How Strong Is India's Economy?

Summary

The video script explores India's vast economic potential, fueled by its young, growing population and strategic global position. It highlights India's opportunity to become a dominant economy, especially as China faces challenges. However, significant obstacles such as brain drain, inadequate infrastructure, and low labor force participation rates, particularly among women, hinder its progress. The script also discusses the impact of AI and automation on jobs, suggesting a race against time for India to capitalize on its demographic advantages before they become obsolete.

Takeaways

• 🌟 India has immense economic potential due to its growing population, industrial knowledge, and strategic geographic position for global trade.
• 📊 India's English-speaking workforce and agricultural capacity make it an attractive economic partner, especially as China faces geopolitical and domestic industry issues.
• 🔮 Predictions suggest India could become a dominant global economy, but demographic advantages don't always translate into prosperity.
• 💡 India's economic growth could lift millions out of poverty and benefit the global economy, but it faces significant obstacles to realizing its potential.
• 🏭 India is benefiting from the shift in manufacturing away from China, offering a cheaper alternative for labor-intensive industries.
• 📈 The difference in labor costs between India and China is significant for industries like clothing and furniture production, where labor is a major cost factor.
• 🔧 Advanced manufacturing, such as cars and electronics, is less sensitive to labor costs due to the reliance on machinery and technology.
• 🌐 India's large, young population is a significant economic resource, offering a workforce for both domestic growth and global service provision.
• 💼 The Indian economy's biggest opportunity lies in service exports, as remote work allows for cost-effective service delivery from locations with lower labor costs.
• 🧩 India faces a 'brain drain' as educated individuals seek higher-paying jobs abroad, impacting the country's ability to develop its infrastructure and economy.
• 🛠️ Infrastructure development is crucial for India's economic growth, but the country's reliance on a small group of middle-skilled workers makes it vulnerable to automation and AI advancements.

Q & A

What economic potential does India possess according to the video script?

India has a growing population, a strong industrial knowledge base, a strategic geographic position for global trade, the world's second-largest English-speaking workforce, vast agricultural land, and is becoming an attractive economic partner as an alternative to China with its unpredictable state influence and geopolitical ambitions.

Why is India's economic growth potentially significant for the global economy?

India's growth could lift hundreds of millions of people out of poverty and create immense wealth for the global economy, making it one of the world's most dominant economies within this century.

What are some of the major obstacles preventing India from becoming an economic superpower?

India faces challenges such as a lag in economic growth which could lead to a brain drain of skilled workers to the West and physically able workers to the Gulf states, leaving behind a redundant workforce.

How is India benefiting from China's economic situation?

As China's wages increase and geopolitical issues arise, the benefits of outsourcing manufacturing to China are diminishing, leading to some manufacturing moving to countries like India, which offers lower labor costs.

What is the significance of India's young population for its economic growth?

India's young population is a crucial resource as they contribute to the economy through work and starting families, providing a large workforce that can drive economic growth.

How does India's English-speaking population impact its service industry?

India's large English-speaking population allows it to offer global services in the world's most widely spoken second language, making it a hub for outsourcing various service roles.

What is the potential threat of automation to India's service industry jobs?

Automation poses a threat to repetitive, labor-intensive jobs that have been outsourced to India, as AI and technological advancements can perform these tasks at a lower cost.

How does India's labor force participation rate compare to China's, and what implications does this have?

India's labor force participation rate is significantly lower than China's, largely due to cultural factors and a lack of domestic technologies that could free up women for formal employment, resulting in an underutilized workforce.

What is the 'brain drain' and how does it affect India's economy?

The 'brain drain' refers to the emigration of highly trained or intelligent people from a particular country. In India, this involves educated individuals seeking higher-paying jobs in advanced economies, which deprives India of the skills needed to develop its infrastructure and economy.

How does the video script address the issue of infrastructure in India?

The script notes that India's infrastructure lags behind China's, which is a significant factor in the disparity between the two countries' GDP per capita outputs. Better infrastructure is needed to support and enhance India's economic growth.

