Why everyone should pay more attention to India...

And it is not for the reasons you may think.......

When I was growing up in India in the nineties, the United States seemed like the place with the coolest, most talented people. Much of this was colored by my love for Michael Jackson and Hollywood films. During college as a student of economics, and a few years later as a law student considering an academic career; I thought the best research was happening in American universities. I could find maybe one or two scholars working in law and economics in India; few had even heard of public choice theory or Austrian economics. I hadn’t met anyone in India who thought constitutional economics was a field of research. And so, I made my way to the US to work on my Ph.D. in economics at George Mason University, where one was spoilt for choice with scholars working in these areas. In the years that followed, I was welcomed into the community of academic economists and met some of the smartest, most thoughtful people trying to make the world better.

It is a bit odd that now I spend most of my time thinking about India and Indian talent. Much of this is related to my work as I lead the Indian political economy program and Emergent Ventures India at the Mercatus Center at George Mason University. I am betting my program (and my career) on my belief that the next half-century will be about Indians.

And it is not for the usual reasons - scale, civilization and history, nuclear power, G-20, etc., but because of the changing demographics.

India’s population will peak in 2065. Compare this with China, where the population will peak next year. 

At present, both India and China have 1.43 billion people. The difference is that while China will depopulate and age over the next forty years, during the same time, India will add the same number of people China loses, over a quarter of a billion. (Africa’s population will double during the same period and peak after 2100, and we need to pay much more attention to Africa, but that is for another day).

Source: Our World in Data

Globally, one in five people below 25 is from India. 47% of Indians, about 650 million, are below the age of 25. This group of young Indians has some unique characteristics. 

First, they have grown up in a market economy, post-command-and-control socialism. Two-thirds of Indians were born after the 1991 big bang reforms and have not experienced rationing and long lines for essential goods (other than episodic shortages during Covid). They have lived in an India that has averaged about 6 percent annual growth for three decades. They have access to global goods and content, and this generation of Indians wants and expects to compete with the world. 

Second, a large proportion of these young Indians have grown up with access to the internet, with more coming online each year. Close to two-thirds of the population has access to a smartphone, and by 2040, it will be over 95% of Indians. Indians have access to some of the cheapest mobile data plans in the world, and charges are $0.17 per gigabyte on average, with plans as low as 5 cents per gigabyte. 

Smartphone penetration in India since 2010

Source: Statista

Third, compared to their parents and grandparents, this generation of Indians has grown up exposed to some English, though only the rich with elite education have native-level fluency. 

Another difference compared to previous generations is India’s growing number of entrepreneurs and the vibrant startup culture. Previous generations of entrepreneurs were from business families (castes) and grew up in big cities. The new class of entrepreneurs is different; they are much more willing to risk their time and capital instead of accepting a “safe and steady” job, find cofounders from varied backgrounds, and are more likely to have grown up in small towns in India. 

What does this mean for individuals and institutions outside India?

This generation of young Indians will be the largest consumer and labor source in the knowledge and network goods economy. 

Universities and Firms

Indians will be the largest pool of global talent. Barring immigration restrictions or diversity quotas, in the next few decades, Indian students will form the single largest international student cohort at most top universities in the English-speaking world. 

Universities should plan for the future, hire and engage scholars working on India more seriously, start programs and centers focused on India to understand its political economy and culture better, have more papers on India in their top journals, and publish more books on India through their university press.

This is no longer about diversity but about survival.

One way for schools to compete for the best talent is to develop courses that contextualize India and appreciate the variation across Indian states. Another way is to encourage exchange programs with Indian universities or facilitate working at Indian institutions. Admissions departments that visit India, manage to crack its cultural codes, and learn more about Indians’ aspirations will succeed in attracting talent and tuition.

The single largest pool of talent will be STEM graduates. American and British labor markets face a massive shortage of STEM graduates, usually filled by foreign-born/trained students because domestic students don’t want to major in STEM subjects. And even though India’s education system is broken, and basic literacy and numeracy levels are sliding post-covid; in absolute numbers, India will produce the largest number of English-speaking STEM graduates. STEM education is considered by most Indian families as the ticket to a good job and upward mobility, a cultural norm that is unlikely to change in the foreseeable future.

Though this varies by country, firms recruiting STEM graduates find it challenging to solve the problem of asymmetric information and evaluate the skills of an applicant from another country/cultural context. For example, relative to American firms, British firms are more reluctant to hire directly from Indian engineering colleges and instead rely on universities to solve the information problem by credentialing the Indian engineer with a bridge/master’s program.

