Do it yourself

Wednesday, October 25, 2017

Jobs will come from services, don't stress manufacturing

Thought for the day

"Even the knowledge of my own fallibility cannot keep me from making mistakes. Only when I fall do I get up again."

—Vincent Van Gogh (Dutch, 1853-1890)

Word for the day

Ducky (adj)

Fine. Excellent. Wonderful. Charming. Cute

Malice towards none

What if Gujarat assembly elections are encore of Ahmed Patel RS election?

First random thought this morning

The current poll campaigning styles of BJP and Congress are completely in contrast to each other.

BJP appears to be taking it very seriously, almost making it a "do or die" type situation. Whereas Congress dealing mostly in jokes, almost sounding "we have nothing to lose so let's have some fun at expense of BJP leadership".

One does not need much sagacity to tell that something is amiss in both fortresses.

Jobs will come from services, don't stress manufacturing

The second area of focus identified by for PMEAC is "Employment and Job Creation."

I know this is cliché, but the unfortunate fact remains that Indian growth in past two decade or so has miserably failed in creation of adequate productive jobs for the burgeoning workforce of the country. MNREGA has helped to some extent, but had been constricted by fiscal constraints, leakages and lower productivity. Disguised and underemployment also continue to impact the productivity and earnings potential.

The incumbent government has focused on two key programs for creating job opportunities — (a) encourage investment in fresh manufacturing capacities through "Make in India" initiative; and (b) promote self employment through schemes like MUDRA, Startup India, Standup India and Skill India, etc.

In this context it is pertinent to note the working paper published by the Reserve Bank of India in 2014, highlighting many interesting facts about the status of employment and its elasticity to the GDP growth in India. In particular the change in occupation structure of the economy in past 15years is worth noting; because it helps setting up the agenda for future growth.

The working paper found that aggregate employment elasticity (change in employment due to economic growth) of Indian growth has fallen considerably in post 1991 period. In this period for every 10 per cent change in real GDP, there had been about 1.8-2 per cent change in employment. The current statistic is even poor.

Moreover, elasticity varies considerably across sectors. While agriculture has witnessed negative elasticity, services including construction have generally been employment intensive. Manufacturing employment elasticity has hovered in the range 0.29-0.33.

Within manufacturing, the employment elasticity for organized manufacturing sector based on various estimates seems to be higher, in the range 0.42-0.57 for 2000s and it has risen over the previous two decades.

Given the huge productivity and wage differentials between organised and unorganised sectors, greater employment generation in organised manufacturing is crucial as it has larger multiplier effects.

Subsequent to 2011, India has seen significant moderation in its GDP growth rates. Labour Bureau quarterly surveys as well as various private agencies’ information hints that we might see some changes in employment elasticity depending upon the relative pace of moderation in employment generation vis-à-vis growth.

The working paper suggests that going forward, it is the relative cost of capital vis-à-vis labour and the nature of investment demand that will determine to what extent growth would be job-creating.

Paradigm shifting, though slowly

In a classical economic recovery (a) consumption rises, usually led by rise in wages and/or lower interest; (b) prices rise as demand growth outpaces supply; (c) demand for investment rises as producers rush to create additional capacities; and eventually (d) employment rises leading to further rise in consumption.

Whereas in a pump primed recovery driven by government stimuli, rise in employment leads the cycle. To begin with usually the rise in employment is at the cost of productivity.

Hence, if the rise in employment induced by fiscal incentives fails to kick start the virtuous cycle of income—consumption—investment—income, there is a risk of economy getting pushed even deeper into slowdown.

In Indian context, arguably an economic turnaround is taking shape here. Though these are still early days, but I strongly feel that the recovery is not taking the Classical path.

In my view, the economic recovery in India is taking a detour to the Classical path. Some of the key highlights of the recovery, as I see it, are as follows:

(a) The consumption level in the economy is rising, but it is not rising in the classical Masslow evolutionary style. The consumption rise is more aspirational in nature.

Accordingly, the demand for services is rising much faster than the demand of products. The capacity addition therefore is more likely in "seats" rather than "machines".

(b) Productivity gains are likely to play major role in the growth. The recovery may therefore not result in creation of much real assets.

Higher taxation, exploitation of high savers through low real rates, elimination of middlemen, and higher social sector spending are amongst the key features of the growth cycle.

The good part is that efficient social sector spending (minimum leakages in subsidy distribution, emphasis on building quality human capital through better education, health and training) shall add to productivity gains achieved through better use of technology and management of redundancies.

