largest stock exchange, the UK continues to be a great source of capital to fund the growth of Indian companies. As the UK looks to bolster trade elsewhere, India’s growing economy provides an opportunity to insulate the UK’s market traders from the economic shock of Brexit.

Without concerted efforts, India risks falling into ‘jobless growth’ that will neutralise its demographic dividend

Sunil Patel, Chair of the UK India group at PwC UK, commented, “What makes the business relationship between the UK and India unique is our shared history, culture and ways of doing business which have developed over centuries. In the UK this is embodied by the ‘living bridge’, the Indian diaspora whose achievements and acumen help to cement the strong ties between the two countries… The UK’s working age population is projected to decline due to an ageing population, but India’s expanding and its educated young workforce could provide an answer for businesses looking to grow.”

Vaidison Krishnamurty, UK business group leader at PwC India, added, “Our findings are reflected by the sentiment of business leaders around the world. Our CEO survey found India is in the top five most attractive markets for deal activity, emphasising the country’s increasing international appeal. This is mirrored by Indian CEOs, with nearly half of those taking part in the survey planning a new strategic alliance, showing appetite for collaboration with international businesses.”

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