Coverage of India in the U.S. press today has become a commonplace. Almost every major U.S. periodical has run a cover story on India - many have done so multiple times. Twelve years back when I first arrived in this country, the Internet was the main source for Indian news, and at times the only source. In fact, I'd pick up the newspaper and pray for no story on India because it invariably involved road/train accidents with avoidable fatalities, embarrassing Parliament skirmishes amongst its multiple political parties, natural calamities claiming casualties so high that it'd make Katrina a side news, etc. In other words, news on India was mostly negative with rare focus on its economy, which at the time was just coming out of its decades-old, socialism-style government controls.
Today, it's all about India's red hot economy. At 9% annual growth rate, it is one of the fastest expanding in the world. With over 1.1 billion people, including a 300M strong middle class, India is the unavoidable growth engine for major multi-national firms which are witnessing mature markets for their goods and services in most developed countries. More importantly, unlike aging demographics in the developed world, India has an incredibly young population. Over 95% of it is below the age of 65, and almost 40% are younger than 15 years of age. India's unusually favorable demography, apart from making it the largest consumer market in the world after China, also results in a very positive "dependency ratio," with proportionately more workers in their peak productive years providing for children and retirees.
China and India, the two future global economic giants, are often compared for their economic progress and its chosen paths. While China took the manufacturing route to became the world's manufacturing hub, India focussed on the services sector and utilized its English speaking army of engineers and college graduates to become the outsourcing capital of the world. It's really astounding to witness both these societies go through such a major socio-economic transformation in a single generation, with millions of people migrating from the hinterland to urban areas in an effort to move out of subsistence farming that limits any significant improvement in one's standard of living. Equivalent transformation in the western societies spanned over several generations, thus providing them ample time to absorb its pace and adopt with far more ease. For example, rapid transformation in China and India is causing serious strains in the family institution as parents and children adjust to each other's starkly different growth environments.
For India, the service sector, which is far less labor-intensive compared to manufacturing, will not be sufficient to push its vast rural population into more productive economic activities. By some measures, India's outsourcing and IT industry employs less than 2MM workers. The majority of the population has been untouched by India's high-tech industry driven growth. Economists are hanging their hats on the filter-down approach. The theory assumes that the government will first fill its tax coffers from economic surge and then invest the collected capital into education and health care for the poor in order to widen the base of beneficiaries. This approach is typically too slow, especially as the impatient lower strata in India watches the rich in the country getting richer at an alarming rate (India crossed Japan as Asia's biggest home for billionaires on the Forbes's latest list of global billionaires), and the government is known to be notoriously corrupt.
Atanu Dev & Vinod Khosla have an interesting Marshall Plan to expedite the desired inclusive-growth in India. Their plan proposes focusing investment on 6,000 Rural Infrastructure and Services Commons (RISC) to expedite development of India's 700MM farmers living in 600,000 villages. The argument goes that 6,000 concentrated zones will provide economies of scale and scope instead of focusing on 600,000 villages.
Coming back to India's urban centers, where many are migrating to from villages in search of better livelihood, there is an urgent need for better roads, bridges, sanitation, mass transport system, power generation & distribution, water supply, and almost every other infrastructure support a modern society requires. India's archaic and aging infrastructure was not built with much planning to begin with, and it's now bursting at its seams trying to cope with the country's sudden, explosive growth. My two visits to India over the past three years convinced me that infrastructure improvement should be India's single biggest immediate focus area. Trouble with India, BusinessWeek's recent cover story, provides a good analysis on India's infrastructure pains.
I can't end a post on India's economic future without discussing the status of its digital media landscape. A recent global study by comScore ranks India home to the world's fastest growing Internet audience (age 15+). Last year, India's Internet audience over 15 yrs of age grew by 33% to 21MM uniques, compared to 2% for the U.S (153MM) and 20% for China (87MM). Online media market in India is expected to grow at 29% annual compounded rate over the next five years. In terms of online usage (avg. monthly online hours per unique visitor), India does not rank in the Top 10, mainly because of its low broadband penetration rate. Indian government declared 2007 as the "Year of Broadband" and plans to increase its BB base from 2MM subs at the end of 2006 to 9MM subs by the end of 2007. In general, the size of the market in absolute terms (dollars and number of users) is relatively small, but all the future trends makes this market unavoidable.
While the above numbers project a bright future for India's online media sector, its wireless market is exploding. In June 2006, India joined China, Russia, Japan and the U.S. as the only countries with over 100MM wireless subscribers. India is adding ~5MM new wireless subs every month, faster than any other country, and is expected to have ~280MM subs by 2010.
Indian market is highly price sensitive because discretionary income is much lower compared to that in the developed world. The starting point for the wireless market in India is also very different - main growth lies in India's rural areas that has no existing telecommunication service. Global firms entering India's fast growing online and wireless markets will therefore need to innovate as proven success formulas from their previous experience may not work in India.
Another important difference to note is that the Indian digital media market is not growing at the expense of its traditional media market - the shift we're seeing in the west. Instead, the overall pie is becoming bigger. According to a recent New York Times story (In India, the Golden Age of Television is Now), the TV advertising in India grew by 21% per year on average from 1995 to 2005, when it reached $1.6B. While it's much smaller than the ~$67B U.S. market, Indian TV advertising is expected to continue its double digit annual growth for the foreseeable future, whereas it's flat to declining in the U.S.
To conclude, India presents a very bright and exciting prospect for the future of the global economy. To realize its full potential, the Indian government still needs to do a lot of hard work and make some tough decisions. Among which, it needs to continue its economic liberalization program, double-up its focus on infrastructure, bring down corruption, and prioritize investment to improve living standards in the rural sector. It's high time that the world's largest democracy also plays a proportionate role on the global economic front.
