Demographic dividend or disaster?

A recent op-ed in the Economic Times, titled "Demographic dividend or disaster" analyses the implications for India of projections from a recent Goldman Sachs report titled "Dreaming with BRICs: The Path to 2050" (pdf - 580kb).

China, US and India will be by far the three largest economies in the world by 2050. Each of them will be more than four times as large as the next largest economies - those of Japan, Brazil, Russia, the UK, and Germany. The report estimates that the US' GDP will be $45 trillion, China's $35 trillion and India's about $28 trillion, whereas Japan's will be about $7 trillion.

The principal factor contributing to the huge sizes of the Chinese and Indian economies if they continue on their development paths is demographics. Both countries have huge populations. And since demographics are such an important factor in these projections, let us consider the implications. I will highlight four.

The first is that demographics can be predicted with much greater certainty than almost any other variable that goes into econometric models ...and its contribution to Goldman's projections makes the results worthy of serious attention.

In 2050, even though India's GDP will be more than four times that of Japan, the UK, and Germany, India's per capita GDP will be less than a third of the others. This has two implications.

One is that, on average, Indians will not be able to pay the same high prices for products and services as people in the smaller but richer (on per capita basis) economies. Therefore, for the size of the Indian economy and especially the extent of its growth to provide an attractive market for companies, they have to develop product-price propositions that suit the large Indian market.

The other implication of the demographic boost to the size of India's economy is that India can have a competitive advantage in labour costs that can be sustained through 2050 even as the country becomes one of the three richest economies in the world in terms of gross GDP.

It is estimated that by 2020 the US will be short of 17 million working age people, China 10 million, Japan 9 million, and Russia 6 million, whereas India will have a surplus of 47 million. The emerging youthfulness of India leads to the fourth implication of demography as a principal factor contributing to India's economic growth. The country can benefit from a demographic dividend or suffer a demographic disaster. Unlike other resources such as capital and natural resources that count in econometric models, people have a unique quality - they are, well, people! They have emotions, hopes and disappointments. Moreover, they are "appreciating assets" that, unlike machines and money can improve their own abilities when motivated and provided with the requisite learning environment. Young people can learn. Young people have energy. But young people are easily frustrated and they can be headstrong.

A huge demographic wave is arising, unprecedented in history. To ride it, and not be swamped by it, India urgently needs a dynamic education system as a surfboard.Therefore, it behoves our policy makers to give the highest priority to strengthen the education system. Along with more primary education at the grass roots level, we need more effective vocational and professional education. People want jobs. Therefore education must be continuously tuned to emerging opportunities for gainful employment.

Atanu pointed out in an earlier post that "every damn problem that India faces is exacerbated by the population problem". True both in the short and long term, only differently. Though solutions need to be found in the short term (which can only alleviate the problem to an extent), the real challenge is going to be in the long term - that of educating our workforce of tomorrow who will need jobs to sustain the country's growth.

This means that the demand for both primary and higher education (backed by the readiness to pay for it, even out of future earnings if necessary) will be be huge, along with demand for other basic needs like food, clothing, shelter, healthcare and communication. The state education system neither has the funds nor the efficiency to meet this demand. The unorganised private sector which currently comprises the major chunk of the education sector is ridden with quality and scalability problems. Organised private sector players will have to rise to the challenge sooner or later. The organised private sector is active with multiple large players and multiple models in all other basic sectors (food, clothing, shelter, communication etc.) but not education yet. The Reliance group's foray into education is a very small step (don't know if they have a larger game plan in the education sector).

An incipient liberal awakening in India

Last Thursday, I attended the second Minoo Masani Memorial Lecture at the Bharatiya Vidya Bhavan auditorium in Chennai, organised by the Indian Liberal Group (ILG). The speaker was N. Vittal and he spoke on "Corruption mocks at liberalisation" (I will post a summary of the lecture separately). The ILG seems to be fairly well organised and I plan to become a member of the ILG myself, but they are apolitical in the sense of not formally being or wanting to be a political party.

