How To Cash In On India’s Demographic Dividend

Business, China, Company Strategy, Economics, India

By John Richardson

IndianewA DEMOGRAPHIC dividend is only a demographic dividend if you can create enough jobs for most of your young people. That’s one of India’s biggest challenges.

During the economic Supercycle, cashing in on this dividend was relatively straightforward. If India had managed to sort out its restrictive labour practices, a sometimes nightmarish environment for foreign investors and terrible infrastructure, it might have rivalled China in the mass-manufacturing of low-value finished goods.

But it has missed this particular boat because ageing populations guarantee less, rather than more, demand for all sorts of finished goods in the West.

And as China undergoes painful economic reforms that will probably take many years to complete, it will become a lot more aggressive in export markets as it tries to compensate for lower growth at home. This makes it doubly hard to see how India, if it goes down the path of mass manufacturing for export markets, will be able to take sufficient advantage of its youthful population.

The good news is that other commentators have started to connect some of these dots.

For example, the Financial Times, in this article, wrote:

The global economic climate has turned far more adverse since the financial crisis of 2008, which JPMorgan’s Mr Aziz says has long-term implications for India that policy makers have not fully recognised.

Annual growth in global trade has slowed since the global financial crisis, and may never regain past momentum, as developed countries’ populations age, making it tougher for India to attempt to export its way to prosperity.

“In the past, the whole idea of liberalisation was to plug in to globalisation more efficiently,” Mr Aziz says. “Globalisation would get you out of most of your problems. India still needs export growth, but the bang for the buck is much less these days.”

The global crisis has also raised the cost of capital, which will make it difficult for India – which still has myriad forms of capital controls – to attract the money it needs for its growth, Mr Aziz says.

And so what’s the solution? Declaration of  a war on poverty – especially extreme poverty – we think.

Yes, obviously, infrastructure has to be improved as well because access to electricity and better roads are also vital.

But victory in this war on poverty is also crucial.

This would mean many more children would be healthy-enough to attend school on a regular basis. In parallel major improvements in the education system must also take place.

Key to alleviating poverty will be improving access to safe drinking water, sanitation and safe and plentiful supplies of food. This is where the chemicals industry can play a critical role in making this happen.

If more and more children are able to attend  good schools, they will grow up to be a little richer than their parents. This would translate in to much greater domestically-derived growth, which will happen regardless of India’s success or failure in export markets.

And so, in terms of exports, what should India’s strategy be as it cannot go down the route of mass manufacturing? Probably more higher value, innovative exports, which, of course, it is already very good at. The dilemma here is that these exports by themselves cannot create sufficient new jobs because they are not labour intensive enough.

How should we, as a result, measure Narendra Modi’s success?

Not by how many new basic steel or automobile plants he gets built because they will be exporting into ever-more oversupplied export markets.

And not only by how much reliable and cheap electricity generation capacity is installed and now many good new roads are built.

His success must also be measured by how much progress he makes on lowering infant mortality rates as a result of improvements in access to decent, water sanitation food and education.

Another key metric, which is also connected to the above, but which we haven’t mentioned before, is tackling India’s woefully bad healthcare system. Nearly 70% of deaths in India, five million each year, take place in the absence of medical supervision,

Stock market investors will, obviously, get excited every time a new factory opens.

But anyone who is focusing on how India fares over the next few decades, rather than the next few years, must focus on the measurements that we have just suggested.

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