INDIA ECONOMIC STRATEGY TO 2035

NAVIGATING FROM POTENTIAL TO DELIVERY

T H E M AC R O S TO RY

22
CHAPTER ONE
Summary24

Outlook for the Indian economy to 2035 25

Structural shifts and sources of

disruption out to 2035 34

Outlook for the Australian economy

to 2035 38
INDIA ECONOMIC STRATEGY TO 2035

SUMMARY
■■ India’s economy is of global importance. It has a large and young population and an open and
democratic political system. It is already the third largest economy and contributor to global
economic growth, yet there is considerable untapped potential. With more than a sixth of
the world’s population, India produces only 7 per cent of the world’s output.
■■ India has enjoyed a step up in growth rates over the past few decades supported by
reform efforts and the expansion of its aspirational, consumer class. This report assumes
a growth rate of 6–8 per cent annually over the next two decades, underpinned by
productivity improvements.
■■ Given the challenges of policy making in such a large, diverse country with a federal
structure of government, reforms will likely proceed incrementally and be politically
opportunistic. Both the central and state governments have important roles to play. Making
the most of India’s demographic advantages will require labour market reforms, measures
to improve education and skills and significantly improving women’s participation in the
economy. Constraints on investment and infrastructure pose a challenge, while India’s
services-oriented growth path will take it into uncharted territory.
■■ India’s economic progress will not be linear. It will be subject to structural shifts and will be
shaped by technological and environmental disruptions.

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 CHAPTER 1: The Macro Story

OUTLOOK FOR THE INDIAN ECONOMY TO 2035

India’s economic potential and India’s population will overtake China’s to become
the world’s largest. By 2035, the United Nations
importance projects that India’s population will have reached
India’s growth path will be driven by how almost 1.6 billion people, on its way to a peak of
effectively it harnesses and rewards the efforts almost 1.7 billion by the early 2060s.
of its greatest natural asset – its people. India has
India is the world’s third largest economy
the second largest population in the world with
measured in purchasing power parity (PPP)
more than 1.3 billion people. Of India’s 29 states
terms and, on some measures, will be the fastest
and 7 union territories, 18 are home to more
growing large economy in the world in the coming
people than Australia. India’s largest state, Uttar
years (Figure 2).
Pradesh, is bigger than Brazil, the world’s fifth
most populous country.1,2 Within the next decade

Figure 2: SHARES OF WORLD GDP AND POPULATION (G20 COUNTRIES)

Source: International Monetary Fund. World Economic Outlook - April 2018. International Monetary Fund; 2018.
Note: GDP is in purchasing-power parity terms. Data refers to 2017.

India’s population has benefited from this strong rise from an average annual rate of less than
economic performance. India’s steps towards 3 per cent in the 1970s (the so-called ‘Hindu rate
liberalisation and openness in the 1980s, which of growth’) to over 7 per cent in recent years
accelerated in the 1990s, saw India’s GDP growth (Figure 3).

25
INDIA ECONOMIC STRATEGY TO 2035

Figure 3: INDIA’S GDP GROWTHi

Source: 1) The World Bank. GDP growth (annual %). World Bank national accounts data and OECD National Accounts. The World Bank; 2018.
2) International Monetary Fund. World Economic Outlook - April 2018. International Monetary Fund; 2018. 3) Ministry of Statistics and Programme
Implementation (ID). Summary of macro-economic aggregates at constant prices. New Delhi ID: Government of India; 2018.
Note: Data in India fiscal years (April to March)

Since 1970, India’s real GDP per capita has BASELINE SCENARIO
increased fivefold. As a result, millions of people
have been lifted out of poverty. Key development Under even moderate policy progress, the
indicators such as infant mortality and life Australian Treasury’s long term projection
expectancy have steadily improved. framework projects that over the next two
decades (and beyond) India can maintain the
These trends have contributed to the creation relatively high economic growth required to lift
of a substantial and aspirational consumer-class its share of global output.
that, since household consumption accounts for
60 per cent of India’s GDP3, is an important source
of optimism for growth in the Indian economy.

i
Annual percentage growth rate of GDP at market prices based on constant local currency. Aggregates are based on
constant 2010 USD. GDP is the sum of gross value added by all resident producers in the economy plus any product taxes and
minus any subsidies not included in the value of the products. It is calculated without making deductions for depreciation of
fabricated assets or for depletion and degradation of natural resources.