What role does the video script suggest for Bangladesh in relation to India's economic growth?

The script suggests that Bangladesh could become a logical target for India to outsource work to as India's economy grows and absorbs more industries, similar to how India has been a recipient of outsourcing from China.

Outlines

00:00

🌟 India's Economic Potential and Challenges

The script introduces India's immense economic potential, highlighting its growing population, industrial knowledge, strategic geographic location, and large English-speaking workforce as key advantages. It contrasts these strengths with the obstacles that India faces, such as the risk of a brain drain to the West and Gulf states, and the need to overcome internal issues to realize its economic aspirations. The video is sponsored by InVideo, which is showcased as a tool for content creation using AI, allowing users to generate videos with ease and customization.

05:00

🏭 India's Manufacturing and Outsourcing Opportunities

This paragraph delves into India's role in the global manufacturing sector, particularly in labor-intensive industries. It discusses the shift of manufacturing from China to countries like India due to rising wages and geopolitical concerns. The script explains how India's lower average incomes make it an attractive destination for basic consumer goods production. It also touches on the importance of advanced manufacturing, which relies less on labor costs, and India's potential to benefit from this shift, alongside other Southeast Asian nations.

10:03

💡 India's Demographic Advantage and Service Economy

The script emphasizes India's demographic advantage as its most significant resource, with a young and growing population that offers a substantial workforce. It outlines the opportunities for India in the service sector, especially with a large English-speaking population capable of providing global services remotely. The potential for India to export services, such as coding and call centers, is highlighted, along with the economic benefits of a more educated workforce seeking higher-skilled jobs.

15:05

🚧 Infrastructure and the Threat of Automation

This paragraph addresses India's need for better infrastructure to support its growing economy and the challenges posed by the migration of both skilled and unskilled workers abroad. It also discusses the vulnerability of India's semi-skilled jobs to automation, as AI and technological advancements threaten to replace jobs that were previously outsourced to India. The script suggests that India is in a race against time to capitalize on its demographic advantages before they are diminished by automation.

🌐 India's Labor Force Participation and Economic Policy

The final paragraph examines the discrepancy between India's population size and its labor force participation rate, particularly noting the underrepresentation of women in the workforce. It explores cultural and practical barriers that prevent women from working formally and the economic implications of this trend. The script suggests that improving labor force participation, especially among women, could significantly boost India's economic productivity and address some of the challenges of outward migration for work.

Keywords

💡Economic Potential

Economic potential refers to the inherent capacity of a country to achieve economic growth and prosperity. In the video, India is highlighted as having significant economic potential due to its growing population, industrial knowledge, and favorable geographic position for global trade, which are all factors that contribute to its ability to become a dominant economy.

💡Workforce

A workforce is the total number of people employed or actively seeking employment in a country. The script emphasizes India's large and young workforce as a key asset, which, along with its English-speaking population, positions it well to provide global services and manufacturing, contributing to its economic growth.

💡Brain Drain

Brain drain is the emigration of highly trained or intelligent people from a particular country. The video discusses how India's educated individuals often seek higher-paying jobs in advanced economies, which, while beneficial for those individuals, can deplete the country of the skilled workers it needs for its own development.

💡Infrastructure

Infrastructure refers to the basic physical and organizational structures needed for a country to function, such as roads, schools, and utilities. The script points out that India's lack of sufficient infrastructure is a significant barrier to realizing its economic potential, as it limits the efficiency and growth of industries.

💡Manufacturing

Manufacturing is the process of creating goods or products on a large scale. The video script mentions the shift of certain types of manufacturing from China to countries like India, due to rising wages in China and India's ability to offer lower labor costs, which is an opportunity for India's economic growth.

💡Automation

Automation refers to the use of technology to perform tasks without human intervention. The script discusses the threat of automation to jobs, particularly in sectors that India has been targeting for growth, such as call centers and technical support, which could be replaced by AI and machine learning technologies.

