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Published: August 27, 2009

 
 

India’s Demographic Moment

One major reason that global businesses are paying attention to India is this creativity and innovation now bubbling to the surface. It might appear at first glance that India has attracted the attention of these businesses purely as a consumer market, just as purchasing power in Europe and the U.S. is hitting a plateau. But India’s domestic economy includes more than passive consumers; valuable technological and business strategies are emerging there that have promise for the rest of the world. The young in India are providing its markets with both the talent to build and sell products, and the consumers to buy them. This self-reinforcing circle is turning India’s economy into a force to be reckoned with, just as it has in other countries where the demographic dividend has paid off.

Embracing Risk in a Fearful World

One casualty of the global economic recession has been the appetite for risk. Though the risk/reward ratios improved in global stock markets between October 2008 and the summer of 2009, caution prevailed. India has not been unaffected. The country’s fiscal deficit has become more ominous, the construction and real estate sectors have taken hits, and some Indian businesses are flailing from the enormous debt they took on for acquisitions and overseas investments.

And yet the global mood of caution did not fully take hold in India, because the demographic dividend has a significant influence on a country’s capacity for experimentation and entrepreneurship. In general, as economists Gurdip Bakshi and Zhiwu Chen have noted, the demographic dividend confers the willingness to take risks. Conversely, in countries with aging and retiring populations — and many people becoming unemployed — people grow risk averse. This dampens the country’s productivity and future growth.

Overall, the Indian economy looks far more buoyant than its global equivalent. India’s sustained but slow growth, its youthful population, and its conservative approach to financial globalization have run countercyclical to the long-term trends of the world economy. India can consequently provide a buffer for economies now experiencing slowing growth. Even as the aging, developed world becomes risk averse, India will have an appetite for risk during and after this recession, and can manage these risks within a well-regulated environment. India thus presents the opportunity for the developed world to cross-pollinate its risks, and leverage India’s dynamism to grow its investments. In fact, before foreign institutional investors (FIIs) fled world markets as the financial crisis deepened, India’s stock markets were home to more than 150 global pension funds from the United States, the European Union, Canada, and East Asia, among others.

In an era of globalization, demographic factors may make more of a difference to local economies than such physical assets as land, resources, and even industrial bases. Consider the United States, whose information technology and telecommunications industries drove rapid innovation and productivity gains during the 1980s and 1990s. This was the heyday of its demographic boom, when many baby boomers were in their most creative and unfettered period, their 20s, 30s, and early 40s. Even after its dividend began to tail off, the U.S. continued to see gains. This may well have been because its open immigration policies allowed hundreds of thousands of skilled foreign workers into U.S. industry and hundreds of thousands of foreign students into U.S. universities. More than 60 percent of advanced engineering degrees in the U.S. are awarded to immigrants, as are 40 percent of the patents. IT companies including eBay, Intel, Yahoo, Google, and Sun Microsystems were founded or cofounded by immigrants. If political proposals to tighten immigration laws, particularly for skilled workers, are adopted in the U.S., it could be counterproductive — choking off talent when the country needs it most.

 
 
 
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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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