demographic transition and off shoring

8/14/2019 Demographic Transition and Off Shoring

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Economic Situation by Dr. Tarun Das 1

and Offshoring- FutureLook Dr. Tarun Das, Eco.Adviser.MOF


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Contents of this presentation

1. Importance of offshoring forIndia

2. Dimensions of offshoring3. Demographic transition4. Implications for offshoring5. Policy Issues


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1.2 Significant Progress of Indiain IT-enabled services and BPO

Indian ITES-BPO industry recorded agrowth of 45% in 2004-05 driven byincreased offshoring by firms from USand Europe.

India emerged as the 18 th largest serviceexporter & increased its share in worldservice exports from 0.6% in 1990 to1.3% in 2003.

3. These exports were led by rapid rise of travel business, professional, andsoftware services.

4. Indian software exports increased fromonly $0.7 billion in 1995 to $17.2 billionin 2004-05 and accounted for 34% of


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2.1 Dimensions of offshoring

Customer services Back office operations IT/Software operations Finance and accounting Human resource

development Knowledge servicesThese services in general

have high share of wage


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2.2 Sources of BPOs

Countries like India, Brazil,China, Dominica, Israel,Philippines, Rumania, RussianFederation have witnessed asurge of Business ProcessOutsourcing catering to theneeds of developed countries.

FDI from developed countriesin the BPO sectors of thesecountries are also growing.


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2.3 Benefits of BPOs

A study made by Helios Innovations(2004) indicate that reduction of operating costs is the main factor foroutsourcing.

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%


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3.1 Demographic Dynamics

Population of Europe, Japan andAustralia is already aged. Population of China, Hong Kong,

Russian Federation, Singapore isaging very rapidly. Population of India, Bangladesh,Indonesia, Pakistan, Malaysia isstill young and growing slowly.


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3.2 Migration India, Bangladesh, Pakistan,

Sri Lanka, Thailand, Indonesiaand Viet Nam serve as a poolof migrant workers to labour

shortage countries. The number of migrantworkers from these countriesto other countries in Asia haveincreased from 1 million in1990 to 5.5 million in 2004.


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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 21Indonesia 7.6 22Japan 23.2 42


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3.5 Share of 80+ populationin world 80+ population

40.449.5Rest of world

11.612.4Rest of Asia Pacific4.46.9Japan

2.04.2Russian Federation

12.78.8India

2.71.6Indonesia

26.216.6China

20502000Region/ Country


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3.6 Rising share of female inaged

Figure VI

Share of male and female population aged 65+ to totalpopulation in ESCAP countries 1950-2050

Male

Female

0

2

4

6

8

10

12

1950 1975 2000 2025 2050

Years

P e r c e n

t a g e o

f t o t a l

p o p u

l a t i

o n

Share of male and female population aged 80+ to totalpopulation in ESCAP countries 1950-2050

Male

Female

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

1950 1975 2000 2025 2050Years

P e r c e n

t a g e o

f t o t a l

p o p u

l a t i

o n


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3.7 Ratio of WorkingPopulation

Figure VIII: Dynamics of working age population in selected economies

Population aged 15-59 for selected Asia-Pacific economies 1950-2050

China

Asia

Pacific

Japan

Republic of Korea

India

40

45

50

55

60

65

70

1950 1975 2000 2025 2050

Years

P e r c e n t a g e


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3.8 Demographic Transition inIndia

The UN puts the median age of population at 24.3 years in India,compared to 32.6 in China and 35.1 inKorea. At present, more than 50% of Indias population is under 25.

Over next 15 years, rich worldspopulation will fall slightly, whiledeveloping world will acquire 2 billionextra people. Over that period, working

population (age group 15 59) in USA willhave a shortfall of 17 million, Japan 9million, Europe 10 million (counting UK =2 mn, France = 3 mn, Germany = 3 mn

and Italy = 2 mn), Russia 6 million andChina 10 million. In 2020, India will face a


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4.1 Demographic dividends forstill young economies

Increasing labour force could be animpetus to higher growth in largedeveloping countries such as India andIndonesia.

More Consumption dividend than inthe rapidly ageing economies such as Japan.

Higher return to capital in young

economies could attract FDI and otherforeign capital. Increasing opportunities to export

labour to rapidly ageing economies.

More opportunities and acceleration in


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4.2 Implications forMigration Policy

Immigration worker flows have alreadyproven important in Malaysia and Thailand. For example, foreign workersaccount for 25 per cent of Malaysias

labour force. With the rapid ageing, economies suchas Japan, Republic of Korea andSingapore would experience severe

shortages in labour supply in thecoming decades. In most of the ageing economies labour

markets are not sufficiently flexible to

absorb migrant workers and to offer the


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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 bothdeveloping and developed countries areequalized in future, offshoring may

become a victim of its own success. Developed countries may also takeprotectionist measures againstmigration and trade in services.

Many federal states in USA have tries toput up legal barriers against awardingstate contracts to non-US companies.


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5.1 Policy Issues-1

India has gained significantly fromoffshoring and the WTO GeneralAgreement 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 effectivemarket access to its professionals andskilled labour force in many sectors andto bring about a symmetry in themovement of capital (Mode-2) andmovement of labour (Mode-4).


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5.3 Policy Issues-3 For effective market access to

professionals, India should negotiate forthe following:a) Economic Needs Test should be

eliminated.

b) Social security contributions requiredfor temporary persons needs to becorrected.

c) Administration of visa regimes may bemade more transparent.

d) Specific sectoral commitments in linewith requirements of developingcountries.

h k


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Thank you

-Have a Good Day

demographic transition and off shoring

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