India: Growth is strong but income and employment levels remain low
For the fiscal year 2023/2024, which ended at the end of March 2024, economic growth in India reached 8.2%, the highest rate among Asian countries. Over the past twenty years, growth reached 6.3% per year on average. Yet, despite this performance, India’s GDP per capita remains low. In addition, income inequalities have increased and unemployment rates are high (especially among young people), despite higher education levels. The low levels of income and employment can be explained by the employment structure, which remains concentrated in agriculture, a sector with low value added. Despite the major reforms adopted by the Modi government to stimulate development of the manufacturing industry, the sector did not create any jobs over the period 2012-2019. One reason for this is the low level of foreign direct investment (FDI). FDI is mainly concentrated in services, especially IT services. But the services sector alone cannot absorb the abundance of labour. Although India is now the second largest exporter of IT services, jobs in this sector remain fairly marginal at country level (1.5% of total employment). Only joint development of the manufacturing and services industry can help India to create sufficient jobs.
Growth is robust, but the population is not yet benefiting sufficiently
GDP per capita still low and inequalities remain high
Despite solid economic growth, the level of GDP per capita remains relatively modest, income inequalities have increased over the last decade and unemployment remains high, particularly among young people.
India’s demographic advantage could turn into a social risk if the pace of job creation does not accelerate.
Over the 2012-2024 period (excluding years marked by the pandemic and the subsequent recovery), GDP growth in volume reached an average of 6.9% per year.
Over the same period, GDP per capita was 5.8% per year on average, which allowed the poverty rate to fall from 40.4% in 2004 to 12.9% in 2021, according to the World Bank.
Author
BNP Paribas Team
BNP Paribas
BNP Paribas Economic Research Department is a worldwide function, part of Corporate and Investment Banking, at the service of both the Bank and its customers.