26
 CHAPTER 1: The Macro Story

Under Treasury’s projections, India will enjoy an be increasingly weighted towards Asia, as India,
average of around 6 per cent annual growth over China and the ASEAN economies catch up to
the next two [Link] As population growth slower-growing advanced economies. Even with
continues to slow, improved productivity will an average annual growth rate of only 6 per cent,
remain the critical driver of GDP growth (Figure 4). India’s economy would be more than two times
Based on the incremental reforms outlined in the larger than it was in 2017. In PPP terms, India’s
next section, this Strategy judges India is likely to share of the global economy will likely increase
grow at 6–8 per cent annually to 2035. from 7 per cent in 2016 to around 13 per cent
(Figure 5), making it one of the major poles of
India’s success will have significant implications
global economic power and on par with the
for its international economic and strategic
United States.
weight. In 2035, the global economy is likely to

Figure 4: DRIVERS OF INDIA’S LONG TERM GROWTH

Source: 1) International Monetary Fund. World Economic Outlook - April 2018. International Monetary Fund; 2018. 2) Treasury (AU); The Commonwealth
of Australia; 2018
Note: Years in Figure 4 refer to five year periods ending in that year. GDP is in PPP terms.

ii
Treasury’s long term projection model is based on assumptions about productivity and working age population growth. For
productivity, the model estimates each country’s ‘steady state’ level of productivity relative to the United States, based on an
assessment of the country’s competiveness (the World Economic Forum Global Competitiveness Index, or GCI). The model
then assumes that countries approach this steady state level over time. Reforms that increase a country’s competitiveness, and
hence its GCI score, would lead to a higher estimated steady state level of productivity relative to the United States and an
upward revision to projected productivity growth. All else equal, this in turn would mean higher projected GDP growth. The
working age population projections are based on those published by the United Nations.

27
INDIA ECONOMIC STRATEGY TO 2035

Figure 5: SHARE OF WORLD GDP PROJECTIONS (PPP)

Source: 1) International Monetary Fund. World Economic Outlook - April 2018. International Monetary Fund; 2018. 2) Treasury (AU); The Commonwealth
of Australia; 2018

INCREMENTAL REFORMS ARE LIKELY, Weak capacity, at both the central and state level,
to implement challenging policy changes is a key
WHICH WILL BOOST GROWTH constraint. Attempts to circumvent the ‘licence Raj’
In recent years, a greater recognition in India of by moving regulatory approval systems online will
the urgency for reforms to lift productivity has improve the business environment in some areas.
led to important policy achievements, including
Recently enacted fiscal targets and formal
implementation of a national GST in 2017. As well
guidelines for monetary policy will also continue
as simplifying the tax system the GST sets new
to support a favourable environment for growth.
precedents for cooperation among the states.
Macro stability through improvements in external
Future reforms will likely proceed incrementally.
indicators such as current account, foreign
Both the central and state governments have
exchange reserves and inflation have also helped.
the political appetite to do more, and both levels
However, fiscal pressure continues to pose a risk
of government have important roles to play.
for many state governments, where borrowing has
The Central Government has direct control over
increased rapidly in recent years and the scope to
several important areas, including the financial
increase debt and expenditure appears limited.
sector, [see Chapter 10: Financial Services Sector],
international trade [see Chapter 16: Trade Policy India’s economic reform agenda must address
Settings] and investment policy [see Chapter 2: three themes: its growth model and international
The Investment Story]. openness, its workforce, and building the
infrastructure to improve productivity.
India’s state governments control crucial elements
of the business environment [see Chapter 14:
A Collection of States]. The Central Government India’s growth model
has fostered a political dynamic in favour of Like other emerging economies, India’s growth
reform, which will see uneven progress between has been marked by major shifts in the structure
states. Organisations such as NITI Aayog have of its economy, most notably away from low
used initiatives like competitive federalism to help productivity agriculture (Figure 6).
states recognise the need for, and speed up the
pace of, reform.

