The Hindu Business Line : Why it is going to be the Indian Century

India is sure to become one of the most important economic powers on earth. First, much of the world's new innovations will be propelled by its youthful population because this constituency is simply too critical and powerful to ignore. Second, the sheer size of the Indian market means that in volume terms too it will be the largest on earth.

WITH 500 MILLION people under the age of 24, this vast pool of young people are sure to win the hearts of producers and marketers worldwide. — V. Sreenivasa Murthy

India has, historically, had an issue with its population. In many parts of the country, because of intrinsic fertility and fecundity, the population density has been very high and India has always had one of the largest populations of the world. It is this precise characteristic that gave India the reputation of being the ultimate Malthusian test case some decades ago. With population seen as outstripping food supplies, in the early 1960s, many observers thought that a demographic disaster, of the kind that hit China in the 1950s when several millions perished of famine, was in the making.

How times have changed! India has not only successfully warded off the Malthusian contingency, given the huge success of the Green Revolution, but it has a population that will generate demographic dividends for the world.

Median age

India's population has a median age of 24 (half of its population is under 24). The median age of the Chinese populationis 34. It is this statistic that makes the Indian economy much more important than China's. With half its population under 24, while half of China's population is over 34, India has the edge in its ability towards driving the world's growth.

With over a billion people, of whom more than 500 million are under the age of 24, the vast pool of youth in India will provide the critical market for growth to take place. In comparison, the comparable market size of those under 24 for China is much smaller. Also, if there are saturation and satiation points for market demand, they will be reached much later in India than in China.

A reasonable question is what about the US market? In the years to come, that market may simply not matter to global trade. The population size of 300 million is clearly overshadowed by the combined two-billion-plus markets of India and China. Each country overshadows the population of the US considerably.

Yet, it is not the absolute market size that matters. It is the distribution of population within a country. The median population age in the US is 37 years. By that token, it is a considerably older country than India and marginally older than China. Is a GDP growth rate of three per cent in an ageing country, with a median age of 37, more attractive to a businessman than a GDP growth rate of 10 per cent in a youthful country, where the median age is 24?

India also has 550 million individuals under 24, while the US might have a population of 90 million such persons. Clearly, in the not so distant future, the market attractiveness of the US will dim substantially.

Europe, a rapidly ageing society

If such analysis is conducted for the European countries collectively, their median age of 40 makes them a rapidly ageing society where the dynamism that fuels growth will quickly be extinguished. In country after country across Central, Eastern and Western Europe, the high median age, coupled with a net population replacement rate that is negative — there are more deaths than births — means the population is being laid threadbare. This means that the seriousness with which one might have viewed the European markets has diminished, if not evaporated.

Qualitative dimensions

India's population, which till quite recently was seen as a potential liability, is, in fact, its greatest asset. The benefits are clearly quantitative, propelling global growth. Yet, the more important characteristics are behavioural and qualitative.

Very simply, a youthful population means that Markets + Minds = Motivation. Carrying this line of reasoning further, Markets + Minds + Motivation = Money.

With a hungry population, hundreds of million strong, all waiting to become economically emancipated and relatively well off as rapidly as possible, the market for projects of various sorts, in sector after sector, is truly gigantic. But it is the hunger and the drive for progress in its youthful population that signal key qualitative shifts in expectations for the Indian economy as a whole.

In the macroeconomic literature, much is made of the role of expectations as a driver of aggregate economic activity. Yet, while appealingly simple as a concept, it has belied all attempts at measurement. I will try and compare countries on a simple index of expectations.

Today, on a scale of one to 10, with 10 being the highest level of expectations, the feel-good factor in India is possibly eight while a decade ago it may have been six. Certainly, a generation ago it was a four.

It is fair to state that currently for China the index value is also probably eight, while for the US it might be a six or seven and for Europe as a whole four-five.

Simply put, India, followed by China, holds the motivational high ground in the world's economic pantheon. In less than a generation, the "animal spirits" that the late Lord Keynes so evocatively described as the ultimate generator of entrepreneurship and economic activity have come to the fore in India.

The drive for the consumption of products, services and ideas, the drive for the betterment of one's life, the drive to improve the physical accoutrements and constituents of a slightly shabby society, and the drive to just succeed, in general, are all palpable in the Indian firmament.

Drivers of Innovation

All macroeconomic phenomena are ultimately driven by ground-level microeconomic, behavioural and psychological factors. Thus, what does the presence of a motivated market, the size of which has never before been experienced by any country in the history of human civilisation, mean for India and the world?

Very simply, markets drive innovation. It is both market size and scope that drive the actual design of the functionalities that a customer might want and the diffusion of the ultimate products or services over time. Customers also have a direct role in dictating the contours of innovation, and the adage `if you build it they will come,' while applying to infrastructure such as roads and bridges, does not apply to the consumer and industrial products and services that make up most of GDP.

Given India's large and youthful population, India is going to be the laboratory from where the major innovations of the world are likely to develop.

Consequently, company after global company is planning on developing products and services in India, with a view to testing them here, before their national and global diffusion takes place.

Thus, India's customer base is going to define what appropriate customer functionality is, and, by that token, the Indian consumer is going to be defining the logic of world markets.

India is likely to become, therefore, one of the most important economic powers on earth. First, much of the world's new innovations is going to be propelled by India's youthful population because their constituency is simply too critical and powerful to not take into account. Second, the sheer size of the Indian market means that in volume terms too it becomes the largest market on earth.

(The author, a Professor of Technology Strategy, University of Texas at Dallas, can be contacted at majumdar@utdallas.edu)