As the developed world countries struggle to enact austerity measures centered around entitlements offered to the aging group of people born during the global post-WWII boom, one BRIC country is moving on from its own demographics unevenness.
While we think of India as a populated powerhouse, one that will eventually house more citizens than mainland China, it is not the amount of people that matter, but rather the productivity an economy can derive from its population. As it stands, India and China have a very valuable natural resource: excessive amounts of usable labor, growing industrial bases, and incredible growth in productivity.
From Sustenance to Savings
The whole of India once suffered from the mark of poverty: sustenance farming. Where others go to work, produce more than they consume, and have savings to invest or enjoy, sustenance farmers produce only enough to survive, never accumulating investment capital. Of course, with only a modest amount of capital, say, a plow, sustenance farmers would likely have the opportunity to spend less time in the fields and more time on more productive pursuits. Such savings, however, were largely impossible to achieve due mostly to an explosion in dependency.
Up until the early 2000s, India’s aging population was exceedingly dependent on the younger working generations. The ratio between those dependent on others and those still working stood at nearly 70%, with seven people in “retirement” or too young to work for every ten in the workforce. Even without a “social safety net” as strong as ones found in the developed world, the strain is still felt across the board, particularly among families.
To best understand the problem is to compare it to the United States, where social security and entitlement concerns have exploded, even with a dependency ratio lower than India. In the United States, five people are dependent for every ten in the workforce. This important indicator will eventually bottom in India at a rate far lower than each of the BRIC countries, including Brazil, Russia, and China. In the next twenty years, India’s ratio will even plummet below 2010 readings for Vietnam, a country often touted as a place to invest due to its youngand hardworking society.
While the age of the population is often considered most important for government revenues and political stability, particularly in this age of austerity after decades of entitlement, India is a special case., and it now has a near army of web developers and programmers.
As India’s young age and the current elders pass on, India has the opportunity to truly save all that it has been producing for so long. In doing so, those who move their investment capital to India are sure to benefit, as infrastructure and modernization investments lend way for even greater increases in productivity.
Those who pay attention to history should remember what happened in England and the United States when they first industrialized. Their economies exploded, the movement was deemed a “revolution,” and in the years that followed, one maintained its superpower status (England) and another superpower emerged (the United States). Whether Indian stocks are bubbling or the growth models are unrealistic in the short term is largely irrelevant; the trend is in favor of a new economic superpower.