For a couple of years, I have been thinking about the need/opportunity for a new political party with a liberal stance driven by a new set of people outside the current political class. After learning about the ILG, I did a little bit of googling and came across a very interesting "business plan" (ppt - 350 kb) for a new political party in India - a liberal party.

There is in fact quite a comprehensive web site already up for the Liberal Party of India, which is yet to be launched. This initiative is being driven by Sanjeev Sabhlok and the India Policy Institute.

A workshop and seminar are planned for early January 2004 to propose "India's liberal political strategy: 2004 and beyond" for consideration and as a lead-up to the launch of the political party.

It is encouraging to seem some activity towards building a liberal movement in India.

The Problem with 2200 seats -- Part 2

I am moving the discussion from the comments section of a previous post. Here is Vivek's comment

Actually, I think most applicants wouldn't be the very poor relatively speaking.
I suspect most applicants want the job because they are risk averse...they want the security of a government job. It ok to be risk averse, so can you pay the social cost of it.

By auctioning jobs you ensure the relatively better off among the lot pay to secure employment with perks. You use the money to modernize railways/ capital expenditure of governement (both will create more jobs). And you get rid of the queue. Highest bidder gets to be a gangman.

I think most applicants for the job were poor. I got home late around 11 pm on Saturday night. On the way back, I saw thousands of them sleeping on local train platforms. I did not know what was going on then, but I wondered how the number of homeless could shoot up so abruptly.

Regarding using the money raised from auctioning off the 2200 jobs: I am not sure I understand the arithmetic. Assume that the gangman jobs pay Rs 5000 a month. The net present value of a permanent job paying Rs 5000 a month cannot be more than Rs 500,000 or Rs 5 lakhs. That is an upper limit. Judging by the sample population I saw sleeping on the platforms, I would guess that they would be hard-pressed to come up with even Rs 25,000. But let us generously assume that 2200 of them could bid Rs 100,000 each. So the total sum raised would be Rs 22 crores (Rs 100,00 x 2200 or approximately US $5 million).

Rs 22 crores is probably about 0.001% of the total budget of the railways. It is so vanishingly small that it is not worth talking about. It is much less than the rounding errors usually seen in government undertakings. Precious little imporovement can be done with that sort of numbers.

But all this debate about auctioning is missing a more important point and that is the sheer economic waste of the entire exercise of filling 2200 low-level public sector jobs. Assume that each of the 0.65 million applicants spent an average Rs 400 on the whole exercise of getting to Mumbai from all over India and other expenses. Suppose it cost them 2 days per person. Therefore about Rs 260 million (US$ 6 million) was spent directly. Total days lost was 2 x 0.65 million, or 3,560 person years were lost.

Let's repeat that: Rs 260 million in direct cost and 3,560 person years lost. Assuming that per capita production in terms of purchasing power parity is $1,000, that translates into an opportunity cost of $ 3.5 million.

This is only one of a few thousand futile idiotic wasteful things that the people of poor countries such as India do. Add up the waste, and you could easily cross the $100 billion mark of waste. Is it any wonder that India is poor? I don't think so. India is poor for a set of very easily understandable reasons. Figuring out that set is very important and it is primary to figuring out the solution. One of the most essential tools for the whole exercise is a firm grasp of arithmetic. As John McCarthy of Stanford University repeatedly said, those who refuse to do arithmetic are doomed to speak nonsense. I pray that we teach our students the ability to do arithmetic.

The Indians are coming

The Economist has a story on a new trend in the Indian IT industry, one that might help change its image from being just the sucking sound from the east -- hiring people in America.

This month, two Indian conglomerates, the Godrej Group and the Essar Group, each said they were to buy a struggling American call-centre firm. Wipro, an Indian IT services firm, has announced the purchase of two small American consultancies. Scandent, another Indian group with interests in the IT industry, has bought a minority stake in North American Benefits Network, which administers company health and benefits plans. Other firms flush with cash, such as Infosys, a big rival to Wipro, are said to be seeking deals.

Officials at Nasscom, the Indian software industry's trade group, say that their members have made cumulative investments of $350m abroad recently, most of it in America. Having cut their teeth subcontracting for big western firms such as IBM and Accenture, the Indians now want to build closer relationships with customers—big firms that are outsourcing everything from systems maintenance to accounting. To do that, Indian firms need to offer the ability to run call centres and the like from America as well as from India.

