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India has more folks that China! It's economy will soon be larger?

India’s Population Surpasses China’s, Shifting the World’s ‘Center of Gravity’

The new global order reflects deep changes in both countries, with economic and geopolitical consequences

By Shan Li and Liyan Qi, WSJ

April 14, 2023 2:37 pm ET

NEW DELHI—China’s population has reigned as the largest in the world for more than two centuries. Now India is taking its place, heralding a major shift in the global order.

The United Nations has said India’s population is projected to surpass China’s sometime this year. Many demographers estimate it could happen this month, if it hasn’t already. India’s population is expected to reach 1.429 billion by the end of the year, according to the U.N. China will fall to second place, with 1.426 billion people. Both dwarf the U.S. at a projected 340 million.

India’s rising population means it’s likely to keep its economy growing, buy more of the world’s goods and play a bigger role in global affairs, even as it grapples with poverty and a lack of jobs.

China’s demographic headwinds will make it harder for the country to achieve its economic ambitions, or to supplant the U.S. as the world’s biggest economy, despite its rising wealth and military power.

India, as the world’s largest democracy, has been a natural partner and investment destination for the U.S. But it’s also an unpredictable one, with a tendency to assert its own interests and protect its companies over Western ones.

U.S. officials are assiduously courting Indian leaders for their support in geopolitical matters. India has so far refused to condemn Russia and still buys large quantities of its oil, even as it draws closer to the U.S. and its allies in their mutual concern about China.

India’s population is expected to keep growing for the next four decades, peaking at nearly 1.7 billion in 2063. China’s population, which declined last year for the first time since famines in the 1960s, according to government data, is projected to shrink rapidly. By the start of the next century, India’s population is expected to be double that of China’s.

“We are on the cusp of maybe the most momentous population transition of the last 200 years,” said Irfan Nooruddin, director of the South Asia Center at the Atlantic Council, a Washington-based think tank. “The center of gravity of where the world is, it’s been shifting for a while, but it’s about to be cemented.”

In many ways, India looks like China did 30 years ago. It has a rapidly expanding working-age population, with 610 million people under age 25, and relatively few older people to care for. It will be the only nation with a big enough labor force to approach China as the world’s factory floor, though poor infrastructure and byzantine investment rules could stand in the way.

Some U.S. companies are trying to diversify production beyond China. Apple Inc.’s main manufacturer, Foxconn Technology Group, is considering a major expansion in India.

China’s labor force is getting smaller, and it has a growing pool of retirees who need pension payments and healthcare. About 203 million people, or 14.3% of China’s population, this year are 65 and older, up from 87.5 million in 2000.

China’s fertility rate, the number of children a woman has over her lifetime, was 1.18 last year—four decades after the country instituted its one-child policy. That’s well below the replacement rate of 2.1 needed to help keep the population stable. India’s is slightly lower than the replacement rate, at 2.0, but a large pool of women of childbearing age mean the population will keep growing for decades.

These trends are becoming entrenched at a time when China’s standard of living is still that of a middle-income developing country. China also faces growing pressure from the U.S., which is encouraging companies to shift their supply chains elsewhere and limiting technology sharing with Beijing.

Medium-term economic growth forecasts are around 4% a year for China and around 6% for India, according to the International Monetary Fund. India recently overtook Britain as the world’s fifth-largest economy, and could leapfrog Germany and Japan to become the third-largest behind the U.S. and China in 2029, according to a State Bank of India report.

India has upgraded its infrastructure by paving roads and building new airports, and expanded access to electricity and water across the country. India’s mobile payments system has also sparked a boom in digital payments. Some economists predict that India’s gross domestic product will more than double to $8.5 trillion from $3.4 trillion over the next 10 years, after roughly doubling over the past decade.

Still, the country has added zero net new jobs over the past decade, in part due to the pandemic, even as over 100 million more people entered the labor force. Many young people don’t bother looking for work, given insufficient opportunities.

India has 228.9 million people, or 16.4% of the population, living in poverty—the most in the world, according to U.N. data, although the numbers have fallen.

Some economists warn that India could face internal instability if it doesn’t create more economic opportunities. Authorities last year quelled violent protests in two states after more than 10 million people applied for 35,000 jobs with the national railway system.

China’s demographic challenges, meanwhile, aren’t insurmountable. Officials believe that with better education and technological advancement, they can offset the effects of a shrinking labor force.

Whatever happens, the world’s future population will be tilted more toward the Global South—and not just because of India. South Asia will have the largest working-age population among all regions by 2041, according to World Bank estimates.

Demographers long expected India to surpass China, but China’s policy decisions accelerated the process.

China has had the most people since at least 1750, when it had a population of 225 million, or about 28% of the total in a world with very different borders, according to Our World in Data.

In the early days of Communist rule, authorities restricted contraception and abortion to encourage more births. “With many people, strength is great,” Mao Zedong proclaimed.