The flight of capital is a real risk in the short term as the rich try to protect their wealth from being snatched by an aggressive regime. But I am not worried on that count. I feel that the new businesses will generate enough resources to compensate for the withdrawal by traditional businessmen. Besides, foreign capital will also be encouraged by an open, transparent and receptive regime.

Make in India

The apparent motive behind "Make in India" mission is to alleviate poverty through creation of large number of employment opportunities. This objective, the protagonists claim, will be achieved by acceleration in economic growth through higher industrialization.

I am not sure if there is much evidence to substantiate this optimism. To the contrary, there is some evidence to the effect that during high growth phases in past couple of decades the employment opportunities in industrial sector have remained mostly stagnant. Most employment growth has occurred in services sector, notably construction.

Moreover, Make in India program mostly aims to substitute imports. We are trying to compete with manufacturing powerhouses like China, Vietnam, Taiwan, etc. This defies the basic principle of making economic decisions.

A 200kms drive away from any metropolitan area would tell you which business is the largest unskilled and semi-skilled employment generator in the country – yes it is mobile telecom. While textile industry traditionally believed to be largest employment generator has historically received humongous, often undeserved, support from the government, the telecom sector has remained at the receiving end! Have you heard anyone talking about subsidizing telecom industry for generating more employment?

Industrial growth has in fact mostly added to economic and to some extent regional inequalities, rather than creating material employment opportunities.

The popular illustration cited by the Prime Minister is that if more tourist come to India, tea vendor will get more business. He needs to think, whether we want more tea vendors chasing tourists and more construction labor constructing large factories and massive physical infrastructure for foreigners without acquiring any meaningful skill that would keep them employed post construction period or we want more research scientists, better equipped farmers and entrepreneurs.

Anyone who has travelled beyond large cities in China would confirm that even after 25years of relentless pursuit of industrialization, notwithstanding the impressive aggregate economic data and gigantic infrastructure, there is abundant distress and discontent in the country. It may be another couple of decades when China comes close to developed nations on "better life "parameters. Even if it does, that is.

India does not have that much time. PM Modi has even less. Moreover, "India" is not "China" and "Indians" are not "Chinese" at all.

In my view, the focus of government should be on "better life" for all Indians rather than the banalities like 8% GDP growth, Indian companies in Fortune500 club, number of Indian billionaires, rising graph of Sensex etc.

I feel one Noble prize in Mathematics, physics, or chemistry can achieve what a thousand Olympic gold medals or Cricket world cups would not. Similarly, 10% higher crop yield and 10% less wastage of agri produce can bring more prosperity to India than 100 smart cities or 100 Industrial zones. Potable water to every home will alleviate poverty much faster than 3000 airports.

Self employment

In past two decades, since 1995, India’s economy has grown at an average rate of 6.9%. However, the total employment in economy during this period has grown at just 0.3% CAGR.

In this period the number of self entrepreneurs has certainly increased in the country. This has coincided with the sharp fall in public sector employment. The aggregate private sector employment level has not been able to compensate for fewer opportunities available in public and unincorporated private sector. Consequently, the total number of employees on live payrolls has fallen sharply since early 2000’s.

The combination of two – lower employment opportunities and liberal business rules – has perhaps forced people towards entrepreneurship that keeps them underemployed for most of the time.

The number of self owned enterprise has swelled in past one decade. As per 67^th round of NSSO survey (June 2011), there were 58million unincorporated enterprises in India (excluding agriculture, construction and those registered under Factories Act).

Over 85% of these enterprises are run by the owner himself, without any hired worker. 44% of these were run from the residence of the owner. These enterprises employed 108mn people against just 39mn on the live payroll in organized sectors, including 11mn in private sector. (Source: RBI, NSSO)

There has been a definite shift in employment away from agriculture towards manufacturing, construction and service activities. The share of agriculture has declined continuously from 59.9 per cent in 1999-00 to 48.9 per cent in 2011-12 whereas the share of construction sector has consistently risen from 4.5 per cent in 1999-00 to 10.6 per cent in 2011-12.

From my experience I know that most of these business establishments may not exactly be "authorized" from civic and town planning view point. This creates number of problems from everyone. Grocery and other daily need shops operating from homes; tailoring shops; automobile repair shops create nuisance for the neighborhood; pose environment and safety hazard; put pressure on civic amenities like power, water and sanitation; motivate corruption; and above all lead to serious problem of child labor, underemployment and disguised unemployment. Town planners, civic administrations, and government must recognizes & accept this phenomenon to find acceptable solutions.