28
 CHAPTER 1: The Macro Story

Figure 6: SECTORAL SHARES OF THE INDIAN ECONOMY

Source: 1) CEIC Asia Database | CEIC [Internet]. Available from: [Link] 2) Treasury (AU); The Commonwealth of Australia; 2018. 3)
Ministry of Statistics and Programme Implementation (ID). New Delhi ID: Government of India; 2018
Note: Data in India fiscal years (April to March). Data prior to 2011–12 use Treasury calculations based on discontinued series.

The shift away from agriculture and strong by the Indian Government through the 1990s
growth in services is not unusual for a developing and early 2000s. Notable reforms included
economy like India. What is less common is the financial market deregulation, a relaxation of
limited role that manufacturing has played in foreign ownership regulations and moves to
India’s development. For a typical developing increase competition in a wide range of service
economy, manufacturing drives growth and industries. Along with the relatively high cost of
employment in the early development phase capital, policy choices also appear to explain India’s
before giving way to services. For many East Asian relative underperformance in manufacturing.
economies, this last stage typically has occurred at Burdensome regulations – including outdated
much higher levels of development than in India.4 labour laws and complex land acquisition
regulations – have been particularly onerous
However, in many parts of South Asia, the services
for manufacturing.
sector has grown ahead of manufacturing. In the
traditional growth model, the services sector in India’s services success extends to exports, where
developing economies is considered to be of lower a range of Indian services are globally competitive,
productivity than manufacturing.5 In South Asia, particularly in information and communication
and particularly in India, the reverse has been technology and in back-office processing tasks.
true. The level of India’s services productivity is This reflects India’s comparative advantages:
comparable with China and Thailand, countries a relatively low-cost workforce with a small
with substantially higher GDP per capita. As a high-skilled component, many of whom are
result, India’s early shift to services has supported, English-speaking.
rather than hindered, rapid growth.
While India’s services sector output has grown
POLICY SETTINGS HAVE SUPPORTED THE substantially, services sector employment has
been far more modest. This has meant that a
DOMINANCE OF SERVICES relatively small proportion of India’s population
The strong expansion of India’s service sector has has seen direct benefits. The more large scale
been enhanced by a series of reforms introduced

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INDIA ECONOMIC STRATEGY TO 2035

employment the services sector can provide India, intensive production, encourage innovation and
the greater the benefit for India’s development. lift productivity.
Over coming decades, the services share of the Greater openness to foreign investment would
economy is likely to gradually continue rising also support growth by providing additional
and the share of manufacturing stabilise. As sources of capital and technology [see Chapter 2:
incomes rise, the demand for consumer goods and The Investment Story].
services is expected to grow strongly, creating
opportunities for domestic manufacturing. Global India’s workforce is an opportunity
manufacturing firms are also likely to be attracted
by India’s large and growing consumer class and its
and a challenge
relatively low operating costs. India has a great economic opportunity
provided it can create an environment that
INTERNATIONAL OPENNESS supports education, training and job creation
India’s structural transformation towards higher for the millions of young Indians set to enter the
value added production would be aided by labour force. Over the next two decades India’s
further moves to open the economy. Historically, working age population is predicted to increase
India’s size and the appeal of self-sufficiency has by almost 200 million, to over one billion, to
encouraged a degree of insularity. While the trend become the world’s largest.1 While the rate of
is positive, India’s openness to trade remains increase is expected to slow, the working age
among the lowest in Asia6 [see Chapter 16: Trade share of the population will continue to rise out
Policy Settings]. While India is unlikely to pursue an to 2035 (Figure 7). The working age populations
export-oriented growth model to the same extent in southern states will peak by around 2020 but
as East Asia, greater openness would enable India further increases in workers are expected to come
to leverage its comparative advantage in labour from the northern states for decades to come.7

Figure 7: BRICiii WORKING AGE POPULATION SHARES

Source: United Nations. World Population Prospects 2017 [Internet]. United Nations; 2017. Available from: [Link]
publications/[Link]

iii
In economics, BRIC is an acronym that refers to the countries of Brazil, Russia, India and China, which are all deemed to be at a
similar stage of newly advanced economic development.

