Monday, August 30, 2010

Big League India! Should we Celebrate?

Yes and NO !
The world is jubilant after a recovery, albeit meek, from the global gloom of economic meltdown of 2008-10 rivaling only the depression of the 1930’s. This recovery seems to have occurred by resilient growth in China and India and large bailout and economic restructuring packages offered by the US and European economies. While China has pushed down Japan to take second place next only to the US, India has also found a place in the top ten or trillion dollar economies and poised to take 5th position much before 2030.

India indeed has come a long way to create a niche for itself in the global economic space. The world foresee a demographic advantage that India can harness, given young age structure and a fast and consistent pace of income growth in GDP which is propelling shifts in consumption classes generating huge domestic demand for practically all types of modern goods and services. The markets for such products in the west are close to saturation and at the most meager. The investors world over, look into India as the power house to manufacture and export goods and services at cost effective contracts as well. There is also an expectation that India during the next 20-30 years will continue to provide trained manpower to the firms and business in the western world due to its relatively higher fertility levels and larger young age population.

There are credible predictions of large shifts in consumption behavior from the basic necessities to discretionary items and services. Indians are now being recognized as being the “maharajas of the technological type across the world”! Yet the fallacy of the growing economy gets highlighted only when one looks in to disparities of income. Although as measured by Gini coefficients the disparity of income/ consumption in India is about one half the level of China; it is interesting to watch the income disparities across the emerging markets during the next decade or so especially in India and China.

India produces close to 200 million tons of food grains including pulses and is self-sufficient so far as agricultural output is concerned. Yet one finds extremely high levels of malnutrition amongst the children and even the expectant and lactating mothers in India. The puzzling fact is that the level of malnourishment is even more than a number of countries in Sub-Saharan Africa which is so well known as the poorest part of the world.

The demographic dividends are expected out of labour supply potential that India has over other emerging economics of the world. However, it is also important to note that India’s population will also generates domestic demand in such a way that a substantial labour and skill pool is required to sustain domestic markets thus thrusting a considerable pressure on the global demand for labour either through fewer leaving India for other greener pastures; or though increase in exports of manufactured goods and services.

Both India and China are already facing shortage in a number of high skilled professions. The income growth is fueling air travel, while capital is aplenty to purchase/lease carriers both are facing serious shortage of aircraft pilots. Similarly, physicians, doctors, surgeons will be short of demand in both the economics especially when medical tourism is booming already in India. India so well known in having supplied software engineers all over the world will itself face serious shortage at home. While India is not at the verge of declining workforce as is the case with China; India has huge demerit in having a low educated and unskilled manpower which will be of hardly any use in the growing sectors of the economy. This means it is surely meant to increase wage bills not far from now in which case the labour and wage advantage that India had in the globalizing competitive environment will be lost, thus exposing the economy to risk of stagnation. Growing mismatch between the type of education skilled manpower that these countries have and the demand in the markets by the newly established companies and industries are going to cause a serious challenge within the next decade or so.

The structure of global competitive economy is such that India was the seventh largest in terms of volume of output at the time of its Independence; but in spite of the apparent high growth trajectory it is no where closer to that ranking presently. However, at the beginning of the 21st century the world is taking India seriously, mostly due to the imminent demographic advantage that this country is demonstrating to the world. India has always been a brain trust and exporter of highly educated manpower especially to the western world and to undertake business to countries such as the south-east Asia. Besides, considerable number of skilled (even at lower levels) labour force was attracted towards the west Asian economies right from the 1970s and this trend not yet reversed. While it would be fare that India would made all efforts to ensure that the newly developed production and distribution markets are sustained using the available labour and skills; it would be somewhat over ambitious to say that the Indian labour force will indeed be available to meet the requirement of the outside economies. On the contrary however, a noticeable number of professionals are returning back to India to seek employment in high growth sectors such as the Information Technology, Research and Development in pharmaceuticals and medicine and other high technology sectors. India needs large investments in education and technological training so as to skill growing labour force and meet the expectations at least partially.

India has many puzzles and dualisms: for example the debates over ‘India’ versus ‘Bharat’ or the urban rural divide; the unorganized versus organized workforce; continuance of abject poverty and hunger when the growth rates are best in the world; and issues revolving around social and income poverty. These debates will be explored in the subsequent chunks of articles to follow.

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