💡Labor Force Participation Rate

The labor force participation rate is the percentage of the working-age population that is either employed or actively looking for work. The video points out that India has a lower labor force participation rate compared to other major economies, largely due to cultural factors and lack of amenities that prevent women from joining the formal workforce.

💡Outsourcing

Outsourcing is the practice of contracting work to an external company or individual rather than performing it in-house. The script discusses how India has benefited from outsourcing, particularly in manufacturing and services, as companies seek lower labor costs and specialized skills available in India.

💡AI Video and Imaging Tools

AI video and imaging tools refer to software that uses artificial intelligence to assist in the creation of video content. The video script mentions InVideo AI as an example of such a tool, which can generate videos based on prompts and is used to create compelling stories, illustrating the impact of technology on content creation.

💡Service Jobs

Service jobs are positions that provide a service rather than producing a physical product. The video script highlights the importance of service jobs in India's economy, particularly in sectors like coding and call centers, which offer opportunities for English-speaking workers and contribute to foreign income.

💡Creative Disruption

Creative disruption is a term used to describe the process by which new technologies or business models disrupt existing industries and create new opportunities. The video script uses this term to describe the impact of AI and other technologies on the media industry, leading to new ways of creating and sharing content.

Highlights

India has a huge growing population, a strong base of industrial knowledge, and a great geographic position for global trade.

India is becoming a more attractive economic partner as China's geopolitical ambitions could prove problematic for industries.

India could become one of the world's most dominant economies within this century due to its numerous advantages.

India has a large English-speaking workforce, making it an ideal destination for outsourcing services.

India's economy has doubled its overall output over the past decade, making it a cheaper alternative to China for manufacturing.

India's average incomes for workers are currently behind China, allowing it to pick up outsourced manufacturing.

India's biggest economic resource is its young and large population, providing a significant workforce advantage.

India has the potential to export services, especially in technical roles like coding, to generate foreign income.

India faces a 'brain drain' and 'muscle drain' as its educated and unskilled workers seek better opportunities abroad.

India's infrastructure development is hindered by the migration of workers to more lucrative overseas jobs.

Automation poses a threat to India's service jobs, as AI could replace many roles currently outsourced to India.

India's low labor force participation rate, especially among women, is a major challenge to its economic potential.

Cultural and practical barriers prevent many women in India from participating in the formal workforce.

Increasing the labor force participation rate could significantly boost India's economic productivity.

India's economic growth could create wealth for the global economy, but it needs good policies to address internal weaknesses.

Transcripts

This video is brought to you by InVideo

There are very few, if any countries in the world today with more economic potential than India.

India has a huge growing population, a strong base of industrial knowledge,

a great geographic position for global trade, the world's second-largest English-speaking

workforce, vast swathes of agricultural land to sustainably feed all of those people,

and perhaps above all else, it's becoming a more attractive economic partner as India's

logical global rival China doubles down on issues like unpredictable state influence

in domestic industries, as well as geopolitical ambitions that could prove to be

problematic for industries that rely on them as part of their supply chain.

Now, of course, nobody can predict the future, least of all economists,

but with all of these advantages, it's perhaps unsurprising that many are predicting that India

could become one of the world's most dominant economies within this century.

But national potential and demographic advantages don't always translate into a prosperous reality.

And just as India has a very long list of reasons why it could become an economic superpower,

there are some major obstacles that have so far prevented it from becoming one.

If the economy lags even a little bit, it could be in a really bad place,

where its most skilled people look for better jobs in the West,

its most physically able look for better-paying jobs in the Gulf states,

and everyone who is left behind is made redundant in other ways that are worth seriously considering.

So understanding just what is holding the country back could be the key to unlocking

an economic miracle similar to or exceeding China's over the past three decades.

It could lift hundreds of millions of people out of poverty,

and create immense wealth for the entire global economy.

So why has India so far failed to live up to its economic potential?

How could these problems be fixed?

And finally, how would another global economic superpower influence the global economy?

The acceleration of technological growth is guaranteed to lead to creative disruption.

New AI video and imaging tools are making it easier to create compelling

stories for people who have something to share.

