Dr. Tarun Das, Eco.adviser. Mof
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Demographic Transition and Offshoring- Future Look Dr. Tarun Das, Eco.Adviser. MOF
Economic Situation by Dr. Tarun Das
1
Contents of this presentation 1. Importance of offshoring for India 2. Dimensions of offshoring 3. Demographic transition 4. Implications for offshoring 5. Policy Issues
Economic Situation by Dr. Tarun Das
2
1.1 New Growth Dynamics through IT-ITES, Offshoring and BPO
1.Significant growth in R&D, IT-ITES and offshoring activities leading to explosive growth in knowledge-based industries. 2.Foreign affiliates established in automobiles, food processing, electronics, IT, transport, communications and financial services. Outsourcing increased in IT, distribution, contact centres, back office, R&D and manufacturing. 3. India emerged as a major player in ITITES and outsourcing hub due to high quality, skilled manpower, and low3 Economic Situation by Dr. Tarun Das operations cost.
1.2 Significant Progress of India in IT-enabled services and BPO
• Indian ITES-BPO industry recorded a growth of 45% in 2004-05 driven by increased offshoring by firms from US and Europe. • India emerged as the 18th largest service exporter & increased its share in world service exports from 0.6% in 1990 to 1.3% in 2003. 3. These exports were led by rapid rise of travel business, professional, and software services. 4. Indian software exports increased from only $0.7 billion in 1995 to $17.2 billion by Dr. Tarun Das in 2004-05 Economic and Situation accounted for 34% of4
2.1 Dimensions of offshoring • • • • •
Customer services Back office operations IT/Software operations Finance and accounting Human resource development • Knowledge services These services in general have high share of wage Economic Situation by Dr. Tarun Das
5
2.2 Sources of BPOs • Countries like India, Brazil, China, Dominica, Israel, Philippines, Rumania, Russian Federation have witnessed a surge of Business Process Outsourcing catering to the needs of developed countries. • FDI from developed countries in the BPO sectors of these countries are also growing. Economic Situation by Dr. Tarun Das
6
2.3 Benefits of BPOs A study made by Helios Innovations (2004) indicate that reduction of operating costs is the main factor for outsourcing.
1. Reduce operating costs-48% 2. Focus on core business-32% 3. Increase speed to market-5% 4. Improve quality-5% 5. Conserve capital-5% 6. Foster innovation-2% 7. Increase revenue-2% Economic Situation by Dr. Tarun Das
7
3.1 Demographic Dynamics • • •
Population of Europe, Japan and Australia is already aged. Population of China, Hong Kong, Russian Federation, Singapore is aging very rapidly. Population of India, Bangladesh, Indonesia, Pakistan, Malaysia is still young and growing slowly.
Economic Situation by Dr. Tarun Das
8
3.2 Migration • India, Bangladesh, Pakistan, Sri Lanka, Thailand, Indonesia and Viet Nam serve as a pool of migrant workers to labour shortage countries. • The number of migrant workers from these countries to other countries in Asia have increased from 1 million in 1990 to 5.5 million in 2004. Economic Situation by Dr. Tarun Das
9
3.3 Share 60+ population in total population World Asia-Pacific China India Indonesia Japan
10.0 8.8 10.1 7.6 7.6 23.2
2000 2050 21 23 30 21 22 42
Economic Situation by Dr. Tarun Das
10
3.4 Share of 65+ population in world 65+ population Region/ Country
2000
2050
China
20.9
22.8
Indonesia
2.4
3.5
India
12.0
16.0
Russian Federation
4.3
2.0
Japan
5.2
2.7
Rest of Asia Pacific
11.7
16.0
Rest of world
43.5
37.1
Economic Situation by Dr. Tarun Das
11
3.5 Share of 80+ population in world 80+ population Region/ Country
