Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.This is an entirely free service. No payments are to be made.
India currently has one of the youngest populations in the world, with a median age of less than 30 years. An estimated 90% of the country's population is expected to be below the age of 60 by 2020. The demographics are in the country's favor for at least the next few decades or so. But high levels of poverty can undo the benefits from the demographic advantage.
As per the former Reserve Bank of India governor, Raghuram Rajan, India needs to move up the ladder from its current per capita income of around US$1,500 to around US$6,000- US$7,000 to capitalise on the demographic dividend. In other words, the country has to progress towards being a middle income country.
The government, through its varied initiatives, is trying to bring in positive changes in the economy. Key reforms are being debated and implemented. There seems to be a concerted effort from the government towards creating a conducive environment for long term sustainable growth of the economy. A few key variables however need to be addressed in order to stimulate this growth. First, there is an urgent need to find a long term solution to the inflation problem, especially on the supply side front. A benign inflation environment will result in higher financial savings providing more capital for the country's infrastructure needs.
Second, banks need to be well capitalized with strong balance sheets. On that front, through its asset quality review, the RBI has made sure that banks report their distressed assets in a timely manner. This cleanup in the banks' balance sheet is crucial for them to have the ability to lend and support credit growth in the country.
Third, there is a need to leverage technology for our benefit. Technology disruptions has changed the entire landscape of the economy. Technology has helped in bringing informal workers under financial inclusion. With the rise of technology companies like Uber, Ola, Flipkart, Amazon, there has been a sizable increase in the semi-skilled population like the drivers, workforce for delivery that are being inducted into the formal economy. At the same time, rising use of technology and increased productivity has led to fewer persons required to do the same work.
India will continue to have more youth population entering the workforce than ever before. The challenge will be creating meaningful jobs for this young workforce. It remains to be seen if we are able to thrust ourselves into a middle income country or not. This is extremely crucial in our fight against poverty.
For information on how to pick stocks that have the potential to deliver big returns, download our special report now!