Six mega-trends ( A MUST READ)
Date : January 6, 2007.
Forecasts are tricky, so it may be more productive to understand the
big trends that have large ripple effects and which therefore will
define the future.
Writing a year ago, I looked at sharply rising (and indeed, record) oil
prices and forecast the safe thing: an economic slowdown in 2006, after
three years of rapid growth. An unkind colleague mailed me that article
the other day, to underline human fallibility.
As far as I know, only one person forecast anything like what the
Sensex achieved: something like a 50 per cent gain in the past year,
starting from the already high levels of December 2005.
In fact, the member of Sebi (the stock market regulator) who daringly
forecast the Sensex hitting 16,000 was hooted out by most commentators.
Despite this failure last year to tell the good news before it
happened, the safe forecast this year too would be to stay with the
thought that the business cycle has not been abolished, and that a
slowdown has to appear on the horizon before too long -
especially since interest rates have been climbing, loans for cars and
housing have become costlier, and the United States (the world's
"consumer of last resort ) is slowing down.
But the nagging worry is that, in choosing what looks like the safe
forecast, we may simply be suffering from a fear of heights.
Commentators like Larry Summers and Ajay Shah, both writing on Business
Standard's editorial page in recent days, have said in essence
that there is reason to worry because there seems to be no reason to
worry!
In other words, that this is just too good to last, and it could
therefore be the calm before some as yet unseen storm. Since that is
the kind of forecasting that no one can deal with or prepare for, what
about staying with the assumption that the economy will continue to
soar, without meeting Icarus's fate?
What would that mean? Four more quarters of handsome corporate results,
and the Sensex at 20,000 a year from now? Another year of 20 per cent
pay hikes? And hiring in the tens of thousands by a dozen and more
firms that are burning the rubber in many different sectors? More
foreigners telling us nice things about ourselves?
Like Goran Ivanisevic sending down one service ace after another,
permanent good times can sound monotonous and almost boring. Except
that China has been sending down those aces for a quarter of a century,
and the story of its dramatic rise is anything but boring.
Still, better than attempting risky forecasts, it may be more
productive to understand mega-trends. "Mega because they
cannot easily be reversed, have large ripple effects, and which
therefore will define the future. I can think of half a dozen such.
MEGA-TREND #1 is the acquiring of scale. The Indian economy, Indian
companies and Indian markets were mostly small or tiny. Remember that
the Ambani family wealth seven years ago was about Rs 5,000 crore
- the same as Jignesh Shah's today. Don't know
about him? He is a first-generation entrepreneur who is not yet 40.
The telecom market was 5 million connections 15 years ago; now it is
over 180 million, and the fastest growing in the world. The
fourth-largest phone company in India is now being valued at $20
billion. Or take commercial space: all of India's cities used to
have office space totalling 40 million square feet. Now we are adding
that much as new commercial space every year.
The total Indian car market was half a million vehicles in 2000; by
2010, a single company will be turning out twice that number, and India
will be a small car manufacturing hub for the world. Companies, when
they hired, used to do so in the hundreds; now the big ones do it in
the tens of thousands.
On a visit to India some years ago, the chairman of General Electric
(Jeff Immelt) said that whenever his company had bet on the Indian
market, it had failed them; but whenever they had bet on the Indian
people (Indian skills, that is), the bet had paid off. But by his last
visit to Delhi, Immelt had changed his view: now the market is working
too.
MEGA-TREND #2 is the spread of connectivity and awareness. In John
Naisbitt's original identification of mega-trends, back in 1982,
he called it networking.
Imagine the difference between a country that has 5 million phones and
another with 180 million; between a country with 10 million TV sets and
one with 120 million; between a country whose trucks move at 25 km per
hour on the highways (counting the time taken for stops), and 50 km per
hour.
Think of the consequences as Country No. 1 morphs into Country No. 2:
better supply chain management, just in time delivery, and therefore
scale of production if you can start at dawn and give delivery 500 km
away by dusk (tomorrow it may be 800 km).
Think different awareness levels and therefore a different quality of
decision-making; and think speed of response because you can reach
someone on a mobile phone anytime anywhere. In short, think
productivity gains - which is what the growth story is all
about.
MEGA-TREND #3 is the growth of the middle class - talked about
and anticipated for 20 years, but finally acquiring true scale. In
2001-02, there were 61 million Indians belonging to families that
earned more than Rs 2 lakh a year; by last year (2005-06), that number
had crossed 100 million.