30
 CHAPTER 1: The Macro Story

GENERATING PRODUCTIVE JOBS URBANISATION

India’s human capital formation lags many high Urbanisation is driving a shift in India’s workforce
growth East Asian countries. Firms operating from lower productivity (agriculture) to higher
in India cite access to skilled labour as a key productivity sectors (services and industry).
constraint to growth. Though rising, India’s Since 1950, the proportion of Indians living
working-age population had on average in urban areas has almost doubled, reaching
just over seven years of schooling in 2015. 33 per cent in 2015. However, India’s urbanisation
Current government initiatives are moving in rate remains low compared to other emerging
the right direction, but India will need further economies (Figure 8). The United Nations
substantial investment in its education system projects that India’s urbanisation rate will rise to
to make the most of its people [see Chapter 3: 42 per cent by 2035, lifting the urban population
Education Sector]. from 64 million in 1950 to 640 million.9
Capitalising on a skilled workforce will require LABOUR MARKET REFORMS
India to increase women’s workforce participation
and generate more productive jobs. SMEs Reforms to India’s complex labour regulations
employ around 40 per cent of India’s workers.8 would likely reduce informality, lift productivity
They make up a disproportionate share of India’s and attract investment. There are roughly 45
economy and remain relatively inefficient, low national and 200 state laws governing labour
skilled and rural-based. SMEs account for more relations which impose cumbersome requirements
than 80 per cent of industrial firms compared on businesses. As in other countries, labour
to 65 per cent in Indonesia and 25 per cent in market reform is a sensitive issue and wholesale
China. However, across all sectors, India’s smallest changes will be difficult. However, attempts at
firms are only 25 to 65 per cent as productive reform at both the central and state level have
as their peers across Asia. Firms that employ been seen in recent years. As India’s economy
more than 200 people in India tend to be as grows and firms look to expand their workforce
productive as comparable firms across Asia. The more firms are likely to be affected by labour
preponderance of SMEs is a factor holding back regulations and pressure to reform them
India’s productivity. may grow.

In part due to the dominance of SMEs, 90 per cent

of Indian workers are either in the unorganised
sector (self-employment or in enterprises of
fewer than 10 workers) or are informal workers
in the organised sector. The low rate of formal
employment reduces job security and access to
employer provided social security benefits for
those workers.

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INDIA ECONOMIC STRATEGY TO 2035

Figure 8: BRIC URBANISATION RATES

Source: United Nations. World Population Prospects 2014 [Internet]. United Nations; 2014. Available from: [Link]
publications/[Link]

Strong investment will be needed to way to determining its growth path. For example,
some 240 million Indians still lack access to
sustain growth electricity.10 The Indian Government has estimated
To achieve high growth in the coming decades, that its infrastructure gap over the next decade
India will need to sustain strong investment. will be over USD1.5 trillion.11 As a result, the
Capital in India has traditionally been mobilised central and state governments are developing new
by raising domestic savings and investing it in financing models to attract private, and particularly
productive assets. foreign, capital.
India’s investment and savings rates, as a Improving India’s business climate will also help
proportion of GDP, have fallen in recent years increase investment. The Indian Government’s
(Figure 9). Private investment has started to renewed focus on achieving reforms has
shrink – contracting by 22 per cent between 2014 contributed to India’s jump of 30 places in
and 2016 according to World Bank data. Turning the 2018 World Bank’s global ease of doing
this trend around will require a supportive business ranking.100 Important areas that continue
environment for business, an efficient and to affect the business environment in India include
innovative financial sector and dealing with the effectiveness and pace of the judicial system,
the non-performing assets (NPAs) that have and business licencing regulations. Improving
impaired new lending and weigh heavily on India’s India’s business climate will take time, but will be
dominant public sector banks [see Chapter 2: important in shifting focus toward opportunities
The Investment Story]. available in India [see Chapter 15: Understanding the
Business Environment].
Investment into infrastructure that enables
growth, particularly in transport, energy and
communications, is critical to India’s prospects.
How well India can deliver on this will go a long

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 CHAPTER 1: The Macro Story

Figure 9: INVESTMENT AND SAVINGS TO GDP

Source: World Development Indicators | DataBank [Internet]. 2018. Available from: [Link]
pment-indicators

Complex land regulations also constrain

investment and growth by limiting the sale, lease
and conversion of land and creating uncertainty
around the true price of land holdings. The
dominance of inefficient SMEs is likely to continue
until more land for industrial use in urban areas
is made available by local governments and it is
easier for industrial firms to expand their land
holdings. Existing land regulation ties farmers to
their land, hinders urbanisation and the transfer of
labour to more productive sectors. States which
move to rationalise land markets will improve their
growth prospects.