One solution is hiring HR managers who are familiar with India, have cracked Indian cultural codes, have contextual knowledge of the best education institutions, etc. Maybe firms should just hire most of their HR department from India? Another solution is to create short internships/apprenticeship programs to help managers decide if they wish to hire for the longer term. Apprenticeship visas can help Indian graduates learn new skills and get exposed to the technology and culture at the best firms, while firms can have customized recruiting and training programs without incurring a considerable cost.

But universities and firms are constrained by bad immigration policies in most developed countries.

Immigration Policy 

The current wait time to receive a Green Card for a work permit-based (EB2/EB3) Indian employees of U.S. businesses who entered the line in 2018 is 50 years!

The US has a particularly bad immigration system where Indians are concerned. First, the US issues too few work visas relative to the demand generated by US firms, especially for highly skilled STEM talent from large countries like India and China. Worse still, the US limits the total number of green cards i.e., legal permanent residency per year, and caps the number of green cards that any single nationality may receive at 7 percent of the annual quota (approximately 25,000). Irrespective of the size of the country or immigrant group (from a given country) seeking employment-based green cards, the total number that can be issued in any given year is fixed. And once a country hits the limit for that year, those in line from other countries will move up. The wait time for countries with large populations and large immigrant inflows to the US (like China, India, Mexico, Philippines) can be years, sometimes decades.

During the tech boom in the nineties, Indians easily moved to Silicon Valley and rose to the top. Top STEM talent today is reluctant to move to the US and deal with immigration problems for decades. The UK, Canada, or founding their own start-up in India, are far more appealing. Given changing global demographics, the country caps obstructing Indian talent is hara-kiri for the US labor market and innovation.

This is also bizarre as a policy preference, given that highly skilled Indian immigrants have an excellent track record of assimilating, are often considered the model immigrant community, have an incredible track record of leading blue-chip American companies, and are dubbed “The Other One Percent.” If nothing changes and Indian talent cannot easily flow to the US, in a few decades, US capital and US firms will move to India. 

Countries that are depopulating, like Finland, Bulgaria, Croatia, Portugal, and Japan, should seriously think about attracting young Indian talent to settle permanently. Finnish, Bulgarian, and Croatian (each spoken by 5-6 million) will not survive and thrive unless non-natives learn to speak the language. Small countries that are depopulating and fear the loss of their language and culture in the next century should create pathways for Indians to settle and assimilate more permanently.

One future for these depopulating countries is moving forward with immigration and assimilation. This future will find Croatian-Indians and Bulgarian-Indians speaking Croatian and Bulgarian fluently in school and at the workplace while speaking Hindi and Tamil to their parents and Indian relatives. The future without immigration will mean Croatians speaking Indian English at school and the workplace and only speaking Croatian to their shrinking and aging families, and the language disappearing from cultural significance in a few decades. 

Ten years ago, did you expect that, in 2022, the King of England would rely on a practicing Hindu to help select the Archbishop of Canterbury and bishops in the Church of England?

Compared to their parents who moved on work-based visas, second-generation Indian immigrants in the US and UK are more likely to assimilate and become prominent in politics, culture, and academia. Reducing uncertainty for families and hastening legal assimilation will also hasten cultural assimilation.

Content Creators and Network platforms

For content creators and distributors, Indians are already the largest audience for free content and network goods/platforms like Meta and YouTube. India will be the largest market for English-speaking content in the future.

English is the 44th most spoken language in India (at native-level fluency). Only about 1.5 million Indians speak English as their first language. But about 15-20 million have relatively high levels of English fluency as a second language, and another 200 million can understand basic English. And though only 1.5 million are considered native-level speakers, in absolute numbers, this group is large enough, elite enough, and rich enough to be a large customer base for content; and to enable the highest circulation of English news dailies. Unfortunately, the English-language foreign press is perhaps ignorant of the coming demographic shift, making no effort to increase or improve their India penetration or make their coverage relevant to Indians. The surface-level India coverage in these papers, and the lack of the context of longer-term historical, political, and cultural issues, will ensure they remain “foreign” and never gain a large audience in India.

While newspapers are the last to figure it out, sports leagues are one of the first! Highly-anticipated soccer league matches, where Indians don’t even have players or a team, have a higher viewership than the most watched American events. Cricket World Cup matches (like the India v Pakistan match in 2019) are viewed by three times the number watching the Super Bowl. Cricket and soccer are assured a massive audience in the future and will survive; perhaps MLB and NFL executives should learn from the NBA, and visit India soon to recruit players and cultivate an audience.

