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đź“°Explained: Modinomics & The Population Dividend

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April 18, 2025

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Good evening, 

Welcome to the best way to stay up-to-date on India’s financial markets. Today, we’re discussing Modinomics and the population dividend.

Then, we close with Gupshup, a round-up of the most important headlines.

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Market Update.

Modinomics.

A few weeks ago, Modi starred in a Bollywood feature-film-length podcast with Lex Fridman where he talked about his upbringing, personal beliefs, policies, and goals. In honor of this very rare deep dive into Modi’s psyche, our weekly Friday deep dive will focus on Modi’s economic history relating to population versus intrinsic growth. 

Fun fact: Modi spent two years in the Himalayas learning from monks and Buddhists when he was trying to find his purpose. He credits this experience heavily with making him interested in public service and giving his life to helping Indians everywhere.

India has grown significantly on the global and domestic stage since Modi’s inauguration in 2014. His key strategy, Modinomics, has focused on harnessing a demographic dividend while investing in infrastructure and digital governance. He has wanted to stabilize and modernize India, which was plagued by sluggish growth, banking crises, dwindling investor confidence, and closed borders. Most economists now have India pegged as the world’s third-largest economy by 2027. 

However, critics will note that his predecessor, PM Manmohan Singh, also worked to liberalize Indian markets while serving as the RBI Governor, Finance Minister, and Prime Minister. Economists have argued that for major economic policies, elections are irrelevant: no matter who takes the helm, the country will move towards economic liberalization. 

What’s a demographic dividend? India will have extraordinary opportunities (and structural challenges) due to its population. In 2030, India’s working age population will hit 69 percent — 1.04 billion people — making 20 percent of all global working people reside in India and resulting in a historical low dependency ratio of just 31.2 percent. The median age will be 28.4 years, which will be far lower than the US and Europe, home to elderly populations of 20 percent each. Essentially, India is going to have a unique position to capitalize on a youthful workforce. 

What has Modi done? Infrastructure and manufacturing is one of his biggest legacies. Government initiatives have seen capital expenditure surpass $100 billion (â‚ą8.6 trillion) annually for three consecutive years, with infrastructure development doubling highway construction compared to the preceding decade. His Make in India slogan has attracted major foreign players like Apple, Foxconn, and Samsung, helping India climb from 142nd to 63rd in the World Bank’s Ease of Doing Business rankings, and contributed to record-high FDI. 

Crucially, Modi’s digital revolution, centered around a three-layer governance framework—including biometric identity systems, digital payments infrastructure, and data accessibility—has streamlined bureaucracy and reduced corruption, saving an estimated 1.1 percent of GDP by 2021. Such improvements in governance have enabled efficient delivery of social subsidies, directly benefiting lower-income groups and providing foundational support for future growth. The formal sector opens up opportunities to invest as well, which has led to Indian markets seeing 95 percent of all derivative and other trading activities globally. 

The promise of Modinomics remains unevenly realized. India's labor market, which is critical for absorbing the demographic dividend, remains deeply troubled. Job creation has severely lagged behind labor force expansion. Despite the Make in India campaign and a $25 billion (â‚ą2.2 trillion) incentive push in 2020 aimed at boosting manufacturing capabilities, the sector’s GDP share has stagnated, and private investment remains muted. 

This employment shortfall underscores perhaps the greatest risk to India's demographic advantage: youth unemployment remains chronically high, reaching 42.8 percent among the 20–24 age bracket. The educated youth increasingly dominate unemployment statistics, with their share among jobless individuals climbing from 54.2 percent in 2000 to 65.7 percent in 2022. Modi’s initial momentum in infrastructure and digital transformation has not yet translated effectively into broad-based employment gains, especially in labor-intensive sectors critical to sustaining inclusive growth. At the end of the day, people have to do something when turning of age. Our own trips to India reveal the same: more and more young adults do not want to join their small family businesses, but have no other work to turn to. There is a large unemployment rate, but the growing absolute number of workers usually find something, even if overqualified, to do. 

Additionally, Modinomics’ uneven implementation has exacerbated inequalities. The above policies we discussed in a positive, holistic light, have disproportionately harmed the informal sector, comprising nearly 90 percent of India’s workforce. The real wage stagnation since 2014 and a slow recovery in private consumption — growing just 3 percent, the weakest pace in two decades — highlight the ongoing struggle for the lower-income majority. Meanwhile, household debt levels have surged to historic highs, and savings have plunged, reinforcing a K-shaped recovery where the wealthy prosper while lower socioeconomic groups stagnate or regress, as shown by how India has the 140th best economy per capita. 

Fmr. RBI deputy governor Viral Acharya talked at a Samosa Capital Live Event, cautioning against the growing concentration of economic power among India’s largest conglomerates. They often are beneficiaries of preferential access to public resources, potentially stifling innovation and competition. Look at Modi’s pals Adani and Ambani, who have been behind the infrastructure and digital growth in India. 

Fmr. RBI governor Raghuram Rajan stresses that India’s continued neglect of human capital, especially education and healthcare, is a critical vulnerability. A worrying quarter of Indian youth (aged 14–18) struggle with basic reading proficiency, undermining long-term competitiveness in an increasingly digitized global economy. Without greater investment in human capital and a more equitable distribution of economic gains, Rajan warns, "We will grow old before we grow rich."

A growth chance: India now stands at a key inflection point. Modi’s government — likely his last — can still create intrinsically strong policy if it takes the opportunity to reduce tariffs, remove outdated regulations, and enable deeper competition. The key is to help aid the demographic dividend rather than solely rely on that. 

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See you Monday.

Written by Yash Tibrewal. Edited by Shreyas Sinha.

Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.