India workforce - the future of global labour force

The Bengal tiger economy is still roaring, even if the acceleration of recent years may be difficult to sustain.

The Bengal tiger economy is still roaring, even if the acceleration of recent years may be difficult to sustain. While other emerging markets are seeing a slowdown in earnings growth, the home market offers India an element of economic immunity.

"The major factor driving growth in India is the increase in the working population", says Dalip Puri, Global Head of Indian Business Strategy, HSBC. That rapidly growing middle class will produce a quarter of the world's new workers over the next three years.

Even so, several delegates perceived a skills gap, with a willing workforce unmatched by enough professional workers to meet burgeoning demand. Even intellectually fertile India can't produce enough talent. That's a high-value opening for European industry, if it's prepared to face the challenges.

India's workforce will increase by 135 million by 2020

The UN estimates that, unlike declining Europe, India's workforce will increase by 135 million by 2020, to around 600 million. In contrast, Germany will have lost 30% of its workforce by 2050. While other countries, notably China, will face the legacy of their population control policy within a generation, India will be foremost among those facing the issues of population growth allowed to run its natural course.

This stark cultural difference may be the root of Indian suspicion over China. "Suffering a complex", was a trait frequently noted by delegates. Again, businesses already on the ground suggest India is not homogenous. "Our office in Mumbai is run by an Indian manager," said one confident French manufacturer, while a textiles corporate was disappointed with suppliers who provided excellent samples which were subsequently let down by production run quality.

Average income remains pitifully low, but high earners are growing in number exponentially, as are the very rich. It is predicted there will be 400,000 or more domestic millionaires by 2015. That immense body of consumers, seeking higher quality goods and experiences, has persuaded many commentators that India will soon show faster growth than even China.

While India has no one dominant trading partner, new corridors and partnerships in commodities and manufacturing are opening with the Middle East, Latin America and Asia.

It is essentially a growing economy which is internally driven, and that presents opportunities for European businesses, as Richard Heald, the chief executive of the UK India Business Council points out. "The greatest legacy that Europe can give into India is its intellectual property. India respects intellectual property. It has introduced legislation that is of international standard."

That's hardly surprising, given India's penchant for regulations, and also the nation's rather more laudable willingness to learn and obsession with education. In business terms, there are incentives to encourage foreign investment.

"The Indian government has consciously tried to get in foreign direct investment in sectors that they want investment", says Dalip Puri. "They have now opened up the sectors where foreign companies can go and invest and they have reduced red tape. They have set up special economic zones where they give special tax incentives to foreign companies." There are incentives too for consumers, with India's overall tax burden among the lowest in the world.

Given the huge internal market, an element of inflation has been inevitable, and that has impacted on India's still enviable growth forecasts. Nothing however has put a brake on the country's capital works programme. Tax revenues are still high enough to allow the Indian government to embark on ambitious projects. One delegate noted that Europe exports $5bn worth of construction products annually, and there are wider opportunities in this sector. Infrastructure from telecoms to transport, water pipes to basic electrical supply is in need of upgrading, or simply installing.

Richard Heald concluded that India had been seen as a trading post, somewhere to view from a cost-arbitrage perspective, as he puts it, but that is changing. "It's more complex than that. In certain sectors, the cost savings will reduce, but the value-add increases."

While many enjoy the harvest of the India's wealth generation, there are many more yet to taste the fruits of her economic monsoon.




Key points

  • Indian merchandise trade volumes are predicted to almost triple by 2025
  • New trade corridors for commodoties and manufacturing are opening up
  • Government is actively encouraging foreign direct investment with incentives and reduced red tape
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