Some content creators already recognize the potential for a large Indian audience; Netflix and Amazon create shows like the award-winning Sacred Games and Paatal Lok and the American-style reality cringe-binge Fabulous Lives of Bollywood Wives. These shows are made in India for Indians, but using an American miniseries/reality series format, and have traveled well, thanks to subtitles. Other shows, like Indian Matchmaking (another cringe-binge, but with a face-reading astrologist!) are meme-launchers in India and are dinner conversation at every Indian-American do. Sima from Mumbai may have clientele that enjoys goat yoga on first dates, the show accurately reflects the strength of religious and caste endogamy in India. My thoughts on the show.

Even mainstream American shows like Bridgerton are including Indian characters - though which part of India the Sharma sisters are from shall forever remain a mystery to me. They call their father appa (Tamil), Edwina calls Kate didi (elder sister in Hindi) and Kate calls Edwina bon (Bengali for younger sister). And though most Indian elites in the nineteenth century, like the Sharma sisters, spoke more than one language, endearments for family members are always in the mother tongue. Expect more attempts like Bridgerton, hopefully, less clumsy in their representation. And as Americans get better at cracking cultural codes (and using Google Translate!) one hopes these characters and performances improve.

VC/PE ahead of the curve

One group that has recognized the demographic shift and potential benefits from the scale India affords, and made bets accordingly are venture capitalists and private equity firms. Foreign VC and PE funds flowing to Indian startups have been increasing, and investors have created pipelines and systems to evaluate Indian entrepreneurial talent and hire those who can crack Indian social and cultural codes to help make the best bets. 

Source: Bain & Co India Venture Capital Report 2022

India’s closed cricket league with ten teams - Indian Premier League - generates annual broadcast revenues on par with top leagues like the NFL, EPL, and the NBA. At more than $1 billion a year, the IPL is only second to the NFL on a per-match revenue after adjusting for the short 8-week season. Investment funds like RedBird Partners have noticed and bought a stake in one of the teams. I’m not sure they love or understand cricket, even in its very simplest T-20 version, but they understand future returns.

The current VC/PE funding and growth have launched the era of unicorns in India. In 2021, Indian startups produced 43 unicorns, one every nine days. In the decades prior, India had produced a total of 30 start-ups with billion-dollar valuations. An important reason for this recent turn is India’s digital payment infrastructure - India Stack - which has launched an e-commerce revolution. With internet and smartphone penetration combined with the payment stack, Indian consumers are using e-commerce at scale, at all levels of income and consumption. It is not uncommon to transact with rickshaw pullers and vegetable vendors using digital payment apps.

Source: IMF

But another revolution that this kind of e-commerce infrastructure can launch is craft services. Craft desserts, beer, coffee, and home-cooked food became part of the consumption basket of urban Indians during Covid, when urban Indians couldn’t travel home or visit their favorite restaurants. And though Covid was the reason consumers searched for their favorite regional drink or dessert, housewives, amateur chefs, and brewers were forthcoming with supply because it was easy to transact with and receive payment from strangers using the India stack. With the VC/PE funding focused on the next unicorn, they have overlooked the potential for India as the next laboratory for food and beverage. In urban India, the size of the market is so large, even craft services have the potential to scale profitably.

One area where the American VC/PE community is almost absent is the hardware design and manufacturing revolution in India. The Silicon Valley giants are quite logically focused on software, network good possibilities, AI/ML, and data generation in India, etc. These businesses can show rapid growth in revenue without fixed brick-and-mortar investment reducing exit options. But the other reason is the lack of context of the physical environment Indians inhabit.

For investors in Silicon Valley, unlike India, air pollution is not at hazardous levels; they have access to clean water, electricity, garbage pickup, a sidewalk etc. Indians don’t live in that world. Even those working for the biggest tech firms, earning salaries comparable to the US or Singapore, lose productive days because of illness and school closures due to hazardous air pollution warnings. Even elite Indians need to equip their homes with backup electricity and water filtration devices and ensure every single room has an air purifier. Their children, especially daughters, are chaperoned everywhere, given the broken law and order system. A road trip often requires planning detours and pitstops given the lack of restrooms and facilities. Even something small, like grocery shopping, requires planning for a cloth bag, given the ban on single-use plastic.

Design and hardware solutions are always contextual to the user environment, and India provides an interesting laboratory to experiment with low-cost hardware solutions at scale. The best example of this is India’s Mars Orbiter Mission, the only country to complete such a mission on the first attempt, and on at a cost lower than the budget for many Hollywood movies. Hardware design and development at scale is ripe for innovation outside of space research and engineering.

