The Problem with India

During my previous four trips to India, I always returned more optimistic about India's future.

On my recent trip, I returned less sanguine.

Don't get me wrong. India is doing exceptionally well. India's economic growth rates for 2006 will be about 9% - one of the fastest in the world. The market believes that this rapid growth is sustainable. The Bombay Stock Exchange index, the SENSEX, was 6000 in 2004. This month, it crossed the 13000 mark. Manmohan Singh has set the goal for India to achieve a growth of 9.5% next year. Credit Suisse estimates that the Indian economy will outdo this and achieve 10% next year, and 10.5% in 2008.

So why do I have reservations?

My fear is that the success over the last few years has made many Indian leaders lose sense of reality. They are beginning to see positive things in negative things. They are beginning to believe in their own propaganda.

Kamal Nath, India's Minister for Commerce, argued that India's demographic profile was a plus for India. He said that India was a "young country" [35% of India is under 15] and was getting younger. India of tomorrow will be an India of "savers and spenders". This young cohort will also provide India with a large pool of skilled workers. This will help the economy grow. This was a plus for India over China. India's demographic profile therefore "holds the key to India's future."

Will simply producing more young people lead to a future of economic growth? This is a dubious conclusion to say the least. Otherwise, India would have enjoyed phenomenal growth in the past two decades. In the last 15 years, India added something like 200 million people to its population.

Population growth has and will always be a huge challenge for developing countries. Not least India. India's total fertility rate is about 3.3. [Singapore is at something like 1.6]. India's population is projected to reach 1.4 billion by 2026. At 1.1 billion people, India already has about 15% of the world's population living on 2.4% of the world's land mass, many of them in dire poverty.

Let's go back to the simple basics. To improves his lot in life, the average Indian must earn more than he does today. With a growing population, India needs to a) provide millions of new jobs for all the young folks entering the job market and b) provide these millions of young poeple with better skills so that they can make more money doing higher valued work. This will not happen without economic planning, investments and better schools. A better future will not happen simply because Indians produce more babies.