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With just this prompt, you can have the first draft of a video.

Pop quiz. What's reshaping the media industry right now?

If you…

As with all generative AI, it might not be perfect on the first try,

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If you…

You can even give the AI permission to clone your own voice, so the videos have that personal feel,

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you can get it for just $20 per month. Just give it a try and see what you can create.

India, despite some very real challenges, has clearly been doing at least something right.

Over the past decade, its economy has doubled its overall output,

as it continues to industrialize and become an easier and often cheaper alternative to China.

Now, there is a lot more to India's economic potential than just picking up the scraps

falling off the Chinese economy as it stagnates, and we'll get to those more exciting opportunities.

But this process is still very important to understand.

China's economic success has meant that its people are now demanding wages that put them

basically in the global middle class, which combined with their geopolitical issues means

that the benefits of outsourcing manufacturing to China are shrinking every day.

Now, some of that manufacturing is moving back to the countries that originally did the outsourcing,

but there are certain types of products that just don't make sense to manufacture in a country with

high incomes. Average incomes for Indian workers are for now at least a long way behind China's,

which means it's able to pick up a lot of the outsourced manufacturing that

used to go to their northern neighbors almost by default.

This is not happening in India exclusively either. Vietnam, Thailand, Malaysia and Bangladesh have

also been happy to undercut basic Chinese industries that are highly manpower dependent.

Basic factories creating basic consumer goods are much more sensitive to the cost of labor

than advanced manufacturing, which is more sensitive to the price of other manufacturing

inputs. The production of things like clothing, furniture and other mostly handmade goods is

very hard to automate, so they still depend on unskilled workers using their hands.

It's the kind of work that is almost always going to go to the lowest bidder.

If the cost of making a t-shirt is 10% in the material, 10% in the shipping and 80% in the

labor to manually stitch the t-shirt together, then doubling a worker's salary will effectively

double the price of the shirt. Compare that to manufacturing something like a car,

a computer or even something really technical like a processor.

These all rely far more heavily on incredibly advanced machinery and the role of the person

in these factories is far less hands-on and more about making sure the machines making the stuff

are working as expected. These workers' salaries make up far less of the total end cost of the

advanced products they're making, so even if they're paid a little bit more for their advanced

and specialized skills, it doesn't really matter. The cost of manufacturing something like even a

basic CPU might be 50% in the machinery, 40% in the R&D and 10% in the salaries of the few

highly paid technicians watching over the ultra-advanced facilities where these chips are

made. Even if these workers were also paid double, that would only increase the end cost

of the goods they produce by 10%, which with inflation may be barely noticeable.

Now of course this is an extremely oversimplified example and the numbers we're working with here

are going to be wildly different for all the thousands of factories across the world, but

what it does show is that the real cost of labor is much more important for some goods than others.

China itself is trying to move towards manufacturing the latter, more advanced,

less handmade goods so it can keep on paying its workers more, and India more so than any

other country in the world has the labor force to pick up the products in the former category.

What may look like a rivalry could in many ways be a win-win for both countries,

as a lot of those labor-intensive products are important components in the high-end goods that

China wants to manufacture itself. China is now a world leader in manufacturing EVs,

but making something like the floor mats in those cars could itself be outsourced to a country like

India. Now of course that's in a perfect world, but even still the simple global shift away from

China and towards alternatives like India isn't really the country's biggest opportunity anyway,

nor is it India's biggest threat.

India's biggest economic resource is its people. It's now the most populous country in the world,

and beyond just sheer numbers the average person in India is a lot younger than the

average person in China, the only other country that really comes close.

Young people are important because they're the ones that work and contribute to the economy,

and also start families of their own, where now a lot of countries have large populations

that are too old to work, and simultaneously too old to make more young workers.

India also has a large English-speaking population, which means it can offer global

services beyond just manufacturing in the world's most widely spoken second language.

More so than exporting goods, the Indian economy's biggest opportunity is in exporting services.