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INDIA ECONOMIC STRATEGY TO 2035

STRUCTURAL SHIFTS AND SOURCES OF DISRUPTION

OUT TO 2035
A strategy out to 2035 must anticipate volatility. workers and firms, digital job matching platforms
While deep-set structural drivers enable us to can link developing economies, like India, with
project the broad direction of India’s growth, it is consumers and investors in rich countries
unlikely to be linear or evenly distributed. underpinning economic convergence. This will
lead to more digitally enabled services trade, new
This is partly due to the inherent uncertainties
markets for exporters and potentially cheaper
associated with forecasting over such a long
inputs to Australian companies. The question is
horizon but also the complexities of India’s
whether India’s high proportion of SMEs, currently
economic model and reform path. India’s economic
a drag on productivity, will become an asset.
progress will be influenced by an accelerating
global rate of technological change and by trends The future of work will also have negative effects
and events in ways we cannot foresee. on India’s economy. Decentralisation will create
more precarious and irregular forms of work
Potential structural shifts and weaken job security in the formal sector.
Automation has the potential to stifle India’s
This report highlights three potential structural exports because trading partners could use
shifts that could change the composition, size automation to onshore services and resources.
and shape of India’s economy out to 2035, Automation also risks displacing workers who
including productivity, labour inputs and perform routine or processing tasks,12 impeding
domestic consumption. India’s net job creation, which is already growing
slower than its working age population.
FUTURE OF WORK
India’s uptake of automated technologies is likely
Technological advances in automation and digital to be slower and proportionally smaller than in
connectivity are changing how labour markets and other economies. Low wages and abundant labour
businesses operate, including in India. Technology weakens the demand for it. But as with everything
has always shaped the workplace, but the current in India the numbers are still big. Some 125 million
and forecast rate of global technological change is Indian employees are currently working in
faster than ever before, and increasing. automatable areas.13 Of these, women will make
This will offer some positive outcomes for India. up a disproportionately large number. Workers in
Automation technologies such as robotics and India’s manufacturing and transport/warehousing
artificial intelligence can increase productivity and industries are most at risk of displacement,
help Indian companies compete internationally. along with middle class jobs in India’s back-office
New jobs will be created, including in information processing operations.
systems to build tools for managing workers So while India’s economy will continue to grow,
alongside machines. While India’s private sector is jobs could become less secure. A scenario with
yet to make a significant global impact in artificial more irregular forms of work would reinforce
intelligence development, its strong IT base gives inequality while also placing a greater onus on
it potential to do so. the adequacy of social safety nets such as cash
Concurrently, digital connectivity will contribute transfers. Indian policy makers are aware that
to the decentralisation of economic activity managing these risks rests on equipping workers
away from large corporations, seeing production with sufficient education, skills and access
become more fragmented. This will support more to digital infrastructure. The challenge lies in
flexible employment and enable more workers to developing an agile workforce and providing new
participate as micro-entrepreneurs. By connecting skills quickly.

