Will Demographics Make India the Economic Powerhouse of Asia?

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by: Beacon Asset Managers

In what may be a surprise to some, China’s long-held position as the world’s most populous country is projected to come to an end by 2025, when rapidly growing India’s population is expected to surpass that of China’s. While demographic experts have long been aware of this impending shift, recently released projections have moved the date for the expected shift earlier.

The U.S. Census Bureau last month released revised population estimations for 21 countries, in which it determined that China’s population is projected to peak at slightly less than 1.4 billion people in 2026, and that India’s population will surpass that of China’s in 2025. As of the end of 2009, the Census Bureau estimates China’s population at 1,323,591,583, and India’s at 1,156,897,766.

China’s population growth rate has been declining for many years due to declining fertility. The country’s total fertility rate–the number of births a women is expected to have in her lifetime–was estimated at 2.2 in 1990, 1.8 in 1995, and less than 1.6 since 2000. The country’s population growth rate stands at 0.5 percent annually.

India’s population growth rate is estimated at about 1.4 percent, nearly three times that of China. India’s total fertility rate is estimated at a current 2.7, but is projected to decline slowly.

The Census Bureau data also estimates that new entrants into China’s labor force may be near its peak, as the population of Chinese 20- to 24-year-olds is projected to peak at 124 million this year. India’s population of 20- to 24-year-olds is not expected to peak until 2024, when it hits 116 million.

Despite China’s shrinking younger population, its labor force may continue to grow for a few more years, as the population ages 20 to 59 is not expected to peak until 2016, when it is projected to reach 831 million, an increase of 24 million over the current level.

“Given that China and India together account for 37 percent of the world’s population, their demographic trends have major implications for worldwide population change,” noted the Census Bureau in releasing its revised figures. Population changes also hold inherent major economic implications. “These changes in China’s age structure may affect its economic growth and competitiveness in the world market,” said Census Bureau demographer Daniel Goodkind.

And this provides further support for our contrarian belief that democratic India will emerge as the economic powerhouse of Asia, as opposed to autocratic China. It also supports our contention that India holds far more promise than China as a long-term investment, especially given how rapid and high up China's economy has climbed in the past decade.

Author's Disclosure: No Positions, but IIF is featured in our model portfolio.