Monday, September 10, 2007

Double-digit growth sooner than expected...How?

If all goes well (read if the government does not mess up things any more than it already has and we have status quo on the geo-political front in the sub-continent) the Indian economy should be able to record double-digit growth much sooner than anticipated. The driving force will come, not from improved performance in agriculture or continued strength in the manufacturing and services sectors, but from a completely unexpected quarter – greater participation by women in the work force.

A recent study by Roopa Purushottaman et al of the Future Capital group using South Korea's experience as a guide to simulate India's growth path over the next decades, shows increased participation by women will add $ 35 billion to India's GDP over the next five years, raising per capita incomes 12% higher than projected by 2025.

The Korean experience is taken as a good model to try and capture the impact of greater women's participation for two reasons. One the original BRICs (Brazil, Russia, India and China) analysis of Goldman Sachs projects India's per capita income at roughly $ 17,000, similar to Korea's income levels today. Two, our consumption patterns look closer to Korea's than to any of the other developed markets.

Re-running the BRICS model assuming women's participation patterns in India will mirror Korea's during 1965-2005, India's long-term GDP growth gets a 0.3% per annum boost over current projections; a boost that could well see growth tip into double-digit much earlier than predicted.

Wishful thinking? Not really! As education and aspiration levels rise, societal values change, driven in part by the women themselves, and it becomes more and more acceptable for women to take up jobs outside the house, women's participation in the work force is likely to rise significantly. The opening years of this century have already seen a sharp increase, the first in decades, in the percentage of women workers as a proportion of working-age women. From 26% in 2000 the percentage has increased to 31% in 2005.

Some of this increase is, no doubt, due to monetisation of unpaid work done by women at home earlier for which they now have to employ maids, care-givers and so on. But even so, there is no doubt that as women seek employment outside the house they are likely to move to more productive, higher-paying jobs.

In this India will only be following the global pattern where a combination of lower fertility rates, economic growth and changing social dynamics has been associated with more women entering the workforce.

Lower fertility rates – our fertility rate or the average number of children per women has fallen from 4.5 in 1980-85 to 3.1 in 2000-05 and is slated to go down to less than 2 by 2025 - along with later age of marriage – average age of marriage is now close to 20 years as against 17 in 1971 - reduces the opportunity cost of work. At the same time economic growth provides increased employment opportunities and more open social attitudes towards women lower the obstacles to their entry into the labour force.

The signs are already there. Between 1980 and 2002 the number of university women per 100 men studying for commerce-related degrees nearly quadrupled from just 16 to 63. For engineering and technical degrees, the ratio grew from 8 to 33. In many developed countries women's participation rates in the key working-age group range between 50 and 80%; in India the figure is less than 30%. The impact of a catch-up will be huge. Not only in terms of overall demand – monthly expenditure by working women is significantly higher across a range of household spending categories - but also in terms of shifts in demand.

As women gain a larger say in deciding family budgets, expenditures patterns will reflect their priorities much more than at present. A survey to assess future spending patterns suggests the biggest gainers are expected to be financial services, domestic services, educational services, personal care, packaged food, apparel, footwear and accessories, fuel and transport and leisure and entertainment.

The survey does not show health expenditure to be a big gainer. This is a bit surprising, given that women typically tend to place both health and education high on their agenda. What is clear, however, is that the 'future ain't what it used to be.