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 CHAPTER 1: The Macro Story

POVERTY AND EQUALITY Although Australia does not have a bilateral

aid program with India, Australia is well placed
India’s economic progress will be defined by how
to work with India to reduce inequality and lift
its growth is distributed.
people out of poverty. As outlined in the sectoral
As India’s economy has grown every year in the chapters that follow, this includes working with
last 35 years, the share of India’s population living India to provide basic services, lift incomes in rural
in extreme poverty (USD1.90 a day equivalent) areas and improve productivity in India’s large
has fallen by 30 per cent.4 While this is to be and inefficient agricultural sector. Australia can
celebrated, extreme poverty in India remains high work with India to deliver education and training,
(21.2 per cent). Most poor – some 80 per cent health care and access to basic infrastructure.
– live in rural areas.14 By 2035, if current trends Australian resources and expertise can power
continue, extreme poverty will fall to 9.5 per cent India’s development. Engaging with India on policy
of the population, around 150 million people. frameworks and regulatory settings can better
connect India with international value chains
Sitting just above the poverty line is a large
and markets.
low-income bracket, many of whom are rural
labourers. Mobility for those rising from poverty Alongside these efforts, Australia’s South Asia
to low income is greater than from low income Regional Development Program should continue
to high income. At the same time, downward to support policy dialogue, institutional and
mobility is also relatively high. Many families in the regulatory reforms in critical sectors such as
low-income bracket have little to no accumulated water, agriculture, energy, infrastructure and trade
wealth and are vulnerable to shocks and falling through the Sustainable Development Investment
back into poverty. Portfolio and regional trade and infrastructure
connectivity activities across South Asia, including
So while Indian wealth is growing faster than the
in India. These should focus, where possible,
global average, the distribution of this wealth
on priority states identified in this Strategy [see
remains relatively narrow. India is one of the most
Chapter 14: A Collection of States].
unequal economies in the world and the gap
between rich and poor has increased over the last GENDER EQUALITY
decade. India’s richest 1 per cent earn 22 per cent
of all income13 and have 58 per cent of the India’s economy has more to gain by achieving
country’s wealth.14 gender parity than any other in the world.

Together, these two factors – poverty and Out to 2035, on current participation rates,
inequality – influence the structure of India’s women will represent one of the largest
economy in three ways. First, the acute hardship underutilised economic forces in the country. The
and deprivation of large scale poverty mean India extent to which India can achieve progress on
will continue to have a significant unmet need closing the gender gap in employment, education
for basic services, such as water and sanitation, and in financial and digital inclusion will determine
energy and health care. Second, poverty and not only how equitable a society it has, but
inequity sharpen political sensitivities and how dynamic and fast growing its economy is.
shape the political space for economic reforms. According to the International Monetary Fund,
A primary objective of India’s reform program raising women’s participation in the labour force
is to lift basic incomes and many of the Indian to the same level as men could boost India’s GDP
Government’s market interventions, from price by as much as 27 per cent.17 Failure to remove
controls to tariffs, are designed to minimise social barriers to women’s economic participation will
disruption amongst its poorest constituents. Third, prevent India from reaching its potential.
inequality constrains growth, limiting the potential The rate of women’s workforce participation in
for consumption-led growth and discretionary India has declined over 15 years despite India’s high
[Link] levels of growth. India has one of the world’s lowest

iv
OECD analysis finds a negative and statistically significant correlation between income inequality and economic growth.

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INDIA ECONOMIC STRATEGY TO 2035

rates of female workforce participation, 24 per cent WATER SCARCITY

compared with 40 per cent globally.4 Female
The problem of water scarcity in India is a long
disadvantage pervades Indian social and economic
term challenge that will get worse before it gets
spheres. The 2017 World Economic Forum’s Global
better. India has around 18 per cent of the world’s
Gender Gap Report ranked India 108 out of 144
population but only 4 per cent of the world’s
countries in terms of gender parity.18
water resources. Population growth, pollution and
The level of women’s empowerment in India is water distribution management are contributing
determined by variables such as geographical to the depletion of available water reserves.
location, education, social status and age. India is therefore likely to face a water scarcity
But across the economy, barriers to women’s crisis before 2030, when demand is projected to
employment include prohibitive social norms, outstrip supply. Many of India’s large cities already
women’s disproportionate share of unpaid care face water shortages on a daily basis. Most of
work, a rise in household income and the absence India’s river basins could face severe deficits
of local job opportunities. Women who do work in unless concerted action is taken, with some of
India are over-represented in industries with low the most populous regions – including the Ganga,
pay, poor labour conditions and low productivity. the Krishna, and the Indian portion of the Indus –
facing the biggest gap.
The Indian Government has made commitments to
boosting its female labour force participation and Water scarcity has implications for India’s
released policies in 2017 designed to improve paid food and energy security. Agriculture is the
maternity leave and childcare assistance. While largest consumer of water (around 80 per cent).
changing societal norms takes time, many of Over-extraction of groundwater by farmers will
India’s large corporate firms are emphasising the see some regions exhaust their subterranean
business case for increased diversity, especially supplies within 10–15 years. While India’s
the IT sector, which employs more women in India renewable energy agenda might alleviate the high
than any other except agriculture. dependence on water for energy generation, any
constraints on supply to consumers and industry
These efforts build on other positive trends.
(which currently uses around 10 per cent of water)
The gender gap in literacy rates has narrowed
will adversely impact economic growth.
by 25 per cent since 1991.4 The education
gap between boys and girls has been virtually A water scarcity crisis in India would also
eliminated at the primary and secondary school have implications for stability and security in
levels and is narrowing at the tertiary level. The South Asia. Many cross-border agreements
number of girls in India getting married before 18 are under re-negotiation or dispute and India’s
has nearly halved in the last decade.19 domestic water disputes between states are just
as intractable.
Growing attention in India’s public and private
sectors to the economic benefits of workplace India has a comprehensive National Water Policy
diversity and women’s workforce participation but this does not intersect with state policies
provides an entry point for Australian advocacy and is not supported by the strong institutions,
and business engagement. Initiatives we pursue infrastructure and cross-border partnerships
across our priority sectors from research and which are necessary for effective implementation.
development collaboration to skilling programs, India also requires significant investment in
must emphasise gender equity and inclusiveness. infrastructure, such as water treatment plants,
waste management systems and industrial water
Sources of disruption recycling technologies. The sector is crowded
and coordination is challenging, as India has
This report examines three non-linear trends limited capacity to absorb assistance from
that will affect productivity as well as supply and multiple channels.
demand of key inputs to the Indian economy. Later
chapters provide further detail on the ways water
and technology will impact specific sectors.

