Commentary on a Financial Times article

Engaging India: Demographic dividend or disaster?

Interesting article about India in the FT by Jo Johnson

http://www.ft.com/cms/s/cd516aa8-749a-11db-bc76-0000779e2340,dwp_uuid=a6dfcf08-9c79-11da-8762-0000779e2340.html


I'm not sure I agree entirely with the analysis- mainly on account of the burgeoning services industry that is building up around the small but highly paid and competent workforce. What this well written piece doesn't acknowledge is that although a great number of people do not fit present job requirements, the types of job requirements are diversifying rapidly. The viability of human capital changes with demand. The figures are startling but they ignore one thing- you don't need a race of super humans to fulfil all the possible job requirements. The price differential between human capital in the west and human capital in India is so large that it more than compensates for the very high salary hikes seen and will very easily account for the lowered capabilities of the present day workforce. The point is that only if Indian were competing against a population of 1 Billion healthy and well educated Germans, would they be shit out of luck.
To put things in context regarding HIV, we are talking about 5 million people, the population of Denmark and ...uh ...less than 0.5 percent of the India. I suspect more people in India die of road accidents. Not everything can be a problem simultaneously- you can't talk about the high birth rate, the high death rate and the high present population all being equally bad problems.


There is another point to be made regarding professionals whose salaries are rising. Professional salaries will be balanced out by currency devaluation as long as India growth is still internal rather than primarily trade driven. This is because professional salaries are spent in India by people whose output in dollars may not match their input. Thus to compensate for that, the rupee will have to devalue accordingly. The value of the rupee matches the output of all Indians, rich and poor. There is very little reason to fear that professionals in India are about to be priced out by their western counterparts.


The example about Bharat Forge misses the fact that each of those highly paid engineers actually maintains about many other jobs, a cook, a nanny, and a chauffeur at the minimum. Highly paid employees often also economically support large familial networks in a manner not seen in western societies. Very badly paid menial employees usually end up sending their children to limited schooling in the hope that they will do better.

I hope (and can see to a certain degree) to see a middle class consumer economy in India providing jobs and social mobility for millions more.

But all this.... all this aside, what people don't realise is that is yes, India is not going to overhaul China soon and yes, there is going to be social upheaval but -there are safety valves for this upheaval. The ineffectiveness of the judiciary in India has resulted in the Executive taking over most low level judicial functions and the Judiciary often overseeing the Executive from above- a curious but working balance. Democracy lives and breathes and rebalances governmental priorities. The Indian democratic system's ability to balance very very very large cultural, linguistic and economic disparity is unprecedented in modern history. Most prosperous western political systems are finding themselves incapable of meaningfully handling multiculturalism. Almost no poor countries are able to sustain the democratic experiment. The Naxal menace is a challenge that will probably be met first with brutal policing and second with a channelling of resources to those areas. I wish elections were held every four years instead of five


The Health system...sucks so bad it is not funny- but it is in private hands and therefore may be able to respond at some distant stage to all the built up demand. On the other hand, we have the Unicef asking what will be the impact of malnutrition on future growth rates. Do they know? Is it possible that the present rate of growth already factors in these systemic problems? What I worry about municipal infrastructure- people need roofs, water pipes, electricity outlets and sewage outlets. How the hell is this going to be tackled effectively? These are questions that need urgent answers but I have hope- I've seen the change in infrastructure in my lifetime. I've seen so much change since 1990 and so much more opportunity for young people open up. The triumphalists are thumping their chests for one very important reason- they, like me, are seeing an India that they have never seen before. They are seeing a future that they never thought they would see.


So many many people throughout the late eighties and all through the nineties refused to believe that China would do well. Now they deign to agree among themselves that China has done well. In India's case, the reasons for hope are a lot more.