India: Demographic Dividend or Demographic Bomb?

This week, I closed my time in India as a resident and moved back to London. Those who know me well are aware of my deep love for my country of birth. I can never really leave India. My apartment in Calcutta will always be there as my home. Yet, as an academic I must be analytical about India as part of my profession.

Saying goodbyes in Mumbai led to a quick drink with a friend who has been very successful in the private equity world of India. We started projecting a decade ahead to what could be India’s opportunities and challenges. This was perfect as I was in a mood to reminisce about my four years in Mumbai and what I learnt from this experience.

We both agreed that the single biggest challenge facing India is whether it can create enough jobs to absorb the million or so young people that are entering the workforce every month!

For those who rule India, this must be taken up on a war footing. Young people are energetic and restless. They will find an outlet for this. Either positively, through meaningful employment, or failing which, negatively, via social unrest. As many have previously noted, the potential is for a demographic dividend or a demographic bomb in India.

Global Delivery Model

But this is not simply an India issue. It has global implications. The most important innovation of the Indian IT industry as we elaborated in India Inside (with my co-author Phanish Puranam) was the global delivery system. This was not product or a process innovation. It was what strategy research refers to as “management innovation” – a new way to organize the multinational corporation. Its impact is as fundamental as Ford’s assembly line, P&G’s brand management system, Toyota’s production system, or more recently Zara’s dual supply chain model.

The global services model was invented, or perhaps simultaneously developed, in the late 1990s by many Indian information technology companies. It allows for a key transformation. Tightly integrated tasks formerly performed by workers in one location working for a single company now take on a distributed format, such that different parts of the work are executed in different geographies and by different organizations.

The advantages are obvious. They include working wherever the best expertise exists at the lowest possible costs, taking advantage of time-zone differences for round-the-clock efforts, and diversifying risk by building redundancy across locations. Potential challenges are equally obvious: how to get people to work effectively across barriers erected by organizations, nations, cultures, and time zones.

What the global delivery system enables is to make India’s young workforce globally relevant. Jobs for them are now not exclusively a function of the opportunities to serve the Indian market. While it cannot create the needed jobs to absorb the millions being added each year to India’s workforce, it comes at an opportune time for many parts of the world that is facing the opposite crisis of declining birthrates.

Low Birthrates in Developed Nations

For the moment, let us say “women” are not having enough children in developed countries. As countries develop, the birth rate plummets as women get more educated and have greater employment opportunities outside the home.

The birth rate especially plunges in those advanced countries where higher education of women is combined with the continued prevalence of traditional sex roles. Rapidly women realize the men aren’t going to provide much help with childcare. Among the large countries, Japan and South Korea, or for that matter even Italy and Russia, having very low fertility rates should therefore not come as any surprise.

From a global perspective, beyond the advanced nations, China with its large but declining population exacerbates this problem. Because of its historical one child policy, as the quip goes: China will become old before it becomes rich.

Where does this leave us?

For the countries with declining population and a worsening ratio of working age to retired people, there are only two choices. One can either entice women to have more children. And governments are trying all sorts of creative ways. However, I doubt a few thousand dollars for another child will tip the scales for any rational person.

The alternative is the politically unacceptable solution of greater immigration. Given the reality on the ground, the current attitudes to immigration in the developed nations demonstrates how little effort has been devoted to educating the masses about this existential challenge. Instead, we observe demagoguery.

Closing the loop to India, let me reiterate that I do not believe that this alone can solve the job creation problem of India. But, we need to see India’s workforce as the world’s workforce. The world must adopt them.

This does not however absolve India from the need to prepare its youth for employment. Nowhere in the world is primary education anything but a government funded program. There is no business model invented that can “profit” from educating all children in a nation to their fullest potential.

In conclusion, I hope India will work on creating jobs from the demand side by removing as many barriers as possible to employment generation. My sojourn here only reinforced that India is still an agonizingly difficult place to do business. On the supply side, we must educate our all our children. They are too precious to the world.



Magic Dust

Must be Chuck Berry. ‘You Can Never Tell’ is one my favourite songs. I used to play this clip from Pulp Fiction to start my classes. A great movie combined with a great song. This was John Travolta’s comeback film. Most of us remembered him from Saturday Night Fever and then he disappeared from our consciousness. The brilliance of the clip is the anticipation it creates in the viewer as you keep expecting him to break out. But, you must change your dance as you get older.

I invite you to follow me on Twitter @ProfKumar and LinkedIn.

One Comment Add yours

  1. Shirish says:

    If India couldnt provide YOU a job, what hope is there for your students, and then lesser mortals ? No, serious problem. Brain Drain doesnt even address it adequately

    But on the +ve side I figured what makes you HOT – you’re sexy (o.f. c.o.u.r.s.e.!!) and then you’re… smart. I thinkits the smarts that makes us hot under the collar n everywhere else

    keep writing. You may have moved to other shores, but dont be a stranger


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