2000
2050
China
16.6
26.2
Indonesia
1.6
2.7
India
8.8
12.7
Russian Federation
4.2
2.0
Japan
6.9
4.4
Rest of Asia Pacific
12.4
11.6
Rest of world
49.5
40.4
Economic Situation by Dr. Tarun Das
12
3.6 Rising share of female in aged Figure VI Share of male and female population aged 65+ to total population in ESCAP countries 1950-2050
Share of male and female population aged 80+ to total population in ESCAP countries 1950-2050
12
3.5 Female
10
Percentage of total population
Percentage of total population
2.5
Male
8 6 4 2 0 1950
1975
2000
2025
Female
3.0
2.0
Male
1.5 1.0 0.5 0.0
2050 Years
1950
1975
Economic Situation by Dr. Tarun Das
2000
2025
2050 Years
13
3.7 Ratio of Working Population Figure VIII: Dynamics of working age population in selected economies Population aged 15-59 for selected Asia-Pacific economies 1950-2050
70
65
India
60
Percentage
Asia Pacific 55 China
50
Republic of Korea
Japan
45
40 1950
1975
2000
2025
Economic Situation by Dr. Tarun Das
2050
Years
14
3.8 Demographic Transition in India • The UN puts the median age of population at 24.3 years in India, compared to 32.6 in China and 35.1 in Korea. At present, more than 50% of India’s population is under 25. • Over next 15 years, rich world’s population will fall slightly, while developing world will acquire 2 billion extra people. Over that period, working population (age group 15– 59) in USA will have a shortfall of 17 million, Japan 9 million, Europe 10 million (counting UK = 2 mn, France = 3 mn, Germany = 3 mn and Italy = 2Economic mn), Russia Situation by Dr. Tarun Das 6 million and 15 China 10 million. In 2020, India will face a
4.1 Demographic dividends” for still young economies • Increasing labour force could be an impetus to higher growth in large developing countries such as India and Indonesia. • More “Consumption dividend” than in the rapidly ageing economies such as Japan. • Higher return to capital in young economies could attract FDI and other foreign capital. • Increasing opportunities to export labour to rapidly ageing economies. Economic Situation by Dr. Tarun Das • More opportunities and acceleration in16
4.2 Implications for Migration Policy • Immigration worker flows have already proven important in Malaysia and Thailand. For example, foreign workers account for 25 per cent of Malaysia’s labour force. • With the rapid ageing, economies such as Japan, Republic of Korea and Singapore would experience severe shortages in labour supply in the coming decades. • In most of the ageing economies labour markets are not sufficiently flexible to Economic workers Situation by Dr. Tarunand Das absorb migrant to offer the17
4.3 Impact on Offshoring • All these developments will lead to a pressure on wage rise at a faster speed. • If wages of skilled labour in both developing and developed countries are equalized in future, offshoring may become a victim of its own success. • Developed countries may also take protectionist measures against migration and trade in services. • Many federal states in USA have tries to put up legal barriers against awarding state contracts to non-US companies. Economic Situation by Dr. Tarun Das
18
5.1 Policy Issues-1 • India has gained significantly from offshoring and the WTO General Agreement on Trade in Services (GATS). • There is a need to have a fresh look at Mode-4 (movement of natural persons) under GATS. • India's focus area in WTO negotiations on GATS should be to provide effective market access to its professionals and skilled labour force in many sectors and to bring about a symmetry in the movement of capital (Mode-2) and19 Economic Situation by Dr. Tarun Das movement of labour (Mode-4).
