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 IT-
ITES 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
in 2004-05 Economic
and Situation
accounted
by Dr. Tarun Das
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
2000 2050
World 10.0 21
Asia-Pacific 8.8 23
China 10.1 30
India 7.6 21
Indonesia 7.6 22
Japan 23.2 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 Share of male and female population aged 80+ to total
population in ESCAP countries 1950-2050 population in ESCAP countries 1950-2050
12 3.5

Female Female
10 3.0

Male 2.5
8

2.0 Male
Percentage of total population

Percentage of total population

6
1.5
4
1.0
2
0.5

0 0.0
1950 1975 2000 2025 2050 1950 1975 2000 2025 2050
Years Years

Economic Situation by Dr. Tarun Das 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

Asia
Pacific
Percentage

55
China

50 Republic of Korea

Japan
45

40
1950 1975 2000 2025 2050
Years

Economic Situation by Dr. Tarun Das 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.
• More opportunities and acceleration in16
Economic Situation by Dr. Tarun Das
 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
absorb migrant
Economic workers
Situation by Dr. Tarunand
Das 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
that standardization
Economic Situation by Dr. Tarun Das
of these
20
 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