The point to ponder is whether the recent policies of the government do favor this cottage industry or the policies are oriented more towards elimination of these mostly irregular and non-compliant businesses!

If the idea is to migrate all informal, irregular and non-compliant self employed to the formal sector, the transition management is extremely important. Unfortunately, so far the transition has been chaotic, unmindful and rather cruel.

Also see

My 2 cents for PMEAC

Economic Growth: Goals are important, so are means

Tuesday, October 24, 2017

Economic Growth: Goals are important, so are means

Thought for the day

"I often think that the night is more alive and more richly colored than the day."

—Vincent Van Gogh (Dutch, 1853-1890)

Word for the day

Coleopteron (n)

A beetle or any other coleopterous insect.

Malice towards none

Congress Party at present is like an infant holding a banana in his hand.

They are hungry, have adequate food in their hand, but do not know how to eat it!

First random thought this morning

An increasing tendency is seen amongst almost all political parties to criticize regulators, judiciary and other statutory authorities and panels, if their decisions do not go particularly in their favor.

This practice not only raises questions over the autonomy of the constitutional bodies and casts doubts over the proper functioning of democratic apparatus, but also sends signal to the common man about the possible maneuverability of the system.

We seriously need to strengthen the rules relating to contempt and perjury.

Economic Growth: Goals are important, so are means

In its first meeting earlier this month, the Economic Advisory Council to Prime Minister (EAC-PM) agreed to focus on 10 areas of interest in order to help the slowing Indian economy get some of its lost steam back.

As promised (see here) I am offering my suggestions to PMEAC on the 10 focus area identified by it.

The first area of focus for PMEAC is accelerating the economic growth over next six months.

There is little doubt that an accelerated economic growth only can reinvigorate the virtuous cycle of "higher income-higher savings-higher consumption-higher investment-higher growth", that is quintessential to reaping the much talked about demographic dividend.

In this context, I would like PMEAC to note the following:

Make growth sustainable

Economic growth which is not sustainable and equitable has little meaning, in my view. Such growth, whatever statistic shows, brings only misery and dissipation.

A harmonious and peaceful society enjoying a decent lifestyle should be the ultimate goal of economic growth and development. Otherwise, it has little meaning, regardless of the statistical achievements.

Swami Jagadatmananda in his famous work “Learn to Live” extolled the readers - the sincerity and honesty of the means to achieve a goal is equally important as the goal itself.

Mahatma Gandhi succinctly explained — “Independence begins at the bottom. A society must be built in which every village has to be self sustained and capable of managing its own affairs. It will be trained and prepared to perish in the attempt to defend itself against any onslaught from without. This does not exclude dependence on and willing help from neighbors or from the world. It will be a free and voluntary play of mutual forces. In this structure composed of innumerable villages, there will be ever widening, never ascending circles.

Growth will not be a pyramid with the apex sustained by the bottom. But it will be an oceanic circle whose center will be the individual. Therefore the outermost circumference will not wield power to crush the inner circle but will give strength to all within and derive its own strength from it.”

More popularly, in blockbuster Hindi movie DDLJ the hero Shahrukh Khan articulated this thought in a conversation with the mother of his beloved. When for the fear of her husband’s retribution, the mother advises the two lovers to elope – the hero tells her that the path suggested by her appears easy but it would lead to nowhere. He would rather prefer the path of courage, honesty and integrity which though arduous definitely leads to the desired goal.

Many may want to argue that it sounds utterly utopian in the current context. Some may yield that it is desirable but argue that we have traveled too far down the road we took post independence from British rule; and it is too late to go back and begin again.

In my view, this defeatist and fatigued attitude is unwarranted. What we need is a zero base discussion on the subject and solutions will emerge that would lead us to the desired goal of making 1.3bn people free, fearless and happy. An incremental approach howsoever sincere might not yield the desired results.

Even statistically, to propel the economic growth to much higher orbits, we need a socio-political organization for the country that is free, fearless and fair.

Social sector reforms, in my view, should be given top most priority in the economic growth and development agenda, rather than making it an aftereffect of the economic development.

