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'When the West is ageing, India will be young'

Azim Premji, chairman of Wipro, delivered the keynote address at 'Managing India Brainstorm', a part of a series of conferences that CNBC India undertakes every quarter to discuss current issues and topics relating to business and finance.

Premji spoke about the "golden opportunity that India has to leapfrog into developed world, as the West will increasingly depend on India to keep the global economic engine running."

The CNBC show provides a meeting ground for India's business leaders and achievers to exchange views on the critical issues facing the country's economy. The proceedings are recorded and are later put on air as a two to three part series.

Excerpts from Premji's address at Managing India Brainstorm IV:

"Let me begin by confessing that I have never completely understood what is a new economy and what is the old economy. To my mind they are not discrete entities, but represent two points in the continuum in the evolving economy.

"The new economy, from the little that I have understood about it, refers to a set of qualitative and quantitative changes that have transformed the structure, the functioning and rules of the economy...

"The twin drivers of globalisation and technology operating simultaneously have ushered in the New Economy into India in more recent times...

"Nobody could have imagined that software IT industry would have made such a pervasive impact to put India squarely on the global map. In spite of these sweeping technological advances one thing we have learnt at a hefty and a fairly avoidable cost is that the basic laws of economic demand and supply are not going to change...

"As I look ahead I can see certain irreversible changes in forces that are driving these changes. We could call these the new economic drivers. There are three kind of drivers with varying amplitude and time horizons which I feel will dictate the future of economy and the future of business...

" The first are the short term drivers. These are primarily the various kinds of arbitrage opportunities that exist across various nationalities, various economies and various regions.

" Remember the growth experience of the Indian software industry - 50 per cent a year compounded for seven years on an increasingly larger base. The labour cost differential among the software professionals between the US and India was a great arbitrage opportunity on which the initial success of the industry was built...

" The labour cost differential is just one kind of arbitrage opportunity. Entrepreneurs and managers who will resourcefully leverage these immediate opportunities will make large amounts of money, perhaps a fortune. Hence these are the drivers which should be at the back of every businessman's mind as they provide the sharpest guidance for localised action by an individual...

" In terms of the medium term drivers, technological possibilities and changes in the geo-political scenario will be the major economic drivers. These need to be looked into by built-to-last firms for strategic planning, for the sweep of these drivers is much broader.

" Unlike short-term drivers these do not provide quick opportunities for gains and require a lot of sweat and labour. In the long run however they are worth the trouble. All leapfrog economic gains come from these drivers.

" Even great global companies were built by leveraging on these drivers including GE, IBM or Ford. After September 11, public spending on security as an example has suddenly returned to economic centrestage.

"The only problem is that medium-term economic drivers are hazier than immediate arbitrage opportunities. They provide more subtle cues and hence provide weaker guidance for action and hence they are more profitable. But if you understand them you can shape the rules of the game rather than being ruled by the rules of the game...

" The last set of drivers,. which are probably the most fundamental, are the long term drivers whose impact may not but be felt in day to day business but they are so pervasive that they impact every facet of human life. These require collaborative action by society.

" These drivers are of the order of globalisation or environmental sustainability. I don't think that Peter Drucker was exaggerating when he is claiming that ageing of the population is a more fundamental shift in human history than the discovery of the computer and the Internet put together.

" Just see the kind of impact it will have on the shape of the economy. The differed wages of workers in developed nations today is the biggest source of capital formation and generation. Some countries like Switzerland have asset bases of pension funds and life insurance companies totalling nearly up to their entire GDP...

" Our current form of the economy is not particularly amenable to operating with such long-term assets and liabilities. As elderly citizens in richer societies increase, there is a greater pressure for reducing the risks in the current market systems.

"However, ageing represents a more fundamental problem and requires creative solutions.

" We need to design different forms of work organisation, which will enable an ageing knowledge worker to meaningfully contribute to work that does not require the energy of a young worker. This will simultaneously reduce his dependence on the accumulated wealth...

" For India this is a golden opportunity for us to leapfrog into the club of the developed countries. When the West is ageing India will be young. The developed countries in the West will increasingly depend on Asian countries and Asian economies including India to keep the global economic engine running.

"We need to prepare a population quickly by making large investments in human capital and education...

" Finally, I am convinced that the future will have more surprises for us. It is up to us to use our free will and our passion to dream a future and to make it happen. This has been the biggest driver of the progress of the human race so far. It will continue to be the most enduring and the most eternal driver irrespective of what stage of the economy we are in.

" For India these new drivers represent an unprecedented opportunity for success and for growth and for wealth creation. It is up to us to harness this wonderful opportunity to take us into a totally different league."

The programme will be telecast on CNBC on July 6 and 7.

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