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strategy and business
 / Autumn 2009 / Issue 56(originally published by Booz & Company)


India’s Demographic Moment

In short, the entrepreneurial private sector in India is providing services not yet provided by the government. And in the process, it is finding its entrepreneurialism reflected in a new sense of service and openness on the part of the Indian government. For example, one great constraint in harnessing the workforce of a country for growth has been access to energy. In India, more than half the population lives without electricity, which puts a low ceiling on productivity and potential GDP growth in many parts of the country. The challenges of climate change, however, are compelling the Indian government to explore options beyond its traditional, coal-fueled electricity grid, including decentralized, diverse energy sources. Solar technology, wind power, biofuels, gas, and nuclear power all offer India the chance for more equitable access to energy. Such a decentralized energy approach is well matched to India’s dispersed population and to the innovative companies spawned by India’s demographic boom. The resulting expansion of energy is just beginning to have an effect on poverty reduction and domestic market growth; within a few years, the impact could be immense.

Synergy with Government

India’s greatest advantage might turn out to be the synergy between its demographic dividend and its increasingly reformist governments. The economy has a lot of ground to cover, and market opportunities remain wide open. Prosperity, for example, has been largely limited to the south and west of India; the east and the interior states have yet to see substantial growth take off. Recently, however, states such as Madhya Pradesh, Bihar, and Rajasthan have embraced reform, and their infrastructural weaknesses are being addressed through the national government’s highway projects and private investment. As a result, India’s demographic dividend has the chance to mature within a stable, well-regulated, expansionary, and competitive market. This should make the dividend more potent in its positive effects.

The demand for reforms in governance can now be felt across India’s institutions, where an ambitious young cohort of bureaucrats are designing and implementing better policy. Their efforts have enabled the New Pension Scheme, a universal, defined contribution–based social security policy; the landmark National Commodity & Derivatives Exchange Ltd. (NCDEX), an online exchange that is one of the most mobile, well-connected commodity trading exchanges in the world, built by a group of former banking technocrats; and the National Stock Exchange (NSE) and National Securities Depository Ltd. (NSDL), which are now among the world’s most agile and technologically mature stock exchanges and depositories.

The Indian government’s appetite for reform bodes well for the country’s demographic potential and for the future of business in India. Businesses have long been at the forefront of driving innovation, whether on Henry Ford’s assembly lines or in Silicon Valley’s microprocessors. If the demographic dividend is a force for innovation and talent, business is most effective at harnessing it. India’s government appears to recognize this. India is thus offering the world a rare combination: a reform-minded approach to growth, an expanding consumer class, and a stable democracy.

Developing a Distinct Niche

Until now, demographic dividends have primarily benefited countries that had built up large export industries. The United States in the baby boom era emerged as the dominant economy in a diminished postwar world, which allowed it to dominate world exports and create millions of jobs for its young workers. East Asia similarly leveraged its demographic dividend into its transformation as an export manufacturing hub. India, too, has some export-related advantages, especially when it comes to talent. The country is coming of age as the economies of Europe, the U.S., and China are aging, and these countries will need young workers to drive growth and investment and to support their growing numbers of dependents.

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  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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