5.2 Policy Issues-2 • India has comparative advantages in health care, software, construction and engineering, technical education, legal and accountancy, and it would be advisable to negotiate greater market access for its professionals in these sectors. • The availability of market access alone would not be fruitful if the qualifications to provide these services from Indian Institutions and Universities are not recognized abroad. • At negotiations, it needs to be ensured Economic Situation by Dr. Tarun Das 20 that standardization of these
5.3 Policy Issues-3 • For effective market access to professionals, India should negotiate for the following: a) Economic Needs Test should be eliminated. b) Social security contributions required for temporary persons needs to be corrected. c) Administration of visa regimes may be made more transparent. d) Specific sectoral commitments in line with requirements of developing countries. Economic Situation by Dr. Tarun Das
21
Thank you -Have a Good Day
Economic Situation by Dr. Tarun Das
22
Economic Situation by Dr. Tarun Das
1
Contents of this presentation 1. Importance of offshoring for India 2. Dimensions of offshoring 3. Demographic transition 4. Implications for offshoring 5. Policy Issues
Economic Situation by Dr. Tarun Das
2
1.1 New Growth Dynamics through IT-ITES, Offshoring and BPO
1.Significant growth in R&D, IT-ITES and offshoring activities leading to explosive growth in knowledge-based industries. 2.Foreign affiliates established in automobiles, food processing, electronics, IT, transport, communications and financial services. Outsourcing increased in IT, distribution, contact centres, back office, R&D and manufacturing. 3. India emerged as a major player in ITITES and outsourcing hub due to high quality, skilled manpower, and low3 Economic Situation by Dr. Tarun Das operations cost.
1.2 Significant Progress of India in IT-enabled services and BPO
• Indian ITES-BPO industry recorded a growth of 45% in 2004-05 driven by increased offshoring by firms from US and Europe. • India emerged as the 18th largest service exporter & increased its share in world service exports from 0.6% in 1990 to 1.3% in 2003. 3. These exports were led by rapid rise of travel business, professional, and software services. 4. Indian software exports increased from only $0.7 billion in 1995 to $17.2 billion by Dr. Tarun Das in 2004-05 Economic and Situation accounted for 34% of4
2.1 Dimensions of offshoring • • • • •
Customer services Back office operations IT/Software operations Finance and accounting Human resource development • Knowledge services These services in general have high share of wage Economic Situation by Dr. Tarun Das
5
2.2 Sources of BPOs • Countries like India, Brazil, China, Dominica, Israel, Philippines, Rumania, Russian Federation have witnessed a surge of Business Process Outsourcing catering to the needs of developed countries. • FDI from developed countries in the BPO sectors of these countries are also growing. Economic Situation by Dr. Tarun Das
6
2.3 Benefits of BPOs A study made by Helios Innovations (2004) indicate that reduction of operating costs is the main factor for outsourcing.
1. Reduce operating costs-48% 2. Focus on core business-32% 3. Increase speed to market-5% 4. Improve quality-5% 5. Conserve capital-5% 6. Foster innovation-2% 7. Increase revenue-2% Economic Situation by Dr. Tarun Das
7
3.1 Demographic Dynamics • • •
Population of Europe, Japan and Australia is already aged. Population of China, Hong Kong, Russian Federation, Singapore is aging very rapidly. Population of India, Bangladesh, Indonesia, Pakistan, Malaysia is still young and growing slowly.
Economic Situation by Dr. Tarun Das
8
3.2 Migration • India, Bangladesh, Pakistan, Sri Lanka, Thailand, Indonesia and Viet Nam serve as a pool of migrant workers to labour shortage countries. • The number of migrant workers from these countries to other countries in Asia have increased from 1 million in 1990 to 5.5 million in 2004. Economic Situation by Dr. Tarun Das
9
3.3 Share 60+ population in total population World Asia-Pacific China India Indonesia Japan
10.0 8.8 10.1 7.6 7.6 23.2
2000 2050 21 23 30 21 22 42
Economic Situation by Dr. Tarun Das
10
3.4 Share of 65+ population in world 65+ population Region/ Country
2000
2050
China
20.9
22.8
Indonesia
2.4
3.5
India
12.0
16.0
Russian Federation
4.3
2.0
Japan
5.2
2.7
Rest of Asia Pacific
11.7
16.0
Rest of world
43.5
37.1
Economic Situation by Dr. Tarun Das
11
3.5 Share of 80+ population in world 80+ population Region/ Country
2000
2050
China
16.6
26.2
Indonesia
1.6
2.7
India
8.8
12.7
Russian Federation
4.2
2.0
Japan
6.9
