India’s Demographics: Favorable Today, Costly Tomorrow

India’s favorable demographics are often touted as one of the major reasons behind the country’s growth. Millions of educated Indians under the age of 30 act as the pistons firing in a multi-cylinder economic system, which continues to expand at enviable rates despite the global recession. There’s no doubt that this confers upon India an enormous demographic advantage, an upper-hand that will continue to fuel growth for decades to come.

What happens, however, to the Indian economy when the country’s dependency ratio tilts higher, as today’s youth begin to retire? The Indian workforce is on pace to transform into an enormous healthcare burden for the country as workers age, live longer, and demand more medical services, as well as pensions and other correlated elements of social security. India will have no choice but to spend more of its GDP on healthcare. India’s soaring birth rates will expound this dilemma. By 2050, the United Nations expects India to boast the world’s largest population. While India cannot impose draconian rules such as its neighbor’s “One Child” policy, the sheer scale of these numbers places tremendous pressure on the country’s ability to succeed in innovation in medical science and delivery models to help India avoid the burdens of healthcare costs that some countries, such as the United States, carry today.

The Planning Commission in India is well aware of this future problem. For years, innovators in the life sciences have been racing to find novel ways to reduce costs and expand care in the hope of capitalizing on the economies of scale Indian consumers provide, such as the expansion of digital health records, the promotion of medical tourism, a focus on biostatistics for outcomes research, a drug patent system that protects generics for widespread distribution, and inducing competition for cheaper medical devices. This rush of activity has produced so many new techniques that India is beginning to export its expertise in these areas to other countries. Add to this that the Indian government will continue to liberalize the industry, doll out tax breaks, and encourage more private competition, and the recipe may be robust enough to put the country on a sustainable path to meet its future healthcare needs.

Several other long-term approaches are underway:

  1. Inversion of the traditional “blockbuster” model. Traditional western drug pipelines were fueled by high margins to drive profits; in India — and other emerging economies — drug firms have little choice but to focus on compounds that reduce unit prices and reach a wider audience to drive up sales volumes.
  2. Bigger, faster, and stronger clinical trials. India is becoming an increasingly hot destination for foreign and indigenous drug makers to run clinical trials, capitalizing on the country’s vast, diverse, and relatively poor population in order improve the efficacy and pace of getting new drugs from the lab into customers’ hands.
  3. Entrepreneurship in healthcare delivery. The Indian government is not in a position to supply anywhere near the level of care that many citizens require. In its place, private players are filling critical gaps in the healthcare space: for example, private ambulance operators dramatically reduce the time it takes to transport sick patients to a hospital.
  4. R&D innovation partnerships between global pharma and medical schools. India’s education system is renowned for its strength in engineering and science, which provides the country a large pool of talent. In order to attract this talent, big drug firms have invested in large R&D labs in India as well as scientific collaborations with medical schools. The hope is that this talent will be able to establish drug discovery protocols that leapfrog western models.
  5. Innovation in healthcare insurance. One such system creates pathways whereby patients and healthcare providers are paid to make healthy choices and sound medical decisions, respectively. Barry Bloom, former dean of Harvard’s School of Public Health and one of the founding forces behind the Public Health Foundation of India, once relayed to me an example of such innovation. In rural sections of India, women typically give birth in the village and do not see a medical doctor; instead, a midwife-type figure traditionally helps with delivery. However, in pregnancy cases where the mother absolutely needed professional medical attention, the midwife did not have an economic incentive to refer her patient out. Enter the conditional cash transfer. With this simple idea, now a midwife who correctly refers pregnant mothers to doctors will receive a nominal cash payment in lieu of the lost income — while the patient herself is given the best chance to get the best possible medical care available to her.

Despite these advances, troubles loom. A growing middle class will inevitably demand more health care, which it will view as a right — not privilege. This trend could force the government to increase medical regulation and expand malpractice.

India will have to innovate with its technologies and delivery mechanisms in order to avoid the trap other developed economies find themselves in today, India will also have to innovate around the edges of the problem in order to preserve the fruits born during today’s economic growth.