india sfuture

8/9/2019 India Sfuture

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INDIASFUTURE

3 April 2007Conclave on Expansions and Consolidations

New Delhi


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Even though the world has justdiscovered it, the India growth

story is not new. It has beengoing on for 25 years old


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What is the India story?


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1) Rising GDP growth

% average annual GDP growth

1900 1950 1.01950 198 0 3.5198 0 2002 6.02002 2006 8.0

Sources: 1900-199 0: Angus Maddison ( 199 5), Monitoring the World Economy, 199 0-2000:Census of India (200 1) , 2000-2005 Finance Ministry

India Story


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2) Population growth is slowing

% average annual growth

1901 1950 1.01951 198 0 2.21981 199 0 2.11991 2000 1.8

200 1 2010 1.5

Sources: 1900-199 0: Angus Maddison ( 199 5), Monitoring the World Economy, 199 0-2000:Census of India (200 1)

India Story


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%1950 17199 0 522000 652010 (proj ) 80

Source: Census of India (200 1)

3. Literacy is rising

India Story


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% MillionPeople

198 0 8 65

2000 22 220

2010 (proj ) 32 36 8

Source: T he Consuming Class , National Council of Applied Economic Research, 2002

4. Middle class is explodingIndia Story


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198 0 46%2000 26%2010 (proj ) 16%

1% of the people have been crossing poverty lineeach year for 20 years. Equals ~ 200 million.

5. Poverty is declining

India Story


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6. Productivity is risingIndia Story

30% to 40% of GDP growth is due torising productivity


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(US$ ppp )

198 0 11 78

2000 305 1

Source: World Bank

7. Per capita income gains

India Story


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THE INDIA MODEL ISUNIQUE


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DRIVERS OF GRO WTHIndia East and S.E. Asia

Domestic Exports


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Domestic ExportsServices Manufacturing


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Domestic ExportsServices Manufacturing

Consumption Investment


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Domestic ExportsServices ManufacturingConsumption InvestmentHigh tech, capital Low tech, labour intensive industry intensive industry


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IMPLICATIONS OF INDIA MODEL

Domestic led

Insulation from global downturns

Less volatility


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IMPLICATION OF INDIA MODELServices led

Have we skipped the industrialrevolution?

How do we take people from farmsto cities?


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IMPLICATION OF INDIA MODELConsumption led

People friendly: Consumption as % of GDPIndia 64Europe 5 8China 42

Less inequality GINI INDEXIndia 33U.S 4 1China 45Brazil 5 9

The world needs another big consuming economy after the U.S.


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Reasons for SuccessIndias success is market led

whereas Chinas is state induced.The entrepreneur is at centre of

the Indian model


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Rise of globally competitiveIndian companies:

Reliance, Jet Airways, Infosys, W ipro,

Ranbaxy, Bharat Forge, Tata Motors,TCS, Bharati, ICICI and HDFC Banks


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India has a vibrant private space

> 100 Indian Companies have marketcap of US$ 1 billion


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> 1000 Indian Companies have

received foreign institutionalinvestment


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> 1000 Indian Companies havereceived foreign institutional

investment> 125 Fortune 500 companies haveR&D bases in India


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> 1000 Indian Companies have

received foreign institutionalinvestment

> 125 Fortune 500 companies haveR&D bases in India

> 390 Fortune 500 companies haveoutsourced software development to India.

< 2% bad loans in Indian banks (vs ~ 20% in China )


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>100 Indian Companies have marketcap of US$ 1 billion

> 1000 Indian Companies havereceived foreign institutional

investment> 125 Fortune 500 companies have

R&D bases in India> 390 Fortune 500 companies have

outsourced software development to India.< 2% bad loans in Indian banks (vs ~ 20% in China )> 80% credit goes to private sector (vs~ 10% in

China )


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But public space is a problem

Although we have a:

+ Dynamic democracy withhonest elections


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Public space is a problem

Although we have a:

+ Dynamic democracy+ Free, lively media and press


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+ Dynamic democracy with+ Free, lively media and pressBut there is:

- Poor governance


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+ Dynamic democracy

+ Free, lively media and press- Poor governance

- High populist subsidies, whichresults in a high fiscal deficit


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+ Dynamic democracy

+ Free, lively media and press- Poor governance

- High subsidies High fiscal deficit- No money for infrastructure


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+ Dynamic democracy

+ Free, lively media and press- Poor governance- High subsidies High fiscal deficit- Creaky infrastructure- Inefficient government companies


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Earlier we had world class

institutions, but they are now failing

Bureaucracy

JudiciaryPolice


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Contrast between public and privatespace raises the question :

Is India rising despite the state ?


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Economy grows at night whengovernment is asleep


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What explains Indias economicsuccess?

1) Even slow reforms add up- state getting out of the way- every government has reformed

since 1991


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Key Reforms

Opened economy to trade and investment

Dismantled controls

Lowered tariffs

Dropped tax ratesBroke public sector monopolies


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What explains Indias economic

success?

1) Even slow reforms add up-stategetting out of the way

2) Young minds are liberated


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Mental Revolution

- I want to be Bilgay- Rajus secret of success

- Banianisation of society- 100 cable channels for $3- Hinglish


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What explains Indias economic

success?

1) Even slow reforms add up-state

getting out of the way

2) Young minds are liberated

3) India has found its competitiveadvantage in the knowledge economy


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L ooking Forward

7% - 8% economic growth

Democracy will not permit more than 8%

1.5% Population growth


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($)

2000 2 1002005 30502020 5 8002040 16,8002066 37,000

This means a per capita income

roughly of (on a ppp basis ):


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Convergence in the 2 1st

centuryWhy convergence is intuitiveConvergence didnt happen in the 20 th

century because the world was closedReturning to a world of equality prior to1750When China and India accounted for 45%of world GDP


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Why will growth continue?

Demographic dividend


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D emographic trend points to sharp increases in input factors

54%

46%25+yrs

0-25yrs

D emographic Split

420800

0200400600

8001,0001,2001,4001,600

2005 2025

1.5 bn

1.1 bn

Labor Force

L abor Force will double in the next 20 years


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D emographic trend points to sharp increases in input factorsAge D ependency

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