Communist Party officials later began blaming population growth for shortages of jobs and housing. In 1980, Deng Xiaoping launched the one-child policy. Without it, he said, “our economy cannot be developed well, and people’s lives won’t be improved.”

For a while, China enjoyed a demographic bonanza. Between the late 1970s and late 2000s, China’s working-age population almost doubled. Low wages and improving infrastructure helped draw in billions of dollars in foreign investment, lifting millions out of poverty.

China’s fertility rate fell below the replacement rate in the early 1990s. In 2012, its working-age population started shrinking. China allowed families to have two children in 2016, then later expanded that to three children and scrapped all fines on birth violations.

It was too late to reverse the demographic slide. China’s workforce is expected to shrink by more than 0.5% a year, according to research firm Capital Economics. In the U.S., the workforce is expected to expand through the next 30 years, supported by immigration and higher fertility than in China.

With fewer workers, China’s labor costs are catching up to more advanced economies. The average production-line worker’s salary was nearly $15,000 in 2022, more than five times the average salary in India, according to a report by the Reshoring Institute, a nonprofit that supports expansion of U.S. manufacturing.

Computer modeling by researchers at Victoria University in Australia suggests that without changes to China’s retirement ages—typically 60 for men and as early as 50 for some women—its pension payments will increase to 20% of GDP in 2100, from 4% in 2020.

Such issues are far off in the future for India, even though it has tried to limit population growth as China did. It launched one of the world’s first national family planning programs in 1952, when it encouraged families to have only two children.

In 1975, when Prime Minister Indira Gandhi declared a national emergency that curbed civil liberties, the country undertook a forced sterilization campaign to reduce poverty. Police rounded up men in train stations and bus stops, and ferried them to vasectomy camps. The number of sterilizations climbed to 8.1 million in 1977 from 1.3 million in 1975.

While China’s authoritarian government was able to compel compliance with population restrictions indefinitely, voters in India threw Ms. Gandhi out in 1977, after she lifted the state of emergency, and the most stringent measures ended.

Many Indians still see the country’s demographic bulge as a problem. The chief of Rashtriya Swayamsevak Sangh, a right-wing Hindu nationalist organization with close ties to Prime Minister Narendra Modi’s ruling party, called last year for a “comprehensive” population control policy. New Delhi has shied away from a national campaign to curb the population, but does offer cash incentives for sterilizations.

The question now is whether India will be able to capitalize on its demographic advantage.

The main problem is a lack of jobs. Total employment hit 413 million jobs in 2017, but dropped to 406 million in 2019 and fell further during the pandemic before recovering to 402 million in 2022, according to the Centre for Monitoring Indian Economy, an independent think tank in Mumbai.

Mahesh Vyas, the think tank’s chief executive, blamed the stagnant job market on weak investment, the pandemic and a demonetization plan implemented by Mr. Modi in 2016 that abruptly wiped out nearly 90% of India’s paper currency by value. India has what many investors consider to be a complicated business climate and protectionist trade policies, deterring some investment.

Out of the 20 million people who grow old enough to enter the labor market every year, only about 8 million look for work, Mr. Vyas said. India’s overall labor-force participation rate in March was 39.8%, compared with 62.6% in the U.S.

Another 200 million young people will enter the labor force over the next two decades. It will be hard for India to absorb those workers without more investment in infrastructure and changes to stimulate export-oriented growth, economists say. Manufacturing as a share of India’s economic output fell to 14% in 2021, down from 17% in 2006, according to the World Bank.

With so many people entering the workforce, “you have to run twice as fast so you can stay in the same place,” said Ashoka Mody, an economics professor at Princeton University and author of “India Is Broken,” about its economic policies. Creating jobs, he added, “is a problem the Indian economy has never solved.”

Unlike China, where millions of migrant laborers moved to cities to work in factories, many Indians are reluctant to leave their hometowns for places with more jobs. At home they can more easily tap government programs like free food aid. Some face language barriers in other states. More of China’s population lives in urban areas, and its female labor-force participation rate is far higher.

In India, conservative norms mean families who can afford to keep their daughters and wives at home prefer to do so. In a survey last year from consulting firm FSG, 84% of working-age women from low-income households said they needed permission from their families to work.

Mansi Kajaria represents both the potential and risks of India’s demographic dividend. The 22-year-old from Dehradun, in northern India, said her parents—a cook and a clothing store salesperson—worked hard to scrape together money for her education. She graduated in 2021 with bachelor’s degrees in education and food nutrition.

She has tried and failed to get a teaching job. Many of her educated friends are also unemployed. Ms. Kajaria sometimes wonders if she wasted her tuition. She could have skipped college, she said, and gotten a job peddling snacks on the street.

“The government said it is creating more jobs for graduates,” she said. “But it’s not happening fast.”

Vibhuti Agarwal contributed to this article.

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