As more work is done remotely, it doesn't really matter if basic jobs get done in advanced economies

with their higher salaries, or in places like India, where even if the work isn't done quite

as well, it'll be done for one-tenth the cost. Now obviously the reputation for this kind of

work is call centres, both genuine and otherwise, but India is starting to provide more and more

outsourced services every year in increasingly technical roles.

One of the biggest outsourced roles is coding. Normally this kind of coding isn't the highly

technical cutting-edge innovation being done in places like Silicon Valley, but more setting up

basic functionalities for businesses that don't need to be the next Google, but do want a website.

This is a great source of foreign income that is endlessly renewable because it doesn't involve

loading stuff onto ships and sending it across the ocean, but beyond that it also generates

something of a positive feedback loop in the economy.

People who can get jobs doing services in English for large multinational corporations

outsourcing work to India may not get paid as much by the standards of advanced economies,

but they're paid a lot more than basic labourers, farmers, or domestic service workers.

As the population sees the monetary opportunity of getting educated in these fields to secure

these kinds of jobs, more people are going to seek out an education to get these skills to

get these jobs, and for India as a whole this means an even more productive workforce which

can attract even more specialised jobs.

Now manpower is an amazing resource to have especially in a world where most

advanced economies are facing an ageing and outright declining population.

These countries are going to need to find a way to substitute a smaller domestic workforce

out of necessity if not just in the interest of cost savings.

But the thing with the labour force is that it's a lot more slippery than something like

raw materials buried in the ground, or national infrastructure.

India has a lot of people who are investing heavily in getting themselves an education,

but once they have those skills, they could earn 10 times more than an unskilled labourer

or farmer by working a service job in India, or they could earn 100 times more by immigrating

and working a service job in an advanced economy.

The fact that a large share of their educated population can speak English has been a great

opportunity to provide international services at a scale that no other country can really match,

but it also means that these same citizens will find it much easier to get a job and

live in another country than say a worker from China would because a much smaller share of their

population speaks the language outside of Mandarin.

India has brain drain at the top end and muscle drain at the bottom end,

where a lot of its unskilled workers are getting jobs in places like the gulf states to do a lot

of the grunt work in building out infrastructure and constructing the mega-projects that those

countries have become famous for.

Now conditions for these workers are often horrendous,

they are shipped across the world specifically because they will work for the lowest possible

price, but they are still earning much more than they would back in India.

This creates a problem for the Indian economy because while the money that these workers

send back home to their families is an okay source of foreign currency,

it deprives the country of workers that could be used to build out their own infrastructure.

The country is very lucky in the way that it has very arable farmland to support its large

population, but to actually do much with that population the country is going to need more

roads, bridges, schools, ports and municipal services.

A large part of the gap between the current GDP per capita output of China and the output of India

is explained simply by the fact that China has far better infrastructure

to support their big industries than India does.

Pulling workers from the top and the bottom of the country into more lucrative positions

overseas has also created something of an over-dependence on a small group of workers

in those middle-skilled jobs to drive a majority of the growth the country has been experiencing.

Now these jobs are a great opportunity,

but they are also extremely vulnerable to technical automation.

Amazon has recently been exposed for hiring a thousand or so workers in India to operate

behind the scenes of their supposedly AI-powered convenience stores, where in reality these

workers are actually just checking almost every item themselves, effectively working

as an outsourced cashier.

Now for those workers in the Indian economy itself, this is exactly the kind of unglamorous

but semi-skilled work that has been a great economic opportunity.

But even though this particular example was of humans stealing the basic job of an AI,

those same basic jobs are overwhelmingly going to be stolen back in the other direction.

Work that is repetitive, boring and sensitive to labour costs is the perfect target for

automation.

Even if workers in India are making a fraction of the salaries they would be paid in an advanced

economy, increasingly capable AI programs will operate for next to nothing.

Call centres and technical support work that used to be outsourced to places like India

are now using AI chatbots with a small skeleton crew of staff to deal with the queries that

slip through the cracks.

So the country is in something of a race against time to capitalise on the advantages its huge

population gives it before they are no longer competitive.

