India has become the world’s most populous country according to UN population estimates, concluding a multi-century era of China holding the number-one spot.

As its population surpasses 1.4 billion, some investors may be wondering whether India holds as much economic potential as other global superpowers.

While its gross domestic product still lags well behind that of the US or China, the number of Indians of working age (those between 15 and 64) has continued to grow while the American and Chinese workforces are in decline.

Many refer to this vast Indian workforce as a demographic dividend: an economic advantage caused by a change in a country’s age structure.

Developing countries tend to benefit from demographic dividends as their fertility rate decreases and more resources are diverted to education and health, increasing the country’s overall productivity. In the case of India, a growing working-age population has allowed the country’s pace of economic output to keep up with historically wealthier peers.

Demographic trends may not always indicate future economic prosperity. A variety of factors may influence a country’s overall wealth, including natural resource availability, macroeconomic policy, and geopolitical strife.

However, as Morningstar’s Head of Global Equity Research Daniel Rohr explains, long-term investors would benefit from considering what demographic change could mean for their portfolios.

While the influence of demography may be imperceptible quarter to quarter, he suggests, it can prove decisive in the long-term. 

Consider China, which until last month, had been the world’s most populous country for multiple consecutive centuries. Its seemingly ever-expanding population, combined with increasing labor productivity and urbanisation, had sparked tremendous economic growth in the 1990s and early 2000s.

However, Rohr says changes to fertility and age composition have had a dramatic impact on China’s economic outlook.

“In the next 10 years, we expect demographic change will drag on growth rather than drive it and radically reshape China’s economy,” Rohr says.

“Population growth, already slowing, will nearly grind to a halt by 2026 amid falling births and a steady rise in mortality. The age composition of China’s population will change dramatically over the next 10 years.”

This, combined with a shrinkage in China’s rural labor supply, is likely to have a negative impact on GDP.

As China and the US make room for a third global economic and demographic superpower, investors may want to partake in the transition.

Ways to invest in India's growth


Emerging market ETFs can be a good way for investors to get exposure to India, without  being overly exposed to a single economy or company. 

Collective investment vehicles such as funds and ETFs can provide a way for investors to access emerging markets with one trade, or one investment. 

According to IMF data, the 24 countries making up the MSCI Emerging Market Index today combined to 13.4% of global nominal GDP in 1988. That number grew to 35.7% by the end of 2022. Over the past 10 years, emerging markets were responsible for 53.3% of the world’s nominal GDP growth.

The emerging-markets portfolio reflects the changing landscape. China has grown into the dominant emerging-markets economy, now representing more than 28% of the Morningstar Emerging Markets Index. India has had a similar trajectory, starting at about 2% of the portfolio in 1998 and growing to over 17%. Countries like Mexico and South Africa have steadily lost ground to faster-growing countries.

The bronze-rated Vanguard FTSE Emerging Markets Shares ETF (VGE) presents a compelling, cost-effective option for investors seeking emerging market exposure, says Morningstar senior analyst Kongkon Gogoi. It's overweight India, with a 16% weighting compared to the category benchmark of 13%. It also has a large exposure to China and Taiwan. 

The iShares MSCI Emerging Markets ETF (AU) (IEM) is another bronze-rated emerging markets ETF, with a smaller weighting towards India of 13.8%. 

Alternatively, investors could look to these eight Australian mutual funds and exchange-traded funds that focus specifically on the Indian market - although none of the options listed below are covered by Morningstar, so investors should do their own research to ensure they align with their goals and risk capacity.