4.4
Rest of Asia Pacific
12.4
11.6
Rest of world
49.5
40.4
Economic Situation by Dr. Tarun Das
12
3.6 Rising share of female in aged Figure VI Share of male and female population aged 65+ to total population in ESCAP countries 1950-2050
Share of male and female population aged 80+ to total population in ESCAP countries 1950-2050
12
3.5 Female
10
Percentage of total population
Percentage of total population
2.5
Male
8 6 4 2 0 1950
1975
2000
2025
Female
3.0
2.0
Male
1.5 1.0 0.5 0.0
2050 Years
1950
1975
Economic Situation by Dr. Tarun Das
2000
2025
2050 Years
13
3.7 Ratio of Working Population Figure VIII: Dynamics of working age population in selected economies Population aged 15-59 for selected Asia-Pacific economies 1950-2050
70
65
India
60
Percentage
Asia Pacific 55 China
50
Republic of Korea
Japan
45
40 1950
1975
2000
2025
Economic Situation by Dr. Tarun Das
2050
Years
14
3.8 Demographic Transition in India • The UN puts the median age of population at 24.3 years in India, compared to 32.6 in China and 35.1 in Korea. At present, more than 50% of India’s population is under 25. • Over next 15 years, rich world’s population will fall slightly, while developing world will acquire 2 billion extra people. Over that period, working population (age group 15– 59) in USA will have a shortfall of 17 million, Japan 9 million, Europe 10 million (counting UK = 2 mn, France = 3 mn, Germany = 3 mn and Italy = 2Economic mn), Russia Situation by Dr. Tarun Das 6 million and 15 China 10 million. In 2020, India will face a
4.1 Demographic dividends” for still young economies • Increasing labour force could be an impetus to higher growth in large developing countries such as India and Indonesia. • More “Consumption dividend” than in the rapidly ageing economies such as Japan. • Higher return to capital in young economies could attract FDI and other foreign capital. • Increasing opportunities to export labour to rapidly ageing economies. Economic Situation by Dr. Tarun Das • More opportunities and acceleration in16
4.2 Implications for Migration Policy • Immigration worker flows have already proven important in Malaysia and Thailand. For example, foreign workers account for 25 per cent of Malaysia’s labour force. • With the rapid ageing, economies such as Japan, Republic of Korea and Singapore would experience severe shortages in labour supply in the coming decades. • In most of the ageing economies labour markets are not sufficiently flexible to Economic workers Situation by Dr. Tarunand Das absorb migrant to offer the17
4.3 Impact on Offshoring • All these developments will lead to a pressure on wage rise at a faster speed. • If wages of skilled labour in both developing and developed countries are equalized in future, offshoring may become a victim of its own success. • Developed countries may also take protectionist measures against migration and trade in services. • Many federal states in USA have tries to put up legal barriers against awarding state contracts to non-US companies. Economic Situation by Dr. Tarun Das
18
5.1 Policy Issues-1 • India has gained significantly from offshoring and the WTO General Agreement on Trade in Services (GATS). • There is a need to have a fresh look at Mode-4 (movement of natural persons) under GATS. • India's focus area in WTO negotiations on GATS should be to provide effective market access to its professionals and skilled labour force in many sectors and to bring about a symmetry in the movement of capital (Mode-2) and19 Economic Situation by Dr. Tarun Das movement of labour (Mode-4).
5.2 Policy Issues-2 • India has comparative advantages in health care, software, construction and engineering, technical education, legal and accountancy, and it would be advisable to negotiate greater market access for its professionals in these sectors. • The availability of market access alone would not be fruitful if the qualifications to provide these services from Indian Institutions and Universities are not recognized abroad. • At negotiations, it needs to be ensured Economic Situation by Dr. Tarun Das 20 that standardization of these
5.3 Policy Issues-3 • For effective market access to professionals, India should negotiate for the following: a) Economic Needs Test should be eliminated. b) Social security contributions required for temporary persons needs to be corrected. c) Administration of visa regimes may be made more transparent. d) Specific sectoral commitments in line with requirements of developing countries. Economic Situation by Dr. Tarun Das
21
Thank you -Have a Good Day
Economic Situation by Dr. Tarun Das
22
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