3/10/2013

Can India's demographics make her a BRIC leader?

The Wall Street Journal has published excerpts from a chat with Jim O'Neill, the noted Economist who identified the potential of BRIC (Brazil, Russia, India & China) countries more than a decade ago.

There are quite a few interesting insights from Jim; however, I will specifically focus on one of them.

Change in pecking order
Jim predicts that India could be the fastest-growing BRIC economy over the next decade.



He believes that India can grow at 10% or more, provided she embraces foreign direct investments wholeheartedly.

This is a very interesting &, slightly, counter-intuitive forecast!

India has grown the least among the 4 nations over the last 11 years (when Jim coined the term).

At 299%, India's growth is well behind Brazil (337%), China (523%) & Russia (537%).

Demographic sweet spot

The hidden arsenal that could power India's growth is her incredible demographics.

As per Goldman's 2010 report, "India's Rising Labour Force", India is projected to add a whopping 110 million workers between 2011 and 2020!

This is more than what the U.S., China, Russia and Japan will add combined!

To look at it from another angle, India will add a million people to the job market every month for 10 years!

Further, this growth will be mostly driven by people in their 30s and 40s who have more disposable income.

Indeed, India's population pyramid beautifully highlights this demographic advantage:

India's population pyramid, 2012
Source: The World Factbook, CIA 

Double-edged sword

Of course, it is easy to get carried away with the notion that India's huge population will work to her advantage rather than the other way round!

Many commentators have rightly pointed out that the quality of labor force is equally important as the quantity.

This is especially so in case of India where, historically, the Government has not paid as much attention on education as it should have.

It reflects poorly on India's policymakers that the right to (primary) education became a fundamental right only in 2010!

Even then, as Firstpost reports, the state of primary education in India is quite shocking. In 2012, only about 30% of Standard 3 students could read a Standard 1 text!

Higher-education students don't fare well either. In fact, they seem to be even more worse-off than their primary counterparts.

Aspiring Minds, a leading Indian employability solutions company, reported the following statistics for engineers and MBAs who graduated in 2011-12:

  • Only 2.68% of 55,000 engineering graduates tested were ready-to-deploy for IT jobs (report)
  • Less than 10% of 32,000 MBAs examined were employable in a functional role in HR, marketing or finance


Other factors

Even assuming that India successfully addresses the educational challenges, there are at least two more, internal, factors that could derail the Indian juggernaut:

  • Foreign direct investment - Indians are neither able to reject it outright nor accept it wholeheartedly and the position is unlikely to change in foreseeable future
  • Divided polity - a weak central government surrounded by a plethora of strong regional parties continues to be a recipe for policy paralysis


Conclusion

To conclude, the ability of India to seize the momentum is not guaranteed.

Jim himself put it very nicely, "I have learned that with India, you can't be overly hopeful because the situation there is so complex."