36
 CHAPTER 1: The Macro Story

TECHNOLOGY and electric cars, ride sharing, and other

technological innovations in heavy-duty vehicles
By 2035, technological developments will
could substantially reduce oil demand and could
unlock growth and new markets in India in ways
see a trend away from private ownership of
beyond current imagination. India may be able
vehicles. For example, cab-hailing app based
to leapfrog dated technologies to spur faster
companies such as Uber and Ola have been
growth. Computing speed, device connectivity,
successful in India, with about 700,000 vehicles
data volumes and many other indicators of
in operation in 2017, up from 300,000 in 2015.12
technological capability are increasing at
India, as a major oil importer, has benefitted from
exponential, not linear, rates.
the low oil prices of 2015 to 2017 which has been
There are many prospective technologies about a boon for its current accounts. Any trends or
which to speculate. Three examples that could technologies which contribute to lower global oil
change India’s flow of capital and open new prices or drive down domestic demand will have a
markets are: net positive effect on India’s economy.
E-commerce is taking off in India propelled by CLIMATE CHANGE
rising smartphone penetration and dropping
data costs. Today, around 14 per cent of India’s Changing environmental conditions lead to
internet users shop online, compared with almost economic, environmental and security risks. The
64 per cent in China. But Indian online retail is challenge posed by climate change will deepen
expected to grow to 12 per cent of India’s retail out to 2035. India, like Australia and the rest of
market, up from 2 per cent now. This rate will the world, will need to factor climate change into
climb further by 2035. E‑commerce will support long term planning and investment, including its
employment, including in tier two and three cities implications for our economies and national and
and in micro, small and medium enterprises by regional security.
increasing access to finance and revenues from For India, climate change is compounding and
export. With the introduction of the GST it should hastening its water crisis, with forecast changes to
also support tax collection and curtail tax evasion the monsoon patterns, rising temperatures, more
– especially beneficial given India’s low tax base. intense weather events, and glacier retreat in the
Financial inclusion systems will continue to slowly Himalayas. Less, and less consistent, rainfall will
transform India’s economy and mobilise capital impact food and energy production, especially
inputs. India has already introduced a universal as India lacks the storage capacity to capture
biometric identification system (Aadhaar), initiated monsoon rains. The production of staples like
measures to boost the number of bank accounts wheat and rice are particularly susceptible to
(Jan Dhan) and rolled out real time payments extreme heat and water scarcity.
systems (Unified Payments Interface and Bharat An increasing frequency of natural disasters brings
QR). Along with the GST, these advances will lead with it human suffering and rehabilitation costs. A
to greater tax compliance and revenue for the growing body of evidence shows that the poor are
government, enable welfare spending with smaller the most affected. Disasters from climate change
leakages, and help combat corruption. Through have the potential to push those most vulnerable
electronic transfers and lower costs of managing even deeper into poverty and interrupt the
loans, digitisation offers platforms for providing economic mobility of millions.
credit to micro enterprises, including in rural areas,
leading to greater productivity. Indirect risks include potentially less availability
of global capital to finance India’s thermal power
The future of transport will influence India’s projects, with the lenders citing climate change
energy and connectivity scenarios. Faster progress concerns. Companies will need to adjust to price
in electric vehicle development could lead to volatility of raw materials and commodities as well
shifts away from liquids-driven transportation, as increased regulation. The impact of climate
presenting risks and opportunities to India’s change on agriculture and livelihoods could
automotive manufacturing sector. Autonomous increase the number of climate refugees.

