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The 'human side' of India...

Apr 7, 2006

The fact that the Indian equity markets are currently trading at a premium as compared to the emerging markets index is now well pronounced. Nevertheless, nothing seems to be deterring investors (domestic and Foreign Institutional Investors (FIIs)) from raising their stakes. The optimism is being backed up by justification of Indian companies offering better earnings growth and attractive return on investment. Notwithstanding favorable economic factors (relatively lower interest rates and better availability of capital), the renewed confidence in India Inc. and Indian business climate seems to be the fallout of the country's competitive edge in 'human capital'. As per the World Economic Forum's Global Competitiveness Report 2005-06, India has moved up five notches to 50 in the Global Competitiveness ranking (covering 117 countries). The World Economic Forum (WEF) defines competitiveness as 'the collection of factors, policies and institutions, which determine the level of productivity of a country and therefore, determine the level of prosperity that can be attained by an economy'.

Demographic dividend: The 'demographic dividend' is a phenomenon that occurs when a falling birth rate changes the age distribution, so that there are fewer dependents. As per the WEF report, India will have a relatively lower number of elderly people by 2025 as compared to a number of affluent countries. The 65-plus cohort in the country will account for only 8% of the population by 2025. In comparison, China's elderly population will be exploding in the years ahead, increasing at an annual pace of about 3.5% and by 2025 (approximately two-thirds of China's aggregate population will be in the 65-plus age group). Contrasting this, the median age of 35 in India would stand to be a factor of economic advantage.

Productive population: A mere growth in young population cannot ensure productivity and economic growth. Skill-set is also a determinant factor. It is interesting to note that India ranks 5 in the quality of technical education, far ahead of China's 51, Brazil's 100 and Russia's 21. It is on this fundamental premise that India has become a force to reckon with the international arena. In the areas of ITES, engineering processes and pharma contract research, India has attained the cadre of 'supplier of choice'.

'People' potential: The Nasscom 2005 study pegs the labour shortage in the US to touch 5.6 m by 2010 resulting in 1.3 m jobs being outsourced. Of this, nearly 50% would be outsourced to India, mainly in the areas of ITES, health and some high-end knowledge services such as underwriting, tax preparation and risk management.

The writing is clear on the wall. To a potential investor, India offers a combination of a business-congenial market and more importantly, a rich multitude of young trained manpower. Given this background, it is not surprising that investors are bullish on India from a long-term perspective.


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