By Kirit Parikh

The global economy will be shaped by the new technologies that will surely emerge in this millennium. These technologies will work to the economic benefit of an increasing number of people, increase consumption, create few environmental problems (unlike their 20th Century counterparts), and cause the world to shrink. I see a few trends impacting both the Indian and the global economy in this millennium: economic concentration, globalisation, free trade and financial integration, privatisation, accelerating change, and the infotech revolution.

The supposed raison d'ętre of the modern industrial society is the provision of a high standard of living to every individual. This is reflected in the (volume of) consumption of goods and services and the choices people (as customers) are presented with. Thus, the modern industrial economy is geared to meet mass consumption and is sustained by it. Only a continuous upsurge in demand can sustain an economy like this. And only a continuous growth in the variety and quality of products and services can guarantee a growth in demand. This places large firms, which can exploit economies of scale in production and innovation, at an advantage.

How long can demand keep growing? Since the bulk of the global population has a level of consumption that is way below that in the industrialised nations, the scope for growth in demand is huge. Even in the industrialised countries, demand will keep growing since human wants are insatiable. The insatiability of wants is not just confined to material goods; it extends to power and dominance. Firms want to be larger not just to derive the economies of scale, but also because their CEOs wish to be heads of the largest corporation in the country, region, or world. So, an important characteristic of this millennium will be dominance by a few large firms. For India to become a major player, its companies will have to become transnational in their strategic intent.

Technical expertise will become an important factor of production. A firm's competitiveness will depend on its command over technology. And a country's competitive advantage will hinge on its ability to create an environment in which creativity can flourish besides being helped by an entrepreneurial system that leverages innovation for use in economically-profitable ways. Innovations, in turn, depend on the company's corpus of knowledge. In this millennium, this corpus will increase in size, and be accessible to more people.

As we begin the New Millennium, the number of knowledge-workers is far higher than the sum of all knowledge-workers who lived on Earth in all preceding centuries. Consequently, new ideas, new products, and new processes will continue to emerge in increasing numbers. The result: products become obsolete long before they are worn out. The product life-cycle becomes shorter. Firms will end up having to recover their investment in R&D and retooling in a shorter period. This requires a larger market, and globalisation becomes a necessity.

The infotech and information revolution provides an opportunity for India to leapfrog, and catch up with the developed world in this millennium. But we would do well to take a look at the factors that have made the US a successful, innovative society: it is a country that encourages individuality. It has an education system that is efficient. It has a large pool of scientific talent, and a system that favours merit. Both the federal government and industry spend a lot of money on R&D. As if all these were not enough, the US attracts the brightest and the best talent from other parts of the world too. Finally, it has a thriving philosophy of venture capitalism. India will have to strive to build a similar environment in this century.

The bulk of the income in post-industrial societies is generated by the services sector. This makes perfect sense. Once one has enough food, one wants it cooked by the best cooks. Once one has enough clothes, one wants designer garments. Brands will play an important role in both domestic as well as global economies. Brand names add tremendous value to a product. A silk tie may cost $5, but a Hermes tie may sell for $150.

Technology will now make it possible to create mass-produced-personalised products. These will satisfy the customer's urge for individuality, and do so at an affordable cost. Services will be an important component of the value-addition that these products promise. At the same time, growing global prosperity will give people more time for leisure, and increase the demand for entertainment. Entertainment is the ultimate 'superior good' in that all marginal income, beyond a point, is spent on it. The creativity of our writers, artists, and entertainers is a resource which has a vast global market. This isn't the only economic advantage India enjoys: low-priced telecom networks will open up a range of opportunities in the services-export area.

The most famous export in the services sector, of course, is software, where the work of hundreds of thousands of people in India is exported. It is not coincidental that the country's software sector really took off soon after Net services-no matter how clumsy and how expensive-first became available. Scientific R&D is cheaper in India. Database and information services operational in India can create products for international consumption. Many financial-services activities are location-independent. Firms such as GE Capital and AIG have started moving some of their international operations to India. Indians excel in finance worldwide; hence, we can aspire to become an international finance centre like Singapore or Hong Kong.

There are already companies in the US whose technical support for highly skill­intensive technology products is done out of India. A customer in the US dials a toll­free 1­800 number. His call is shunted to a customer-support centre which is physically located in India, where he is helped by highly-skilled staff. The customer in the US is not even aware that his call has been fielded by someone across the globe. Each of these illustrates the labour arbitrage which is possible by employing highly-skilled workers in India, who can earn international wages. The requisite is an efficient telecom and infotech backbone.

The international economy in the 21st Century will be dominated by the trade in services, which India could well dominate if it leverages its knowledge resources. India will become an economic power, sooner rather than later, if it follows the right policies now.

Kirit S. Parikh is the Director of the Indira Gandhi Institute of Development Research

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