The Problem with 2200 seats

Vivek wrote about the problem of 650,000 people applying for 2200 jobs and the Shiv Sena going on a rampage. When will the idiots who make policy wake up to the population is growing out of control?

Every damn problem that India faces is exacerbated by the population problem. In a world where jobs are severly limited and the number of applicants nearly limitless, could one expect anything else than what the Shiv Sena is demanding? Let's do the numbers. For every vacancy in the gangman job, 295 aspire. Assume that the top 10 percent of those are wonderfully qualified to do the job. So 30 people compete for a job that every one of them would do very well. Only one is going to get it. Assume that 15 of those qualified to do the job but did not get it were Marathi. Assume that only one of them gets pissed off (7% get pissed off, assume.). Assume that this one pissed off person is not a rocket scientist, and therefore is not going to consider the finer points of the argument that the jobs are Central Govt jobs and one cannot discriminate etc. Now apply that to the total population of job applicants and you have a very large number of very pissed off people.

OK, 0.65 million applicants. Assume half of them Marathi. Assume only one percent of those get pissed off. So you have 3250 very angry people. Now consider that only 100 ransacked the railway office. I would say that it shows incredible restraint on the part of the affected.

My basic argument is that there is a problem, and it ain't 100 people ransacking an office or that they are Shiv Sena goons. The basic problem is that our population numbers are out of whack when considered in relation to the job numbers. One can come up with very clever tricks to dole out 1 job to 300 who want it, but at the end of the day it would not amount to a hill of beans.

We could auction these 2200 jobs till the cows come home, but it will be totally futile. We need to address the causes of the problem. It is time to seriously consider the auctioning of permits to have a child. Each person above the age of 18 (say) would get a permit free. They can hold it or they can sell it in the open market. If Laloo Singh wants to have 10 kids, let him buy the extra nine permits. For added effect, add a whopping high tax on the sale of permits. Take the proceeds of that tax and use it for education of poor children.

Auction the 2200 seats

Just so that you know I am not a total lefty. I was thinking why doesn't the government auction off the 2,200 seats for class D employees. This is assuming ofcourse, that a gangman's job is not exactly rocket science (or it wouldn't be class D). A cursory google search seems to support the view that most sane, responsible men/women would be able to carry it off (being a gangman).

An auction would get rid of the queue. Only people who value the job--and the job security--and willing to pay for it will apply. The Indian Railways could use the money for its own modernization.

Ok I haven't thought this through totally. I wonder what Prashant thinks about it? We need liberatarians.

Just BTW there is an excellent post on queue's at Brad's site. Read it if you haven't. And lets think through this. Perhaps one of us can write an "India-Economy-Watch-solves-the-Indian Railways-recruitment-problems-and-other-social-tensions-in-India" column in the Business Standard. I volunteer.

Auction the 2200 seats

Just so that you know I am not a total lefty. I was thinking why doesn't the government auction off the 2,200 seats for class D employees. This is assuming ofcourse, that a gangman's job is not exactly rocket science (or it wouldn't be class D). A cursory google search seems to support the view that most sane, responsible men/women would be able to carry it off (being a gangman).

An auction would get rid of the queue. Only people who value the job--and the job security--and willing to pay for it will apply. The Indian Railways could use the money for its own modernization.

Ok I haven't thought this through totally. I wonder what Prashant thinks about it? We need liberatarians.

Just BTW there is an excellent post on queue's at Brad's site. Read it if you haven't.

The idea of a nation/state

So the Shiv Sena went on a rampage yesterday at Mumbai Central Railway station (perhaps the only building standing in Bombay not be named after Chhatrapati Shivaji). They ransacked the office of the Railway Recruitment Board. At issue were "2,200 vacancies for gangmen, khalasis and other categories which come under Class D". The Times of India reports :

MUMBAI: Members of the Akhil Bharatiya Vidyarthi Sena (ABVS), the Shiv Sena's student wing, ransacked the office of the Railway Recruitment Board at Mumbai Central on Tuesday morning to vent their anger against the board's hiring of non-Maharashtrians.