Focus on structural reforms not administrative adjustments

For a structural improvement in the economy we need our manufacturing and construction sectors to grow at a much faster rate. The currently projected trajectory of industrial growth and service sector growth cannot and will not lead to any material improvement in the structural weaknesses of the economy, e.g., high level of unemployment/underemployment, poor physical and social infrastructure, low tax to GDP ratio, lower social sector spending, especially education and health, declining private sector investment, persistent high burden of entitlements on the fiscal, etc.

All the indicators are highlighting that the modest recovery in growth will probably come from micro adjustments, like correction in inventory levels, increased capacity utilization, higher exports, and improvement in project execution etc.

This will not lead to any material improvement in employment conditions. On the contrary there are sufficient indications that many employers may actually further rationalize their work force to protect their margins. Historically, the work force rationalization in India, especially in manufacturing and construction sectors, has been more permanent in nature.

I have been insisting that the reforms must be distinguished from mere administrative corrections. A policy measure in order to qualify as "Reform" must change the status quo materially.

When faced with the task of catapulting the economic activity to a higher orbit it is imperative for the policy makers to distinguish between "administrative corrections", "systemic efficiencies" and "reforms".

The businesses, investors and consumers need to assimilate that economic reforms do not necessarily result in more profit in the immediate term. To the contrary, economic reforms are more likely to cause pain and inconvenience in the immediate term as these involve fundamental changes in the processes and practices of doing business and consuming goods & services. From this view point, I suggest the following 10 illustrative reform measure that may change the status quo materially. If you find these are highly idealistic, and impractical to implement, I beg to differ.

(1) To exploit the demographic dividend fully and generate demand, accelerate the wealth transfer process. Defining the upper bound of wealth and introduction of material estate duty on people above the upper bound could be one method.

(2) Transfer the power to impose direct taxes to the local governments.

(3) Transfer the ownership of natural resources to local governments. Encourage industry and investors to partner with local governments for setting up business ventures.

(4) Introduce competition in Railways. To begin with allow point-to-point private railways for intercity travel up to 100kms.

(5) Transfer all PSUs under a listed holding company. Majority voting power in this listed holding company may be owned by Indian citizens with no individual owning more than 1%. All these companies should be professionally managed with no intervention from the government whatsoever.

(6) Allow and encourage the federal states to have bi-lateral trade, labor and resource sharing treaties.

(7) Bring the Return on Investment (ROI) for elected representatives close to Zero level, by stripping all their discretionary powers.

(8) Constitute a Clean India Regulatory Authority (CIRA). Make all elected representatives from local government level to the members of parliament accountable to this authority. Each member should be mandated to submit a quarterly return of cleanliness in their respective constituency to this authority. The authority should cause an independent audit of such certificates. A wrong certificate should disqualify the person from contesting elections for 25years.

(9) Transform the Right to Education (RTE) into the Right to Uniform Education (RTUE).

(10) Set up a calendar for full convertibility of INR.

Remember, in past 15yrs it is not the farming, textile, railways, or SME but it is the telecom sector which has provided maximum incremental employment opportunities. And it happened in spite of the government.

Also see

My 2 cents for PMEAC

Tuesday, October 17, 2017

In defence of MNCs

We wish a very Happy Diwali to all our Readers.

The next issue of morning Trekk will be published on Monday, 23rd October.

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Thought for the day

I'm living so far beyond my income that we may almost be said to be living apart.

—E. E. Cummings (American, 1894-1962)

Word for the day

Pestiferous (adj)

Bringing or bearing disease.

Malice towards none

Though media did not follow it closely, but Gurdaspur was a bitterly and intensely fought battle, which Captain won comprehensively.

Another wake up call for both BJP and AAP.

First random thought this morning

An (in)famous BJP leader from Western UP is exhorting the government to erase Taj Mahal from history of India. He reportedly claimed that it's a blot on Indian culture. His reported position is, "The creator of Taj Mahal (Shahjahan) imprisoned his father. He wanted to wipe out Hindus. If these people are part of our history, then it is very sad and we will change this history".

Someone needs to tell him, without wasting anytime, that we can't just wish away our history. It is what it is - good or bad. All that you can do is to learn from it, so that mistakes are not repeated. However if he must erase all rulers and people in position of power who tortured/killed their family members for power and/or wealth, it will be a great news for all school children; for they will be left with only blank pages in their history books.

In defence of MNCs

I am not a regular TV watcher. I have also reduced my social media interactions by almost 80% in recent past. For my view and strategy I am therefore completely reliant on what I see with my own eyes and feel with the weight of my own wallet.

