Time to invert the pyramid

I have started writing a column in the op-ed section of Financial Chronicle .For my first article-see http://www.mydigitalfc.com/my-mind/time-invert-pyramid

Time to invert the pyramid


Roopen Roy

Jul 27 2008

Until Vasco Da Gama discovered the sea route to India in the late 15th century, China and India contributed nearly 75 per cent of the combined world output. Even in the middle of the 18th century, India produced 25 per cent of the world output. By 1900, this figure fell to below 2 per cent. Despite the accelerated growth of China in the last two decades, followed by the India growth story, the two countries combined contribute less than 20 per cent of the world output today.

Many factors contributed to the steady decline. China and India could not ride the waves of industrial revolution. The shares of India and China of the world output declined. But that is history.

The new wave of globalisation now provides an opportunity to China and India to re-emerge as economic and geo-political forces. China has already used the battering ram of low-cost manufacturing to penetrate the world markets with great force. India has leveraged its demographic advantage and its knowledge capital successfully. It has used the digital portability of its workforce and made jobs travel across wires. But that is only the beginning.

In all, 35 per cent of the world’s population living in China and India is now poised to re-emerge and recapture lost ground. According to the now-famous Global Economics Paper 99 of Goldman Sachs, popularly known as the BRIC report, in less than 40 years, the economies of Brazil, Russia, India and China (BRIC) will be larger than G6 in dollar terms and by 2025 about 50 per cent of G6. Brazil and Russia will emerge as dominant suppliers of raw materials while China and India will emerge as dominant suppliers of manufactured goods and services.

Global sourcing of IT/KPO and auto ancillaries alone is expected to add $30 billion every year. Investments in infrastructure, by some estimates, may be as much as $50 billion a year. We have a $1 trillion economy, which has the promise of growing at a 8 per cent plus clip.

Most of the signs look good, but there are dark clouds too.

Let’s look at the bright side first. India has a one-in-lifetime chance of reaping the demographic dividend. Japan and Western Europe and, to a lesser extent North America, have a greying population with resultant consequences of high healthcare costs and dwindling labour pools. India is on the cusp of a demographic transformation. In a population of roughly 1.1 billion, the average age of the population will move from 22 years in 2001 to 39 years in 2026. In the next four decades, India will be the only country in the world with the productive population (15-59) increasing during 2007 to 2050. Even China, due to the one child policy, will see a decline in the working population during this period. By 2025, a 500 million middle-class will have a spending power of $2.8 trillion per year.

Now, about the dark clouds. The agriculture and rural sector is growing only at 3 per cent with dismal productivity. Over 60 per cent of the population is directly or indirectly dependent on agriculture. How would we accelerate the rate of growth in agriculture? How will we transition a section of the people engaged in agriculture to the manufacturing sector without causing severe pain and displacement.

India will be the only country with its productive population (15-59 years) increasing between 2007 and 2050

How will all the wealth being created trickle down and not travel up to a small section? How will we take on the massive challenge of spreading education, training and skilling people? How will we tackle the tough issues of urbanisation without degradation of city life, growth without harming the environment and the problems associated with inequity and corruption?

If we are not able to evolve a model of inclusive and sustainable growth, all our electronic spreadsheets and econometric models will meander and fail. The prosperity of India cannot be measured alone by the fact that in 2006 high net-worth individuals (HNIs) had assets close to $260 billion and that the equity and real estate markets were exploding. We have thousands of farmer suicides in villages. The rise of the Maoist movement is not an infantile disorder but a manifestation of the desperation of the dispossessed economic underclass.

Management gurus have produced much literature on seeking fortune at the bottom of the pyramid. It is time to focus on strategies that narrow the base of the pyramid as much as we can--inverting it eventually. Our focus should be on creating real wealth at the bottom of our pyramid, as we work hard to transform its shape radically.

The race of re-emergence is not a 100 meter sprint. It is a marathon. We must evolve an inclusive and sustainable growth strategy. Perseverance on the right track will be our mantra for success.

Roopen Roy is managing director, Deloitte & Touche Consulting. These are his personal views