Indian economy must grow at 8-10% per annum over next decade to reap demographic dividend: RBI article

In order to achieve developmental goals over the next three decades, an article released in the Reserve Bank of India's (RBI) monthly bulletin showed that the Indian economy must grow at a rate of 8-10% per annum over the next decade to reap the demographic dividend that started accruing from 2018 and, as calculations show, will last till 2055. In the article themed, 'State of the economy', RBI said conditions in India are shaping up for an extension of the trend upshift that took the average real GDP growth above 8 per cent during 2021-24. So far, the deepening of capital is powering the step-up in the country's growth trajectory, led by sustained public investment, and supported by productivity improvements. It said ‘More recently, a resurgence of private investment has become visible, according to the Asian Development Bank (ADB), which is shifting its investment strategy to expand space for private capital’.

The credit quality of Indian corporates has strengthened on the back of deleveraged balance sheets, sustained domestic demand and public capital expenditure - rating upgrades have continued to surpass downgrades. For India to harness its favourable demographics and achieve the escape velocity required to breach the low-middle-income barrier, the article argued that the developmental strategy over the next few decades must centre around extracting the maximum possible contribution of its young and rising labour force to the growth of Growth Value Added. It emphasised raising the employability of its youth. It said ‘Raising employability--the set of skills that makes a person more likely to gain employment in a chosen occupation to benefit the person, the workforce, the community and the economy--with a focus on the formalisation of employment opportunities for the youth and women should continue to be the hallmark of the strategy’.

With the working age population set to expand at the rate of about 9.7 million per annum during 2021-31 and 4.2 million per annum during 2031-41, India's growth will largely hinge on the quality of the workforce it produces. While labour quality has grown slowly in past years, i.e., at the rate of 0.7 per cent per annum between 1980 and 2021, there is growing evidence that the growth rate of aggregate labour quality has improved since 2017-18. The growth in aggregate labour quality can be attributed to its services sector. Also, an important development that favours India's growth ambitions is the evolution of inflation dynamics in recent figures. Starting in January this year, the softening of headline inflation is providing a tailwind to growth impulses, the article argued. In India, consumer price index (CPI) inflation was 4.9 per cent in March after averaging 5.1 per cent in the preceding two months, following the recent peak of 5.7 per cent in December 2023. It said ‘With 4 per cent inflation finally being sighted, there is greater confidence now that the descent of inflation to the target is imminent’.