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India's Performance in Manufacturing Sector Growth in September
Oct 4, 2016

The manufacturing Purchasing Manager's Index data is out for the month of September. While some of the Asian economies - S. Korea, Myanmar, Malaysia and Thailand suggest contraction in manufacturing with a score below 50, India bags 4th place among the key Asian economies on this metric.

That said, on an absolute basis, India's Manufacturing PMI has slipped on a month on month basis due to softer growth in order book. It now stands at 52.1, down from 52.6 last month when the it touched 13 month high. While a score above 50 implies expansion in manufacturing, a month on month decline suggests loss in momentum.

While expansion in manufacturing bodes well for GDP, there are other parts in the equation that may disappoint. The most crucial will be investment spending aspect that does not offer reasons to cheer, as suggested by slowdown in new business orders.

Another important part of the equation is jobs in the manufacturing sector. While manufacturing remains an important part of growth, thanks to automation and lack of skilled labour, it may not offer jobs to the millions of Indians joining work force every day.

If this trend continues in the years to come, the demographic dividend can easily turn into a demographic nightmare. Irrespective of what the monthly macro-economic data suggests, this could pose a serious threat to the India growth story.

As Vivek Kaul mentions in one of the editions of Vivek Kaul's Diary:

At times it is very difficult to make sense of a country as complicated as India is. What complicates the situation further is the fact that we have very little data going around in many cases. But then there are broader trends, which one can comment on.

One such thing is the demographic dividend or to put it more precisely India's demographic dividend.

He further adds:

As the 12th Five Year Plan (2012-2017) document pointed out: "One hundred and eighty-three million additional income seekers are expected to join the workforce over the next 15 years." This essentially means that a little over 12 million individuals will keep joining the workforce every year, in the years to come. This works out to around one million a month. And at this rate, the Indian workforce is expected to be larger than that of China by 2030.

And this is India's demographic dividend. As these individuals enter the workforce, find work, earn money and spend it, the Indian economy is expected to do well. When economists and politicians talk about an economic growth of close to 10 per cent per year, they are essentially hoping that India's demographic dividend will play out as it is expected.

But the question is how likely is this? How have things with other countries been in the past? Have countries which were expected to benefit from the demographic dividend benefitted from it?

There are no absolute answers, but the warning signs are there for all to see.

Data Source: Markit, Livemint

This Chart Of The Day was published in The 5 Minute WrapUp - Should You Worry About Your IT Stocks? - The Cognizant Saga

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