globalization & liberalization in india - gordon...

Globalization & Liberalization in India: Achievements, Failures and

the Road Ahead September 21st 2010

Partha S Ghosh

Boston International &

Massachusetts Office of International Trade & Investment Copyright © 2010 Partha S Ghosh

Copyright © 2010 Partha S Ghosh Boston International 2

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

GD

P in

$U

S B

illio

ns

The World in 2050

Source: Goldman Sachs

Beyond the Hype?


1.  Putting India’s Socio-Economy Journey in perspective?

2. Addressing the Fundamentals: Several Crucial Challenges?

3.  Call for a New Paradigm: India as an incubator not extender of 20th century models

Three key points





Three key points


Independence of India 2010

Socio-economic experiments

1.  Stabilized Democracy, secular system 2.  Realization of Self, General sense of Confidence 3.  Strengthened Balance Sheet 4.  Growing Global Stature 5.  Modernizing Industry

Freedom of Self Expression

Since independence, 60 + years of Experimentation


Electrified Villages in India (1947-2012)1

Boston Analytics Research 1. Ministry of Power (http://powermin.nic.in)

Year

No.

of V

illag

es

Close to 500,000 Villages has been electrified


30 times

Per Capita Power Consumption in India (1950-2012)1

Boston Analytics Research 1. Ministry of Power (http://powermin.nic.in)

Year

Per

cap

ita c

onsu

mpt

ion

of E

lect

ricity

(K

Wh

/ yea

r) Thirty Times increase in per capita power consumption


Emerging Multinationals from India (not comprehensive) :

1.  Bharat Forge

2.  Bajaj

3.  Infosys

4.  Sulzon

5.  Tata Motors

6.  Tata Steel

7.  TCS

8.  WIPRO

9.  Several Bio & Pharma Firms

Emerging Global Presence

Multinationals with major R & D Centers in India (not

comprehensive) :

1.  CISCO

2.  GE

3.  GM

4.  Intel

5.  IBM

6.  Levers

7.  Microsoft

8.  Pfizer

9.  Siemens


GDP / Capita (US$)

Ene

rgy

Con

sum

ptio

n (‘0

00 K

WH

r / C

apita

)

Energy Consumption per Capita vs. GDP per Capita (2004)1

Boston Analytics Research 1. Energy Information Administration - EIA (http://www.eia.doe.gov/)

Ukraine

Russia

US

Kazakhstan Czech Republic

Malaysia

Turkey Brazil

Romania Thailand

China Egypt Philippines Indonesia

India

Italy

France Germany

UK

Japan

Canada

80% of Global Population

India is still at a very early stage of Economic development


Widening Gap?

“End of life” high cost Applications

Current Obstacles of Typical Socio-economic Pyramid

Single most significant

Challenge of the 21st Century

While gap between the top and base of the Pyramid is widening

Inertia of past consumption

habits


11

Centrally Controlled

Struggle between two Fundamental Philosophies

Economic Philosophy

State is the Driver

Planning to allocate

resources

Market is the driver

Best govt. is the least government

Free Market Where is the Power?


12


Struggle between two Fundamental Philosophies

Economic Philosophy

State is the Driver


resources




1950s 60s ~ 70s


13


Two Fundamental Philosophies

Economic Philosophy

State is the Driver


resources




1950s 60s ~ 70s

mid 80s


14


Two Fundamental Philosophies

Economic Philosophy

State is the Driver


resources




1950s 60s ~ 70s

mid 80s

90s ~ 2000s


Degree of Openness

Low

M

ediu

m

H

igh

Libe

raliz

atio

n

Globalization

Low Medium High

“Globalized Free market

Closed & Controlled

India’s Globalization & Liberalization moves Partha S Ghosh & Associates Model

15�

Degree of market Orientation

1950s

60s ~ 70s

mid 80s

90s ~ 2000s



2.  Addressing the Fundamentals: Several Crucial Challenges?


Three key points


•  Income is 5 times higher in richest states than in the poorest states

•  40% of villages lack access to roads •  400 M rural dwellers have no

electricity

Source: World Bank

Challenge 1: Economic Disparity


Net Trade Balance of India (1980-2006)(1)

Trad

e B

alan

ce ($

B)

Boston Analytics Research 1. Statistics Database, World Trade Organization.

-50.9

-8.9

-22.0

-7.3 -3.8 -12.7

-5.8

Challenge 2: Continuing Negative Trade Balance


Percentage Trade Balance/GDP vs. Net Energy Balance of Selected Countries (2003)1,2,3

Boston Analytics Research 1. International Energy Agency (http://www.iea.org) 2. International trade statistics, 2004, world trade organization 3. Energy Information Administration (http://www.eia.doe.gov)

Net Export of Energy (US$ B)

Net Import of Energy (US$ B)

% Deficit/GDP % Surplus/GDP

India Italy

Japan

Germany

Indonesia

Saudi Arabia

Nigeria Malaysia

Algeria Venezuela Canada

Brazil China

Korea France

- 200 US

Red Zone

Challenge 3: India is most vulnerable to the Uncertain Geo Political Energy Dynamics


Electricity Consumption of India (2004)1

Boston Analytics Research 1. Energy Information Administration - EIA (http://www.eia.doe.gov/)

632

Challenge 4: At 20% of UK’s per capita use India will need as much new capacity as its installed base?


