Friday, 4 December 2009

The great waves of India and China

If you have been living in India for a decade or so, or have been visiting often over the past ten years, you would agree with this observations.

There is a lot of change happening in India- social- economic and demographic. You see the increasing affluence around you, the cars- homes. Yet the sight of slums, beggars and abject poverty never goes away.

Why? We asked.

And we realised that the this is the case in India and possibly China- large and poor economies. The large size of the population means that the only entity that has the objective of moving forward the entire population,i.e. the government, has no chance of either reaching everyone nor has the resources to move the population upwards, together.

So economic activity will never be "equal" or socialist- no matter what the government says, tries or does.

In the meanwhile, people move to cities - the areas of maximum economic activity, to get rich the earliest. These go ahead to buy cars and homes.

As cities reach saturation levels, private enterprise goes further into smaller cities for newer markets. So on and so forth. At the same time, less affluent people are heading to the cities- the centres of activity.

When a countries population is 30 or 40 million, this change can be rapid.

When the population is 1 billion, this change takes place over time. India's affluence is concentrated in the top 10% of its population. This is the FIRST WAVE of people that benefited from their presence in cities to benefit from the first wave of economic investment.

The rest of the population is poorer, most fighting for basic needs, unconcerned about public hygiene, cleanliness or the environment. So for every person who becomes more conscious about the environment and decides not to litter, there is another who enters the city to make his fortune- but is absolutely unconcerned about civic duties. So the litter and filth continue.

The first wave will give rise to the next wave in 5-10 years. And then the next wave.

In this way, we see the entire population getter richer (per capital GDP of USD 30,000 for example) over 50-60 years.

In the meanwhile, one set of poor people will move on in life to be replaced by a slightly poorer set of people. Who will move on to be replaced by another set of less affluent.

The rich and the poor in this way will continue to cohabit for many many years. Maybe as the fifth wave takes over (in 30-40 years), the affluence will cover better the poverty....but for the next few decades, lets just accept the site of two India's all around us.

What does this mean for companies looking to invest in India?

Ritu, Venkat

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