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‘Massive Demographic Change’ Gives India Edge Over China

Even as the proverbial battle of supremacy between emerging economic giants China and India continues to polarize views, it seems the South Asian nation may have an edge when it comes to demography.

A nurse carries a baby born exactly when the national census commission's population clock clicked over one billion at 12:32 pm (0702 GMT) to place it among other babies, all born 11 May 2000 in a city hospital in Calcutta. India saw the birth of its billionth citizen, chosen from a hospital in New Delhi, amid growing poverty and homelessness.
Deshakalyan Chowdhury | AFP | Getty Images
A nurse carries a baby born exactly when the national census commission's population clock clicked over one billion at 12:32 pm (0702 GMT) to place it among other babies, all born 11 May 2000 in a city hospital in Calcutta. India saw the birth of its billionth citizen, chosen from a hospital in New Delhi, amid growing poverty and homelessness.

According to economist John Maudlin, China will be losing in the next 30 years 85 million workers, or the equivalent of the working population of Britain and all of Germany, and India is going to add the same number.

This gives India a better long-term future than China, he argues, as the “massive demographic change” will see the latter lose a significant portion of its productive population.

“That is a massive demographic change. That means they (Indians) are going to become more productive,” Maudlin, President of advisory and asset management Millennium Wave Investments, told CNBC Asia’s “Squawk Box”on Thursday.

“I’m more bullish long term; short-term – who knows what will happen – ask your local politicians. But long-term …if somebody held a gun and say you got to put money somewhere in Asia and come back in 30 years, I’d put it in India.”

While Maudlin concedes that India does have deep-rooted problems such as governance and infrastructure bottlenecks, he believes that “they’ll figure it out.” China, on the other hand, does not seem to be sustainable as its economy is based on central planning policies by the government rather than market forces.

“I have never really gotten China. I don’t understand how the business model works and their demographics over the next 20, 30 years are not very good,” Maudlin said.

He also said that no country has even been able to sustain an investment portion of GDPat 50 percent for as many years as China has. “This cannot continue without serious consequences,” he added.

China’s one-child policy, introduced in 1979, has significantly impacted the country’s demography. Over the last 30 years, China's total fertility rate—the number of children a woman can expect to have during her lifetime—has fallen from 2.6, well above the 2.1 rate needed to hold a population steady, to 1.56 last year, according to the United Nations.

As a result, China now faces a long period of ultra-low fertility, compounding another demographic challenge, which is the country’s fast-growing ageing population, the United Nations said. In contrast, by 2020, the average age of an Indian will be 29 years, compared to 37 for China and 48 for Japan, the U.N. said.

Vishnu Varathan, Market Economist at Mizuho Corporate Bank in Singapore, said a large and young population will indeed be coming on board in India, and the country could potentially benefit from it.

“Yes, already the early signs of wage pressures due to some pockets of labor market tightnessare showing up in China, giving India an edge, all else being equal,” Varathan said. “But it needs to be complemented with sound and progressive policies. As much as a large jump in young workers could be a boost for the economy, equally it means that jobs need to be created.”

This means that India will have to reform its economy urgently, increase manufacturing’s share of the economy from about 16 percent now to 25 percent over the next 5 to 10 years to absorb the new workers and invest in infrastructure to accommodate urbanization, Varathan said.

A.S. Thiyaga Rajan, Managing Director, Aquarius Investment Advisors, an asset management firm based in Bangalore, India, agrees that India’s growth could be more attractive than China’s over the longer term but it is hardly a “given”.

“If you compare China and India, China has been growing for the last 20 years at 9-10 percent,” Rajan said. ”Can we say over the next 10 years, they can still grow at 10-12 percent? Impossible. It could be 5, 6, 7 percent. But India, it could grow 7-8 percent over the next 10 years, which growth could come only if they spend more on infrastructure.”

- By CNBC's Jean Chua.

Contact Asia Economy

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