Inevitable and acceptable loss

Total Power Available

Unutilized Capacity

Total Available Capacity

Power theft Poor infrastructure maintenance

Total Power Available if

working at 80% efficiency

4,972 MW 3,108 MW

15,538 MW

50,963 MW

99,442 MW 48,479 MW less capacity addition required

Savings of Rs

2,424 B

124,302 MW 49,721 MW

Utilization of Power in India in MW (2006)1

Boston Analytics Research 1. “Power”, Motilal Oswal, 2005 2. “6 police stations to track power theft in Maharashtra”, (http://www.thehindubusinessline.com) 3. “A State of concern”, (http://www.thehindubusinessline.com)

Challenge 5: Efficiency of existing Infrastructure - India can save almost $50 B


Japan

US

UK

Canada

Germany France

Italy

Mexico

Malaysia

Brazil

China

India Indonesia

Pakistan

Nigeria

Bangladesh

Population Density v/s Primary Crop Yield per Ha (2003)1,2

Population Density in Persons/ sq. km of Land Area

Prim

ary

Cro

p Yi

eld

(100

0 M

t/Ha)

Boston Analytics Research 1. Food and Agriculture Organization of the United Nations (http://www.fao.org/) 2. CIA World Factbook, 2003

Unhealthy Equation: High population density but low productivity of land

3 Times

Challenge 6: Land is dear but productivity (yield/ Ha) still remains low, in recent years declining


Per

cent

age

of L

abor

For

ce in

A

gric

ultu

re

GDP* per Capita ($)

Japan US UK

Canada Germany France

Italy

Mexico Malaysia

Brazil South Africa

China India

Indonesia

Pakistan

Nigeria

Bangladesh

Boston Analytics Research 1. Energy Information Administration (http://www.eia.doe.gov) 2. Food and Agriculture Organization of the United Nations (http://www.fao.org/) 3. “World Bank list of economies, April 2006”, World Bank (http://www.worldbank.org)

Percentage of Labor Force in Agriculture Across Various Countries v/s GDP per Capita (2003)1,2,3

Note : * Real GDP with base year 2000

India cannot afford low productivity in the Agro sector

Seventy Percent of India has to improve its productivity


Cum

ulat

ive

Tota

l For

eign

Inve

stm

ent

(199

6–20

06) (

$ B

)

Boston Analytics Research 1.  Reserve Bank of India. 2.  People’s Bank of China. 3.  Statistical Database, Shanghai Stock Exchange.

Total Foreign Investment ($ B)

$ 597 B $ 597 B

$ 96 B

$ 96 B

% o

f FD

I and

FII

in C

umul

ativ

e To

tal

Fore

ign

Inve

stm

ent (

1996

–200

6)

% of FDI and Portfolio Investment (PI) in TFI ($ B)

100% =

Challenge 7: Investments from overseas is relatively more Speculative


Boston Analytics Research

India

Challenge 8: India ranks poorly along all of the essential vectors that drive HDI


Brazil

China

Scenario in Brazil, China and India

Boston Analytics Research


 Demographics:   Labor Force – 467 Million   9.35% of Population - Age 20-24   8.52% of Population - Age 25-29   370 Million – Under Age 15 (2010)

 Unemployment:   High

 Labor Participation Rate:   2007 – 58.6%   Decreasing 0.12% per year

 Education:   Literacy Rate – 60%   Secondary Enroll. – 54.6% (107th)   Tertiary Enroll. – 11.8% (100th)

India will have large population of young workers.

Challenge 9: Employment creation


1. Energy Information Administration - EIA (http://www.eia.doe.gov/) 2. UN Nations Population Division (http://www.un.org/english/) 3. World trade Organization (http://stat.wto.org/)

India’s trade deficit per capita has to be corrected

Trade Balance per Capita (US$/Capita)

Aver

age

Gro

wth

(C

AG

R%

: 199

8-20

08)

Japan US

Germany Italy

UK Canada Australia

France

Greece Czech Bangladesh

Egypt

South Africa

India

Malaysia

Turkey

Brazil

Portugal

Ukraine Romania

Russia

China

Indonesia Nigeria

Korea

Switzerland

Spain

Average Growth Rate (1998-2008) vs. Trade Balance($) per Capita (2008)1,2,3





Three key points


First 25 Years of Economic Take

30�

Japan 1960-1984

Brazil 1980-2004 China 1984-2008

India 1984-2008

Korea 1966-1990

Singapore 1966-1990

Malaysia 1984-2008 Thailand 1984-2008

0

2000

4000

6000

8000

10000

12000

14000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Japan 1960-1984 Brazil 1980-2004

China 1984-2008

India 1984-2008

korea 1966-1990

Singapore 1966-1990 Malaysia 1984-2008 Thailand 1984-2008

Upper Bunch

Annual G

DP per capita

Strategically Guided

Lower Bunch

Time Line


Stage 4: “Integration”

A B One Economy

Development of Country B Relative to Country A

Stage 3: Globalization

Stage 2: Industrialization

Stage 1: Infrastructure Development

A

B Capital Goods

Balance –

Balance –

A

B $

Products and Services

+

Balance ?

