India, China and Indonesia will be three of the five economies with the world’s largest working-age populations among G20 countries by 2030.
This highlights the fact that the world might be seeing the economic geography shifting toward Eastern nations, McKinsey said in its Driving Sustainable and Inclusive Growth in G20 Economies report on Saturday.
“The world remains deeply interdependent, and indeed perhaps more so than previously, as digital and data flows fuel exchanges of communication and knowledge,” McKinsey said in its report. “Yet the global economic picture suggests that the world may be at the cusp of a new era. Economic geography has shifted eastward…”
Even as the economic centres are likely to shift in the future, G20 economies currently have wide and varying trends on sustainability and inclusion.
According to the report, debt is now at its highest levels since the end of World War II, with the debt-to-gross domestic product ratio now standing at more than 300% for G20 countries. Inequality within countries-as measured by the gap between the richest 10% and the bottom 50%-has also risen to its highest level since the start of the 20th century, the report said.
China and India continue to be the core growth engines for the G20, but other nations score better on inclusion and sustainability. European countries, Japan and Korea are well advanced on a range of indicators from life expectancy to share of population with bank accounts. On sustainability, while emerging economies have the lowest per capita carbon emissions, countries in Europe have the lowest ratio of CO2 emissions to GDP.
The McKinsey report talks about bringing a large part of the world’s population above the line of economic empowerment to score better on metrics such as growth, inclusion and sustainability. The line of economic empowerment is, however, different from the World Bank’s extreme poverty line.
“The concept of economic empowerment described in this research involves ensuring that everyone has the means to access the full range of basics,” McKinsey said.
The World Bank estimates the extreme poverty line to be at $2.15 per person per day. However, McKinsey quotes other studies which state that in emerging economies on purchasing power parity terms, at $12 per person per day people can meet their basic needs and start to achieve discretionary spending powers. This is also the point where the risk of falling back into poverty is reduced.
For advanced economies, adjusting for their higher cost of living, the line of economic empowerment is $47 per person per day.
On an overall basis, more than half of the population in G20 economies, or 2.6 billion people, live under the line of economic empowerment, the report said. This includes 100 million people living in extreme poverty, 2.2 billion people living under the line of economic empowerment in emerging economies and about 300 million people in advanced economies.
On a global scale, the number of such people is at 4.7 billion.
According to McKinsey, more than three-fourths of the population in India and South Africa live below this line. As of 2020, 77% of India’s population or 1.07 billion people and 75% of South Africa’s population or 4.4 million people lived under the line of economic empowerment.
In case of China, Mexico, Brazil and Indonesia, this number is at over 50%. In more advanced economies in Europe and North America, about 20-30% live below the empowerment line.
“Our analysis suggests that closing this empowerment gap in G20 economies would require a cumulative increase in spending on essentials to the tune of $21 trillion over the decade to 2030,” McKinsey said.
In case of India, the total additional spending required between 2021 and 2030 is at $5.3 trillion to bridge this gap. This accounts for 13% of the GDP during this decade. For China, the spends required are at $4.8 trillion over the same period.
Towards Sustainability And Inclusion
While increased spending is one aspect of bridging the gap in sustainability and inclusion, there are other efforts essential from various countries to meet this goal, McKinsey said. To this effect, it has listed various public and private programmes.
“The list is not exhaustive and should not be interpreted as policy recommendations. Each takes place in a particular economic and social context in a specific country, and the learnings are by definition not universally applicable,” McKinsey said.
While it lists various programmes, India scores as an exemplar in eight.
Financial And Digital Inclusion: According to McKinsey, India’s initiatives through Jan Dhan accounts, Aadhaar and mobile-popularly known as the JAM trinity-have improved financial inclusion and increased transparency in delivery of government subsidies.
Affordable Housing: Targeted government programmes for lower and middle-income group housing have pushed affordability.
Vaccination: India’s efforts through the CoWin portal helped build a holistic vaccination ecosystem.
Healthcare: Apollo Hospitals’ omnichannel end-to-end healthcare system boosts quality, affordability and accessibility of healthcare systems.
Nutritional Crops: India’s latest initiatives to increase awareness and production of millets domestically and globally will improve production of high nutrition crops.
Renewables Push: India’s expansion of its solar footprint through the government and achieving over 60 GW solar capacity in 12 years, from 10 MW, were identified as an exemplar for power.
Electric Vehicles: Ola Electric’s rapid proliferation as an electric two-wheeler provider added to India’s sustainable mobility goals.
Cleanliness: The waste management system transformation by Indore Municipal Corporation was an exemplar for circularity initiatives by cities around G20 economies.