On top of the world, yet a long way to go! - by Navneet Munot

There is one trivia question that almost everyone has been getting right over the years: "Which is the most populous country in the world?" The answer has always been China. This is a statistic for which the ‘Numero Uno’ position did not change for a long time. 

However, in April 2023, the answer changed as China lost the population crown to India. This did not go unnoticed, especially since India is the world’s largest democracy and always captures the attention of the world at large. India's climb up the population leaderboard has put a spotlight on the abundance of possibilities that lie ahead during Amritkaal, the 25-year stretch culminating in India's 100th year of independence in 2047.

India – A Unique Growth Model

A unique combination of Democracy,  Demographics, Demand, and Digitization give India a potent force to take the next step, or rather the next leap towards becoming a global superpower. Emphasis on structural reforms and agile execution aimed at ease of doing business, building best-in-class physical, virtual, and social infrastructure, and improvement in quality of life is paving the path for robust, sustainable, and inclusive growth. 

Unlike China, where the growth model has been largely state-driven and environmentally unsustainable, in India, one can expect the growth to be more inclusive and sustainable, driven by entrepreneurship with the Government acting as a facilitator. Vibrancy of capital markets in India helps in making growth more inclusive. 

The “Age Old” question

While change in population pecking order happened recently, this development was on the cards for quite some time. China’s now-discontinued but once controversial one-child policy meant that this reversal in population leader board would happen sooner or later.

Few months ago, China reported a decline in its population for the first time in decades and brought the focus back on demographics. While an aging China has many implications for the global economy, it has also brought into focus the potential challenges that could be faced by the elderly, especially in an aging country, where working age population could be outnumbered by the elderly.

With an inverted pyramid, also known as 4-2-1 problem (4 grandparents and 2 parents being dependent on a single child) and lack of social security benefits, China may be staring at a demographic predicament. Although India’s population is relatively young (median age of 28 years vs 38 years for China) and is expected to decline only after 2050, steps in the right direction today are critical to avoid the possibility of a large greying population without adequate means for sustenance.  

India has made significant progress in establishing a social security net in recent years, through initiatives like the JAM Trinity and Direct Benefit Transfer. While these efforts have been transformational, they alone cannot fully address the challenges in supporting the needs of a larger ageing population. Last year’s civil unrest in France is a case in point (protests against raising of minimum retirement age for full pension).

• Pradhan Mantri Jeevan Jyoti Bima Yojana - Term Insurance

• Pradhan Mantri Suraksha Bima Yojana - Accident Insurance

• Atal Pension Yojna - Pension scheme

• and recently launched health coverage for all senior citizens up to Rs. 5 lakhs

Additionally, the increase in the number of gig workers who do not have access to social security benefits underscores the need for financial planning. Therefore, it is crucial to prioritize the often-neglected financial goal of retirement. 

In fact, it would be fair to say that retirement planning is by far the most critical financial goal.

Three important aspects stand out. Firstly, for most people, retirement is a certainty. Secondly, with medical advancement and increasing life expectancy, the number of years one lives post-retirement has increased; however, the number of years is an unknown variable which makes retirement planning critical, yet challenging. Lastly, since retirement is in the distant future, most people tend to put off retirement planning till it is too late. And even those who do plan, underestimate the impact of inflation (both, price and lifestyle) over long timeframes.

 The lack of financial preparedness is not restricted to India alone. Globally too, the retirement savings gap has widened over the years. According to the World Economic Forum, the retirement savings gap for eight of the world’s largest economies widened to USD 70 Trillion in 2015. In India, in absence of similar retirement benefits, the most likely avenue for creating a retirement corpus has to be through investments in risk assets like equities, provided this is done with a long-term investment horizon.

The "Investment” Solution

Historically, Indian households have allocated a disproportionately high share of wealth to physical assets. An average Indian household holds majority of its wealth in Real Estate and Gold, with financial assets accounting for a significantly small component.

India has an ambition to be a developed country in its Amritkaal. Humongous amount of risk capital is needed to meet India’s ambitious infrastructure development and growth objectives. Hence, an increase in depth of the capital market is so critical.  Healthy domestic equity flows will also help the Government's asset monetization program while ensuring that ownership remains with its own citizens. 

Even in the start-up ecosystem, there is an enormous need for risk capital. While the entrepreneurial ambitions of a young India combined with a funding boom has spelt a golden period for the start-up ecosystem, bulk of this funding has so far been from foreign VC firms. Looking ahead, getting Indian risk capital to fund entrepreneurial ambitions in the country is another goal worth pursuing.  

Having wider participation in equity markets could enable more equitable distribution of wealth in the society as more people would be able to participate indirectly in the nation’s growth story.

An Aatmanirbhar Bharat

While we have overtaken China demographically, we still have a long way to go on other fronts. For instance, in 2021, China’s per capita income ($12,556) was 6 times that of India’s ($2,256). Bewilderingly enough, in 1990, India’s per capita income ($368) was higher than China’s ($318). This divergence over the last three decades could be attributable to China’s focus on manufacturing and infrastructure. Both these aspects have been at the forefront of Indian policymakers’ agenda.

When this happens, there are few sectors that would benefit significantly. Last 24 months, the market rally has been broad-based. Going forward, look for incremental opportunities. Be part of this incredible journey from USD 2,256 average income to USD 12,000+ via equity participation and SIP.

Best wishes,

Tejas Lakhani