Last week, waiting for my flight at airport, I watched a program featuring Patanjali promoter. He was sounding like a warlord. Mincing no words, he avowed that all MNC players in Indian markets will get annihilated very soon.

He implied that his commercial venture is torchbearer of a larger Swadeshi (self reliance) movement taking place. This movement shall chase away all MNCs, like HUL, P&G, Colgate, who have plundered wealth from Indian consumers for over a century.

The allegation is that these companies are plundering money from Indian consumers and taking it abroad to benefit their parent organizations.

I am shocked to note that no one in the government (which appears keen on MNCs investing in India by making India a better, easier and safer place to invest and do business); various business and industry associations (who are duty bound to protect the interest of their members and ensure a level playing field); Supreme Court (who is very vigilant these days); and a variety of other regulators and administrators, have made any murmur of concern over this.

I have noticed that Patanjali marketing campaigns are also overwhelmingly based on (a) an emotion appeal on grounds of patriotism and Swadeshi; and (b) materially better quality of Patanjali products as compared to the products of MNCs.

Insofar as the quality of products and use of "dangerous" chemical etc. is concerned. I am not competent to comment on this subject. Though I tried to figure out and could not find much difference in the ingredients of Patanjali tooth paste and Colgate Herbal toothpaste.

However, I do have an observation to share on the issue of plundering money from Indian consumers.

In my view, the owners of a corporate entity can get money from the entity only in two forms - dividend and return of capital. Return of capital in normal course occurs only if business is wound up (ignore buy backs etc for a while).

An analysis of some companies with top foreign holdings suggests that foreigners own more shares in the companies popularly perceived to be "Indian" rather than those condemned as MNCs.

As per the available record of last dividend paid (FY17), top 9 MNCs paid Rs5848cr as dividend to their foreign shareholders, where as top 13 perceptibly Indian companies paid Rs16050cr as dividend to their foreign shareholders.

Against a dividend remittance of RsRs5848cr, MNCs incurred Rs9775cr as employee cost, which is paid predominantly to Indians. Besides, these MNCs sourced most of their raw material from India, got their products manufactured by Indian contractors (mostly SMEs).

They also support an extensive distribution and logistics chain providing jobs to millions of Indians.

Many of these MNCs have put India on global roadmap, in terms of quality of products, technology, innovation and even export markets. For example, Maruti Suzuki has helped thousands of ancillary units (mostly in SME space) to grow and register their presence in global arena. HUL has cultivated many managers that have grown to become global leaders.

So, I am aghast at the allegation of Patanjali promoters and their intention to annihilate these MNCs.

The Swadeshi champions may also note that if these companies decide to wind up their businesses, sell their assets and take the money home, the outflow will be much larger than what would possibly they remit as dividend in next 20years. The consequent job losses would be catastrophic.

It is only appropriate that the government should come out and explicitly state its stance on this issue.

( P.S.: I have shared my observations. I am not interested in any debate or arguments on this issue. Comments and rejoinders are totally unwelcome.)

Friday, October 13, 2017

My 2 cents for PMEAC

Thought for the day

"The sea has neither meaning nor pity."

—Anton Chekhov (Russian, 1860-1904)

Word for the day

Arcadian (n)

Rural, rustic, or pastoral, especially suggesting simple, innocent contentment.

Malice towards none

Why do we expect our elected representatives to be monks?

First random thought this morning

I am tired of chaffing the media report to segregate the May be True, Likely Fake, and Totally Fake news from the Genuine ones.

At first I found Donald Trump's claim of "total fake" egregious. But slowly I am realizing that doubting everything, when you cannot believe everything, is perhaps the best way of slipping through the banalities of the life. So now I should let it be.

I want to trust only what I can see with my bespectacled & blinkered eyes and be blind and deaf to everything else.

My 2 cents for PMEAC

The newly appointed PMEAC has identified the following 10 focus areas to boost economic growth and employment over the next six months, with greater last-mile connectivity:

1. Economic growth

2. Employment and job creation

3. Informal sector and integration

4. Fiscal framework

5. Monetary policy

6. Public expenditure

7. Institutions of economic governance

8. Agriculture and animal husbandry

9. Patterns of consumption and production

10. Social sector

Like most others, at first I was tempted to find faults and lacunae in the PMEAC strategy and thought process. The temptation becomes even more irresistible when we factor in the fact that PMEAC is quintessentially designed to materially influence the policy direction of the government.