Beyond just the potential for cost savings, industries outsourcing work to India face

something of a negative stigma, as it is generally seen as a purely cost-cutting exercise, often

coming at the expense of the quality of the goods and services they are producing.

Using AI to do the same sort of work makes companies seem even more impressive as innovators

leveraging a new technology to increase productivity.

Outsourcing to India, bad, AI good, for some reason.

Now this is normally the part where we say nobody can predict the future, least of all

economists, but this is already happening right now.

Already millions of jobs have been lost pushing workers back into unskilled labour roles that

can't be done by AI, at least not yet.

Now beyond that the true scale of what the latest wave of AI is going to be able to achieve

is not yet known.

It's possible that all of our jobs are on the chopping block and the service jobs being

done in India are just the first victims of this inevitable march of progress, but while

this may be India's biggest external threat, it's perhaps far less important than the

country's internal weaknesses.

Now we've spent a lot of time exploring India's population because it is clearly

one of the defining strengths of the Indian economy.

However, this is perhaps one of the clearest examples of an economic opportunity not necessarily

translating into an economic reality.

India has a slightly larger and far younger population than China, so it would be reasonable

to expect that it would have a larger or at least comparable workforce.

However, China actually has a workforce roughly 40% larger overall.

To understand why, it's important to first understand what a labour force even means,

which is simply the total number of people currently employed or currently unemployed

but looking for a job.

The people left behind are either too old or too young to work, don't want to work,

or don't need to work because they're independently wealthy or supported by their

family, or people who can't work because they are disabled.

Putting the labour force over the total population gives economists the labour force participation

rate.

Simply put, India has a real problem with a large share of its population not working.

Now, some of this can be explained by the fact that it has a lot more children as a

percent of its total population than most other countries, and well, hopefully, no economists

are seriously advocating for putting children to work.

But even just looking at participation rates amongst people of working age, India lags

well behind most major economies and the reason is simply because most women in the country

don't formally work.

Now, partially this is because they can't.

Millions of Indian households don't have the amenities to make domestic work faster or

easier.

A lot of food is still prepared from scratch and cooked over a wood stove, clothes are

cleaned by hand, and all of this takes a lot of time and effort, meaning that once this

informal work is done there isn't much time left for women to work in a formal job as

well.

Now, a lot of this is also cultural, and look, it's not the role of an economist to say

what's right or wrong here, there are genuine quality of life benefits to not having dual

income households be the norm.

But in terms of realistic economic potential, having so much of the population unwilling

or unable to contribute to market output is a major challenge.

What's particularly puzzling is that a lot of women in the country have received a good

education and yet they overwhelmingly don't participate in the labour force.

Certain economists have argued, quite convincingly, that the advent of the washing machine did

more for the global economy than the internet because it was technologies like that that

allowed women to enter the workforce, effectively doubling the amount of people producing stuff.

India is still a poor country, but it also doesn't have the same motivation to invest

into these domestic technologies, so women don't have as much opportunity to work,

which reinforces the cultural tradition of women just doing domestic work,

which means that there is less motivation to invest into these domestic technologies.

If India had a labour force participation rate similar to that of China's, it would

have a far larger labour force overall, and that by itself, all other things being equal,

would make the economy almost twice as productive as it is today, while relieving a lot of the

problems of workers moving abroad.

Now, India will still likely be one of, if not the largest economies in the world over

the next century, just by virtue of its sheer size.

But, top-line output figures won't mean much if most of that wealth has just been

created by a small group at the top, while the rest of the country struggles.

These issues can be addressed with good policy, but the country is also notoriously hard to

govern, even if its politicians had nothing but best intentions.

Now, as the country grows and absorbs a lot of the industries of China,

it too is going to need a country to outsource its work to,

and Bangladesh has appeared to be the logical target for that.

We made an entire video on Bangladesh last month that is also definitely worth watching,

because it's yet another country in the same region that should be way more successful than

it is, but has fallen behind for slightly different reasons that either way will still

influence the future of both of these countries.

You should be able to click to that video on your screen now.

Thanks for watching mate, bye.