Working on Emergent Ventures (a fellowship and grant program at the Mercatus Center supporting moonshot ideas and talent) gives me a ring-side view of how young engineers in India are thinking about design and building. We’ve supported incredible young entrepreneurs working on: the development of ultra-low-cost, filter-less outdoor air purification systems; up-cycling plastic into building material; decarbonizing plastic by developing hemp fiber-based bio-composites; low-cost high-performance green composite propellant to power space launch vehicles; converting captured carbon emissions into building tiles; building, deploying and maintaining smart toilets at scale; high-efficiency, low-cost, nanosatellite; and developing a VTOL drone design that can takeoff/land in dense urban areas. I can go on.

Most foreign investors are reluctant to invest in these hardware projects because it requires relatively high fixed costs for development and testing at an early stage compared to developing phone apps and software projects. And the Indian regulatory system shackles manufacturing at scale and makes exit very difficult. This drives VC funding to high revenue growth models like app-based education, delivery, or payment services that can scale without manufacturing and allow for easy exit.

Despite the regulatory roadblocks, India presents the potential for hardware design solutions that will launch the next generation of drones, replace plastic, fight climate change, take us to Mars, reduce road congestion, and so on. And this can be done profitably because of solutions designed for scale and low cost, crucial for success in the Indian market.

These are problems that are not just unique to India, and the solutions will be relevant to the developed world. Of the list of recent EV India winners, counterintuitively, the first thing that comes to mind is deploying the smart toilets by Abishek Nath’s Loo Cafe in San Francisco where the city takes 2 years and spends $1.7 million to build one public toilet!

Attention and investment from American VCs and PEs can spur the next design and building revolution in India. Often the Emergent Ventures winners tell me that when they apply to incubator and accelerator programs, those sitting in Silicon Valley don’t understand the need for their product or spot the opportunity. Angad Daryani at Praan, developing an ultra-low cost, filter-less outdoor air purifier system, was rejected by more than 100 investors before raising over 1.5 million in a pre-seed round. The rejections came for being too risky, or too early, but perhaps the most telling is that a lot of investors did not see a market for low-cost air purifiers in developing countries, something they have only encountered in hospitals or senior homes in the US or Europe. But in India, where air pollution kills seven million annually, reduces life expectancy by a decade, and causes respiratory problems for one in three children in metropolitan areas, with losses estimated at $150 billion every year; there is a large potential market for low cost air purifiers. And it is not just the elite and rich, but also poor families willing to pay for air purifiers to help their children breathe. This is a well-established trend in India, where the private sector steps in to provide quasi-public goods or alleviate public bads given low state capacity. Alex Tabarrok and I detail how the private sector facilitated the growth of the city of Gurgaon (now Gurugram).

But with most pitch meetings conducted on Zoom, investors are not physically traveling to India and experiencing the pollution and its impact firsthand. They are either unaware of the extent of pollution as a problem or don’t think pollution can be solved through the market. Air pollution is relegated to COP27 or G20 discussions in newspapers, and in pitch meetings, it is just a risky/foreign idea. This is a missed opportunity and more VC/PE investors should travel to India and experience the cultural context firsthand.

More bets like these will also pay off as Indians get richer. The design solutions will also become more relevant to OECD countries as India grows faster. Despite the demographic advantage, India’s GDP per capita is only $2,000 (compared to China at approximately $10,000 and South Korea at approximately $32,000). It is in everyone’s interest to root for India’s economic growth. As South Koreans grew rich, the world got everything from better TVs and TV content, to innovation in sunscreen and cosmetics.

What if you have nothing to do with India or Indians?

But even for those of you reading this post, who are not working at universities or as journalists, content creators, venture capitalists, etc., the changing demographic may require gaining more familiarity with India and Indians. There is a good chance your four-year-old child meets an Indian in college, and you are scrambling to make small talk with the in-laws, mispronouncing names, making a dozen cultural faux pas.

• An excellent place to start is to read news, opinion, books, etc. about India written by Indians and provide social and cultural context.

• Traveling to India is the best way to get a crash course on the country and its people.

• If you are thinking about learning a foreign language, consider Hindi, spoken by over 600 million.

• Watching Indian content on Netflix etc. (made by and for Indians), with subtitles or dubbing, is another great way to learn about India.

• And consider subscribing to this newsletter……. in future posts I will write about Indian political economy and culture.

The next post will discuss what these changing demographics in India mean for policymakers, philanthropists, students, and academics.