Will India become old before it becomes rich? Many business leaders are aware of the role that demographics can play in a changing world. Yet, executives remain unclear as to how they can approach this field in their business planning. There are many important tools for understanding the impact of population trends on economic activity like migration and urbanization patterns. Yet, age structure is perhaps the most powerful tool for businesses to identify changes in consumption, productivity and ultimately demand for their products or services.
Over the past decade, a demographic revolution has taken place which will have dramatic impact on global consumer markets for the next 50 years and more. Birthrates have declined sharply in Latin America and in the Islamic world, where several countries including Indonesia and Turkey are now at or below replacement levels. By contrast in North America and Northern and Western Europe, birthrates have sharply increased, with the USA, Britain and France now above replacement level and Germany recording its highest birthrate for almost 20 years. Southern and eastern Europe, including Russia, with very low birth rates, face a challenging future with few people of working age to support very large populations of elderly. China may face the most difficult challenge of all, as its working age population peaks and starts to decline in the coming decade.
When there is a large workforce and few dependents, a phenomenon called the sweet spot emerges. At this point the dependency ratio is very low (ratio of those under 15 and over 65 vs. those who are 15 to 65), bringing a higher economic growth from higher consumption and investment.
Different countries experience a sweet spot at different points in time, which helps explain periods of economic growth. Much of the recent high growth in economies like China can be attributed to lower dependency ratios. Potential demographic dividends still exist for many countries, because we know that countries with increasing numbers of working-age adults relative to dependent elderly and children have an opportunity to increase employment, investment, and savings. While we may identify the time period in which selected countries can realize this bonus, whether or not the demographic bonus is actually realized depends on public policy and the creation of economic opportunities.
There are commercial implications of the stage of the demographic transition. For example - In countries like Japan, Germany, US and China, retail has shown a rapid growth during the sweet spot period. Even eating out as a phenomenon grew rapidly in Japan and US during this time period. However, different stages of the demographic transition present different types of opportunities. For a very young country, the main consumer focus will be on food and nondurable consumer goods. For a country like China, which is at the zenith of its sweet spot, consumers demand more housing and durable goods. For an aging society like Japan, consumption will shift and support growth in the healthcare and services sectors.
For India, there are a couple of facts that need to be kept in mind while planning for the future:
The sweet spot will continue till 2037 and in the next 20-25 years, the working age group will be dominant. Earning women will also become an important part of this consumer group, given more and more women are entering the work force.
However, number of people in the old age group is also expected to increase rapidly (in absolute terms) post 2020, which will present both opportunities and challenges. In fact, over the next 10 years, the fastest growing age group in % terms will be more than 55 years age category. Opportunities will be in the form of introduction of new products / services targeted at older age groups – health foods, health services, financial services etc. Challenges will be in the form of lower consumption by older people and reduced overall disposable income of working age population given higher old age dependency.
In fact, a detailed analysis of age wise consumption – for example of various food items over the last 5 years or so, reveals that there seem to be three sets of age groups that behave similarly in terms of consumption propensity: up to 24 years, 25-34 years and more than 35 years. Does this mean that "old" age characteristics in India – or at least as reflected through buying propensity – start beyond the age of 35?
No comments:
Post a Comment