The mob demanded that the Class D recruitment examinations, currently under way, be postponed since 40 per cent of the applicants were non-Maharashtrians.

When board chairperson Anil Mittal stated that he could not concede to the demand since this was an all-India examination, about 100 youths ransacked his office, smashing the window panes and damaging the furniture and computers.

Mittal suffered a cut on his forehead. "Biharis and UPwallas keep pouring into Mumbai for jobs in central government establishments such as the railways. Marathi jobless youths can't be expected to twiddle their thumbs," said Raj Thackeray, ABVS chief and Sena leader, pointing out that Assam too was facing a similar situation...

There was a similar problem in Assam the other day. There were allegations that people from Bihar were prevented from appearing in a Railway recruitment test at Maligaon in Assam on November 9.

A day or so later, Assamese passengers travelling through Bihar were roughed up and the The All Assam Students' Union (AASU) called for a 24-hour Assam bandh on November 17 to protest against the mistreatment of Assamese passengers. Ten people were reportedly killed in related violence.

I'll leave Assam for the moment to write something about Mumbai. About 6.5 lakh (650000) candidates had shown up for the 2200 seats on offer. They mostly squatted in an around the Mumbai central railway station as most of them couldn't afford to buy their way into a lodge. I could (and probably should) try and imagine and write about their desperation. However, I want to write about something else that I have been thinking off for the last few days.

The idea of a Nation or in this case a State. It's obviously a complicated, imagined and for the purposes of this post a parochial and un-meritocratic, idea. The Shiv Saniks went on rampage because, in essence, they think that since Mumbai is a city of Maharashtra, it is legimitate for Maharashtrians to demand a certain amount of preference in how the resources (including jobs) of the state are allocated regardless of efficiency concerns. Basically, "I should get a job in Mumbai even though he will make a better gangman than me, because my name is Wadekar (Maharashtrian) and his is Kumar (Bihari)."

In the particular case of the railways, the Shiv Sena chose a wrong target. The railways is a central government undertaking. It cannot make preferences of this sort.

It's an idea I want to get understand better. Any idea on how I should go about it?

Fortune on Bangalore

India, or rather, the loss of U.S. jobs to India seems to be the flavour of the month. Lou Dobbs can't seem to stop talking about it. Now, Fortune is carrying a lead story on Bangalore it calls Where Your Job Is Going. For a lead story, it's a mostly blah-blah article with nothing new to say (serves as good background reading if you don't really know much about India), but since it's about Bangalore, I figured I might as well post it.

The world is lousy with places claiming to be another Silicon Valley. But in Bangalore the claims have an eerie ring of truth. For one thing, as in Northern California, the climate is a big draw--Bangalore is 3,000 feet above sea level and thus has the most bearable summer weather of any Indian metropolis. What's more, like the San Francisco area it boasts fine educational institutions (foremost among them the Indian Institute of Science, founded in 1909) and an openness to outsiders--born of the city's status as a big army garrison since colonial days and as the home of India's defense and aerospace industries since independence. There's even a wine country (okay, one winery) north of town.

The real clincher is that despite constant complaints about the city's insane traffic, skyrocketing real estate prices, and fickle workforce--and constant efforts by other cities, especially Hyderabad and Chennai, to get in on the action--companies and people keep coming to Bangalore. Which, of course, sounds exactly like Silicon Valley in the late 1990s. And while Bangalore was a graveyard of failed startups in 2001, just like the Valley, the very corporate cost cutting that has meant continued lean times in California has brought tons of new business to South India.

Nandan Nilakeni, the CEO of Infosys has the last word on the trade issue.

India at its best is a lot like the U.S. at its best--a nation of staggering ethnic and religious diversity that somehow holds together by dint of tolerance and a sense of shared destiny. And now that India wants to join the material world, it seems churlish for Americans to begrudge it entry. "For the last 20 years, you've been telling countries like India and China to adopt free markets and join the global economy," says Nilekani of Infosys. "Now that we're doing it, you can't just say, 'Stop it!'"