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Published: August 27, 2009

 
 

India’s Demographic Moment

But among national government leaders, the idea that human capital drives growth has not always been popular. Economists and economic policymakers have underestimated the value of human capital and the impact of youthful energy. In India and China, for example, well into the 1970s and 1980s, people were seen as more of a burden than an asset. The government of India for a time co-opted public health services to promote birth control, and appointed a demographer as its health minister, with the idea of reducing the population. In China, as birth-control policies evolved to become more stringent, the Communist Party’s slogan transformed from “one is not many, two’s just right, and three’s too much” in the early 1970s, to “one is best, two’s the maximum,” and finally, to “it is good to have just one child.”

Today, at least in India, attitudes are changing. A very young population is currently coming of age and entering the workforce. Consumer spending is booming. According to projections, the dividend will spur the rise of a middle-class population of half a billion people over the next two decades. This population boom is increasingly seen as an asset, not just to the Indian nation, but to the global economy.

Corporate leaders around the world will have to respond to the demographic dividend by changing or expanding their strategies involving human capital, both for customers and for employees. One of the best places to look at these emerging strategies is India — in part because of its immense population and size, but also because of its political and economic structure. India’s democratically elected governments are in transition; its economic strength and demographics vary widely among regions (some provinces in the north have aging populations and no dividend at all). And its entrepreneurial sector, at this moment, is one of the most vibrant and imaginative in the world. By looking at the business activity in emerging India, we can see the strategies, particularly those that involve talent, that companies everywhere can adopt.

Experimental Entrepreneurship

Today’s boom generation is bringing forth new ideas in marketing, distribution, and networking. Within Indian firms such as ICICI Bank (India’s largest private financial-services company), Hindustan Unilever, the GMR Group (a rapidly growing energy and infrastructure company), and Comat Technologies (which provides access to information and services in rural and underserved regions), I’ve encountered young, entrepreneurial leaders who are eager to experiment with new ideas and business models.

For example, banks in India are linking up with self-help groups and post offices to reach the vast numbers of rural people who lack bank accounts and financial access. In urban areas, some banks are abandoning traditional bricks-and-mortar infrastructure and are instead leveraging information technology and communication tools to serve their consumers. One senior bank executive told me that his daughter can no longer fathom entering a bank to make a transaction. “When she discovered that the ATM near her house was out of order,” he said, “she preferred to go a couple of kilometers down the road to use the next one, even though the first ATM was right next to the bank!”

Retailers are using unconventional means to tap into the rural consumer class and bypass infrastructure constraints. They are letting people pay with grain for consumer goods. They are setting up sales and distribution networks staffed by the villagers they hope to target. Companies such as the Solar Electric Light Company (SELCO) are meeting the needs of unelectrified communities in the states of Tamil Nadu and Karnataka through solar lighting. The dramatic growth of India’s mobile phone market has been another success story, reflecting both government policy and dynamic entrepreneurship. Today, India has more than 300 million mobile phone users, most of whom use prepaid cards and buy talk time in very small installments. The rates are probably the lowest in the world, yet the companies are very profitable.

 
 
 
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Resources

  1. David E. Bloom, David Canning, and Jaypee Sevilla, Demographic Dividend: A New Perspective on the Economic Consequences of Population Change (Population Matters, RAND Corporation, 2003): Research showing the link between population age structure and demographic growth.
  2. Vinay Couto and Ashok Divakaran, “How to Be an Outsourcing Virtuoso,” s+b, Autumn 2006: Features Infosys as a master provider.
  3. Gordon Crovitz, “Time to Push for U.S. Immigration Reforms,” Wall Street Journal, April 28, 2009: Source on the large proportion of immigrants in U.S. higher education.
  4. Nandan Nilekani, Imagining India: The Idea of a Renewed Nation (Penguin, 2009): Explores India’s transformation from colony to socialist state to capitalist market to emergent global leader.
  5. Barack Obama, “Text of Remarks at Green Bay Town Hall Forum,” Milwaukee (Wis.) Journal Sentinel Online, June 11, 2009: The U.S. president on education and prosperity.
  6. “Peering into Their Murky World,” The Economist, July 2, 2009: In
    his new position, Nilekani is overseeing the development of India’s first national biometric identity card.
  7. C.K. Prahalad, “The Innovation Sandbox,” s+b, Autumn 2006: How ingenuity is transforming business in India, featuring Aravind Eye Care and Narayana Hrudayalaya.
  8. Sheridan Prasso, “A Challenge for India,” s+b Leading Ideas Online, 1/29/08: N.R. Narayana Murthy, cofounder (with Nilekani) of Infosys Technologies, argues for broad-based economic opportunity.
  9. Lord Andrew Turnbull, “How to Be a Demographic Realist,” s+b, Autumn 2007: The former head of the U.K.’s Home Civil Service explains why basic assumptions about retirement and growth will have to change.
  10. Infosys Web site: Includes essays and news releases on similar themes, including one on the ACDI/VOCA partnership to promote agricultural information.
  11. For more business thought leadership, sign up for s+b’s RSS feed.
 
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