India’s rise is crucial for the global economy to continue growing

In another vein, many authors have argued that the world’s growth is constrained by the natural growth rate of its population. This is the reason why the world economy is yet to come out of danger as far as global recession is concerned. Japan, most of Europe, New Zealand and now even China, which has suffered a long period of economic weakness, all have aging or shrinking populations. In addition, the elderly consume one-third fewer calories than younger people. As a result, the problem does not seem to be one of too many (the Malthusian trap), but of a young workforce of too few, creating another barrier to economic growth.

The last observation explains the innovative immigration policies that countries are adopting today: the UK and Australia’s Global Talent Visa, Singapore’s Global Investment Program, and other options such as the Golden Visa, etc.

These facts show that ‘people’ matter for economic development. However, the question remains: why? Surprisingly, economic theory has no answer. The dominant Keynesian thinking is that it is income that limits consumption. Even in macro growth models, population growth is mostly given as exogenous and the role of demography In fact Not explained. But, today income is not as big a problem as the dwindling population. This is why the Keynesian solutions that worked well in response to the Great Depression of the 1930s did not work during the Great Recession of 2008, despite massive pump-priming by the US and China.

Let’s look at the fundamental relationship between technology, capital and demographics. On the supply side, technology increases (displaces jobs?) the productive capacity of factors of production. Furthermore, increased R&D and innovation often lead to newer (and better) products. Thus, it also creates new jobs, at least those required for new goods. Today’s world of automation means that there are no limits to production. Still, if robots rapidly replace humans, or the workforce falls, there will be no one left to consume these products (unless the robots start!) Thus, labor in the analytical model of economics and lies in the asymmetric treatment of capital: while labor and capital are substitutes in production, there is no capital on the demand side.

More recently, some economists have tried to show how productivity of time (not labor) on the production side can be increased, in the context of virtual business and offshoring. An IT firm in the US can maximize time productivity by outsourcing certain tasks to Indians who work while the US sleeps. Yet, this only addresses the supply side and does not solve the problem of consumption.

So what is the solution? It is important to understand the role of ‘consume-time’. Consumption requires not only income, but also physical time. It is useless to buy something if one does not have time to use or consume it. Thus, if the population stabilizes and the increased production must find consumers, the technology must necessarily save time. Empirically, this is what has happened in the West since the 1980s. Think instant services and pre-cooked meals, while time savings in areas such as electronics have worked through convergence: today we use a single hand-held device for many needs. Thus, the increase in demand in such economies depends on the extent to which technology can save people’s time. (The formal development of these results is shown by the authors in a publication BE Journal of Theoretical Economics,

Still, time-saving technology is insufficient to address the demand shortfall. Every consumer has only 24 hours in a day. Therefore, there is a limit to which technological progress on this score can increase the total usable time. This implies that time-saving technology can deal with the asymmetry of the production and demand side to some extent, but it cannot offer long-term equilibrium of demand and supply. There are two possible options. One, move consumers to where income is generated or advanced technology is available (i.e., the West allows immigration). Second, shift production through FDI to where consumers are in abundance.

This is why emerging market economies matter, especially India. Data shows that our ‘young workforce’, which consumes almost three times more than the older group, is still growing in India, while it is falling in developed markets and even China . These trends are usually irreversible in the short to medium term.

Bottom-line? India is valuable to the global economy because it is where consumers reside in terms of numbers and consumer groups. Since open immigration is unlikely to be politically acceptable in most countries, the only option is to move production to markets with higher populations. For FDI, the call must be ‘Destination India’.

Manoj Pant and Sugandha Huriya are respectively former Vice Chancellor and a faculty member at the Indian Institute of Foreign Trade.