Is India wasting the world’s biggest economic opportunity ?

In the past 35 years, hundreds of millions of Chinese have found productive, if often exhausting, work in the country’s growing cities. This extraordinary mobilisation of labour is the biggest economic event of the past half-century. The world has seen nothing on such scale before. Will it see anything like it again?

India is an ancient civilisation but a youthful country. Its working-age population is rising by about 12m people a year, even as China’s shrank last year by 3m. Within a decade India will have the biggest potential workforce in the world.

Corruption, Inept Leadership, Inflation, and Bad Education

Although India’s dreamers have faith in its youth, the country’s youngsters have growing reason to doubt India. The economy raised aspirations that it has subsequently failed to meet. From 2005 to 2007 it grew by about 9% a year. In 2010 it even grew faster than China (if the two economies are measured consistently). But growth has since halved. India’s impressive savings rate, the other side of the demographic dividend, has also slipped. Worryingly, a growing share of household saving is bypassing the financial system altogether, seeking refuge from inflation in gold, bricks and mortar.

What India lacks is a Mittelstand of midsized, labour-hungry firms. Even during the boom years, it created many more jobs in construction than in manufacturing. It is hard for India’s young to raise their sights when they are carrying bricks on their heads.

To fill this “missing middle” the government should remove some of the bureaucratic bricks that now weigh on the heads of India’s entrepreneurs. These include India’s notorious labour laws which, on paper, prevent factories firing anyone without the state’s permission. It is true that by hiring labour from third parties the country’s employers have blunted the law’s effect. But in so doing they have also blunted their own incentive to train their workers—and lead to more abuse.

And a lot of training is required. Many of India’s young leave school ill-prepared even for rudimentary jobs. Standards are stagnant, even slipping. By their fifth year of schooling, only half of rural pupils can solve a calculation like 43 minus 24, according to the Annual Status of Education Report. Barely a quarter can read an English sentence like “What is the time?”

If you liked this article, please give it a quick review on ycombinator or StumbleUpon. Thanks