The problem however is that this negative attitude, which unfortunately has been the hallmark of the opposition politics India, does not serve any purpose, except probably giving some sadistic pleasure for couple of hours.

In my view, it is only appropriate that we the people of India, rise above from the influence of cheap political thrills and accept the government of the day as fait accompli. Only this way we shall be able to contribute positively to the nation building. On the contrary if we keep criticizing the incumbent government and wait for the regime to change, we shall only be losing critical time.

What every citizen needs to remember, in my view, is that every year millions of youth pass out of schools & colleges and join the work force. Given the demographic trend, for a decade or so, the number of new job seekers shall increase every year. Moreover, considering the high pace of change in technology the rate of obsolescence of the skill set shall also rise.

In this scenario, if these youth do not get a job appropriate to their skills within one year of their coming to the job market, there is high probability that they will remain underemployed for most of their professional life, because every year a new batch (incremental larger and better equipped) of potential employees will flood the market.

The time for creating job opportunities therefore is a key factor. If we take five years, we would have already wasted millions of youth, who will remain a burden on the society from next many decades.

I shall give my suggestions in these 10 areas in next couple of weeks.

Thursday, October 12, 2017

Demographic accountability - 2

Thought for the day

"When a lot of remedies are suggested for a disease, that means it can't be cured."

—Anton Chekhov (Russian, 1860-1904)

Word for the day

Astrobleme (adj)

An erosional scar on the earth's surface, produced by the impact of a cosmic body, as a meteorite or asteroid.

Malice towards none

The glee on the Congress Vice President's face these days is implying that allegation of impropriety against Shri Jay Amit Shah totally absolve Shri Robert Vadra from all allegations of impropriety!

First random thought this morning

The common rhetorical question of BJP to Congress is that what has been achieved in India in 6 decades of Congress regime. Though I am sure to which political party this credit should go, but the fact is that India has remained united for seven decades is no mean achievement. Despite prolonged violent movements in Punjab and J&K, we have not seen an iota of public support for any type of secessionist movement.

However, given the trend in Europe, it would not be prudent to take this for granted. The government must build the probability in its policy making and make effort to preempt any such move.

An Investor's Diary

Adair Turner, a former chairman of the United Kingdom's Financial Services Authority and former member of the UK's Financial Policy Committee, is Chairman of the Institute for New Economic Thinking, in his recent blog post cautioned the emerging economies for relying too much on the demographic dividend from their burgeoning population. Instead of summarizing his thought at the expense of distorting it, I would like to reproduce it verbatim.

"Across emerging economies, the benefits of a “demographic dividend” have become a familiar refrain. Politicians and business leaders alike – be it in India, Nigeria, Pakistan, or Tanzania – talk glowingly of how a fast-growing and youthful population will create huge investment opportunities and fuel rapid economic growth. But the reality is that in many emerging economies, rapid population growth poses a major threat to development, and technological progress will make that threat even more severe.

For starters, the term “demographic dividend” is being seriously misused. The term was originally used to describe a transition in which countries enjoyed both a one-off increase in the working age population and a significant fall in fertility. That combination produces a high ratio of workers to dependents – both retirees and children – making it easier for high savings to support sufficient investment to drive rapid growth in capital stock.

Rapidly falling fertility, meanwhile, ensures that the next generation inherits a large capital stock per capita: and small family size makes it easier to afford high private or public education spending per child, leading to rapid improvements in workforce skills. South Korea, China, and some other East Asian countries have benefited hugely from such a demographic dividend over the last 40 years.

But without a rapid fall in fertility rates, there is no dividend. If fertility remains high, a low ratio of retirees to workers is offset by a high child dependency ratio, making it difficult to support high education spending per child. And if each new cohort of workers is much larger than the one before, growth in per capita capital stock – whether in infrastructure or plant and equipment – is held back. Rapidly growing working-age populations also make it impossible to create jobs fast enough to prevent widespread underemployment.

This is the bind in which much of Sub-Saharan Africa is still stuck. With moderate GDP growth rates (averaging 4.6% over the last decade) offset by 2.7% annual population growth, per capita income has been growing at less than 2% per year, versus the 7% rate which China achieves. At this rate of progress, Africa will not attain today’s advanced-economy living standards until the mid-2100s.

Pakistan faces a slightly less severe – but still significant – challenge. India’s demography varies by region: while fertility rates are now at or below two in economically dynamic states such as Maharashtra and Gujarat, the big northern states of Bihar and Uttar Pradesh are still facing severe demographic headwinds.