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INDIA ECONOMIC STRATEGY TO 2035

Responses to climate change and environmental management and climate finance. Our shared
pollution will open up opportunities for Australian interest in transitioning to a low emissions, climate
capabilities. This includes areas as diverse as resilient global economy should see us continue
renewable energy, sustainable cities, climate to work closely together bilaterally, regionally
smart agriculture and infrastructure, water and multilaterally.

OUTLOOK FOR THE AUSTRALIAN ECONOMY TO 2035

An Australian strategy for engagement with India In the 2015 Intergenerational Report, Australia’s
out to 2035 must take account of how our own population is projected to grow at around
economy will evolve. We need to understand 1.3 per cent per year, slightly below the average
the position of both economies in order to plot growth rate of recent decades, to reach around
their intersection. 32 million in 2034–35. This projection is based on
the assumptions that fertility will remain at around
On average, the Australian economy is estimated
the 2013 rate of 1.9 births per woman and net
to grow at around 2.75 per cent annually over the
overseas migration will continue at a level similar
next two decades, based on projections regarding
to recent migration intake settings.20 Of note,
population growth, participation in the workforce
India is currently the largest source country of
and productivity growth.
Australian immigration, making up 21.2 per cent of
all immigration in 2016–17 (Figure 10).21

Figure 10: TOP 10 SOURCE COUNTRIES OF MIGRANTS BY CITIZENSHIP 2016–17

Source: Department of Home Affairs (AU). 2016–17 Migration Programme Report. Canberra: The Commonwealth of Australia; 2017.

38
 CHAPTER 1: The Macro Story

The age profile of Australia’s population is also Over the coming decades, the proportion of
projected to change as the overall population the population participating v in the workforce is
grows. Australians are projected to live longer expected to decline as a result of the population
and continue to have one of the longest life ageing highlighted previously.
expectancies in the world. As a result, there will be
Of the three key drivers of economic growth,
fewer people of traditional working age compared
productivity vi has historically been the most
with the very young and the elderly. This trend is
important to Australia’s economic performance
already visible, with the number of people aged
(Figure 11).
between 15 and 64 for every person aged 65 and
over having fallen over the past few decades.

Figure 11: AUSTRALIA’S LONG TERM GROWTHvii

Source: 1) Australian Bureau of Statistics (AU). ABS cat. no. 5206.0; MYEFO 2017–18. Canberra AU: The Commonwealth of Australia; 2018. 2) Treasury
(AU), The Commonwealth of Australia.
Note: Growth rates are average annualised growth for five financial years, 1985 represents growth from 1979–80 to 1984–85. Historical GDP growth rates
have been used up to 2016–17. Australian projections use published growth rates from the 2017–18 MYEFO from 2017–18 to 2020–21, 3 per cent for the
first three years after the forward estimates, then 2.75 per cent beyond. On average, over the next two decades annual economic growth is estimated to be
around 2.75 per cent.

v
Participation refers to the proportion of the population of people aged 15 years and over who are actively engaged in
the workforce.
vi
Future productivity growth is inherently uncertain, so historical productivity growth is used as a guide. Labour productivity is
assumed to grow at the average annual growth rate of the previous 30 years (1.5 per cent at the time of the Intergenerational
Report).
vii
The projections of the drivers of potential growth are developed using a range of assumptions and therefore are not without
uncertainty. The sensitivities of economic growth to assumptions for the projection of annual net overseas migration, the
participation rate and productivity growth are presented in the Intergenerational Report.

39