In 2009-10, the National Council for Applied Economic Research
forecasts it will be 173 million. Marry that with growing urbanisation,
and it is a safe guess that well over a third of all Lok Sabha
constituencies will have a sizeable middle class and urban voter base.
Think, then, of the many changes this might bring about. The obvious
point is about growth of consumption, but we can go beyond that.
For instance, could it lead to a different type of politics and
politician, because the urban voter is usually not thinking caste? The
middle-class will expect (and increasingly demand) reliable power,
clean water, comfortable mass transport systems...
Look at the pressures on the government in Delhi in recent years, to
provide clean air, uninterrupted power, fast traffic, and responsive
government-and you can see what could happen elsewhere in the coming
years.
MEGA-TREND #4 has to do with the growing problems of growth. There is
the environment: the increasing pollution of air (all those additional
cars), the dropping of the groundwater table, and the failure to renew
resources (like forests).
There is the energy question: do we really think the world oil market
will not go haywire if we treble our consumption? The fact is that we
are locked into a pattern of increasingly energy-intensive,
resource-gobbling production and consumption from which there is
probably no escape any more because everyone wants the western
middle-class dream.
As surely as night follows day, then, there will be consequences. As
someone said, other than weapons of mass destruction, the only thing
that can extinguish human life is environmental change.
The third problem of growth is disparity, which is almost certain to
increase (think all the way from executive jets and Bentleys to luxury
watches and multi-crore apartments). How will this play in a democratic
system, if others don't have food to eat and are committing
suicide?
Consider then how politicians are trying to mediate the tensions:
reservations of seats and jobs, cesses of various kinds to finance big
spending programmes... If the rich have thought they can secede
into gated residential communities and offices in corporate parks, hang
on because outside reality will intrude.
Two statements were made at a conference I attended last year. One
said: "Globalisation is a market efficiency project, but badly
prepared to handle its political fall-out. The other said:
"The issues are emotional. The solutions are technical. The
decisions are political.
I interpret that to mean the issues will not go away.
MEGA-TREND #5 has to do with India's increasing openness to the
world. The number of US visas issued in India doubled in 2006, to over
800,000 - more than in any other country, barring Mexico. More
Indian students are studying in other countries than those of any other
nationality, barring perhaps China. Neither of these was remotely true
15 years ago.
The foreign trade component of India's GDP (if you include trade
in both goods and services, like software) is now about 55 per cent
- nearly three times what it used to be. Foreign institutional
investors own about 25 per cent of India's listed stock. And
Indian firms were buying three overseas companies a week, through 2006.
A country that is open to the world reacts in fundamentally different
ways from a closed system (of the kind that India used to be).
There is greater self-confidence, faster acceptance of new influences
and ideas, a willingness to accept global benchmarking, and a speedier
response to changing circumstance. It is simply a more adaptive and
therefore a more efficient system. Translate that to mean more
productivity growth.
MEGA-TREND #6 the continuing dominance of youth. Something like half of
India is under 25, and it will remain that way for some time. This is
usually spun around into the economic fact that a higher percentage of
people will be in the working age till the mid-twenty-first century,
but that is only one facet.
Youngsters are different from oldies in a hundred ways, and anyone can
make a long list of the differences. How this will affect Indian
society cannot really be predicted, except to say that it will be more
mobile (think more migrants), and more volatile (stronger responses to
frustrations- one manifestation being the spread of extremist
Left ideology in some 60 districts).
It will adapt faster to new trends, and marketers will be encouraged to
focus on low-cost products and services because youngsters usually have
less money. It will probably mean that the two-parent home (for
nurturing children) will remain the predominant norm for long, and that
there will be a strong saving habit because families will be planning
(among other things) for their children's educational future.
Four of these six mega-trends have almost entirely positive
implications; one is clearly negative, and the last can cut both ways.
There could be other negative trends too, like the steady collapse of
governance and the country's politics shooting off the tracks.
The first is (one hopes) more easily reversible than these six and
therefore does not affect quality; and the second is more a risk than a
trend.
If, therefore, you were to outline a medium-term future for the
country, you would paint a mostly upbeat picture. After that, whether
GDP growth is 8 per cent or 9 per cent is really a matter of detail.
Comments