A

B

Balance of Trust

31�


32


Beyond the Two Fundamental Philosophies

Economic Philosophy

State is the Driver


Strategically

Guided



33


India has to make a strategic shift

Economic Philosophy

State is the Driver


Strategically

Guided

Free Market Where is the Power? Mixed Economy Socialism

Japan South Korea

ASEAN Economies

USSR EE

China

North Korea

USA UK

Western Europe India


Socio Economic Experiments

  Democracy, Secularism   Sense of Confidence   Strengthened “balance sheet” ?   Self realization?/Confidence   Modernizing Industry

1947 2050 2007

1.   Global Credibility 2.   Cautious Optimism 3.   Widened Gaps &

Enhanced Risks

Becoming Enterprising?

  Improve social equity   Strengthen “income statement”   Nurture a sustainable economic

Model

Freedom from Old Constructs & Thinking Habits

The timing is right for a fresh look at developing an Enterprising India


Socio-Economic Impact

Competitive Advantage

Low

M

ediu

m

H

igh

Opportunistic Employment & capital

generation ability

Impact on Social development

Impact on Industrial/ Eco Environment

Impact on the State’s Global Power

Competitiveness of input factors

Stage of development and uniqueness

Domestic Environment

Global Links

Low Medium High

Development Sector

Promotional Sector

Locomotive Sector

“Free market”

Sector

Build Competitiveness through special

incentives

Develop Aggressively through infra-structure

supports and policy incentives

Leave to Market Forces

Promote / Create Scale through

innovative marketing

A Strategic framework that group industries into different roles requiring different policy and infrastructure supports

Partha S Ghosh & Associates Model

35�


Japan growth curve and position of other countries

Rui's Analysis� 36�

China

France Germany

India

Italy

Russia

UK US

Korea

Indonesia Malaysia

Singapore

Norway

Switzerland

Sweden

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

1950 1960 1970 1980 1990 2000 2010 2020

Brazil

China

France

Germany

India

Italy

Russia

UK

US

Korea

Indonesia

Malaysia

Singapore

Norway

Switzerland

Sweden Brazil

Super Advanced Area

Advanced Area

Annual G

DP per capita


Point Solution

Perspective? Holistic/Integrative

Solution

Conservation driven

Consumption driven

Positioning Science & Engineering with

a strategic perspective?

Balance? B

alan

ce o

f Eco

logy

Thesis of Economic Advance

The Two Strategic Vectors: Scope of the Future Industry?


Income Curve Relative earning $/

capita/Year

* Relative to the lowest cost producer

2

Bottom of the base

Threshold zone Σ Population (billion)

$100,000

4 6.5 5

1.  Cultural distance 2.  Emotional distance

3.  Income distance

$500

750 million with excess of $25k/

capita

1250 million with excess of $10k/capita

Mega differentials

Critical Challenge: Mega differentials > Down-scaling technologies


Trickle down of Upgraded Solutions

Inertia of past consumption habits

Widening Gap?

“End of life” high cost Applications

Current Obstacles of Typical Socio-economic Pyramid

Experiments at the top of the Inverted Pyramid

Incubators & Innovation Labs at the bottom of the pyramid

Proven Applications to break old habits

Base of the Pyramid as platform of Incubator of new value propositions


Top of the Base Unserved(s) X

Champion within the Local

Kanban/High Yield culture

Problem solving Process

Output Supporter(s) (as buyers)

Output

J-Soft Technologies

Create Surplus

An approach to Multinationals


Domestic Demand 1990

Income Curve Relative earning $/capita/Year

2

Bottom of the base Natural Momentum

Option Surplus

Threshold zone

Σ Population (billion)

$100,000

4 6.5 5

1. Cultural distance 2. Emotional distance 3.  Income distance

$500

Balancing application of “Option surplus” and direction of “Natural momentum”

* Relative to the lowest cost producer


Point Solution

Industry’s Future (?): Two Strategic Vectors

Perspective?

Conservation

Consumption

The Future Engineer

Balance?

Today

Bal

ance

of E

colo

gy

Thesis of Economic Advance

Systems Approach to Energy & Transportation Management

New Chemistry for the Car

Full recovery of Waste

Agro based Chemical Industry

Carbon Free Energy System

Lighter Products

Process Intensification

Recycling

Improved functionalities

Energy Efficient consumption

Next generation Knowledge Intensive Solutions: “Small is beautiful”

Create New Game Energy/Materials

Holistic/Integrative Solution

Expanded Field = Multiple High Value Added Opportunities


Incubation of 21st century economic & business

models

Application of ready made

solutions

Eco

nom

ic s

tatu

re

National Resources

The Road Ahead?

globalization & liberalization in india - gordon...

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