D Joel K Pandian

The Geese Story

The Story of Flying Geese The Asian Economies in the

past half a century has taken of one by one and move in a cluster; like the migrating Geese

Japan headed the formation, being the first to develop, starting as a low-cost manufacturer of consumer goods, then making more capital-intensive items and handing over its low-end manufacturing activities to other Asian countries.

The Flying Geese Economies

This has been true through out the

centuries

BUT NOT NOW

The process would be repeated down the line by other countries playing catch-up.

This is essentially because as a country’s labour becomes more expensive, it had to move up the value chain, and other countries lower down the development ladder could then occupy that space

1952 – Japan Head of

Formation

Important to note that Japan had a growth rate of 5.8% per year in the 1920-38 Emperor Meiji era, with infrastructure and industries largely in place.

Important to note that Japan had a growth rate of 5.8% per year in the 1920-38 Emperor Meiji era, with infrastructure and industries largely in place.

War-ravaged Japan takes off on a spectacular growth path

Economy grow at an average of 9.6 per cent per annum for the next 19 years.

The all powerful MITI guides industrialization with high import barriers with strong export growth.

The Asian Geese Between 1962 to 1989, South Korean

strongman Park Chung Hee leads the country to an export-led model of growth touching 8%.

Taiwan becomes a major exporter of labour-intensive manufacturing. The total value of trade increases five-fold in the 1960s and 10-fold in the 1970s.

After becoming an independent state-city in 1965, Singapore’s real GDP grows at an average annual rate of 8.6 per cent between 1965 and 1999, thanks to a policy of export-led growth.

More Geese Join the Formation Indonesia, Malaysia

and Thailand join the flying geese in 1970s, with their economies developing close ties with Japan. They, too, opt for the export-led model.

Further Addition to the Formation A huge new economy

China joins the party China has many features

common to the East Asian growth model, such as export led growth and low cost manufacturing

Its massive size of course disturbs the formation

By 2000, China has displaced Japan as the head of the gaggle in many respects

A Sudden Reevaluation

The Flying Geese Theory that the World

Economies have followed over centuries, have came to a thundering

halt with India on the Stage!

The gaggle is astounded by the presence of another large flying object in its midst.

Its economy is based on domestic consumption rather than exports. Exports contribute just 12% to GDP

It has a competitive advantage in services rather than in manufacturing

Its earlier state-led model of development did not work!

It is infected by a virus called democracy, a virus that the geese had been careful to avoid earlier.

Is this a goose or an air borne ugly duckling?

Consumption led rather than export led, growth with democracy, growth in services rather than manufacturing, entrepreneurial rather than Government led

The Explosive Story of Indian Economy

India has always dominated the world economy!

Year India China US Others

1500 32% 28% - 40%

1550 30% 28% - 42%

1600 29% 29% 42%

1650 30% 29% 41%

1700 26% 23% 51%

1750 22% 23% 55%

1800 18% 27% 3% 52%

1850 15% 18% 12% 55%

1900 8% 12% 16% 64%

1950 2% 5% 29% 64%

2000 5% 12% 22% 61%

For the known economic history of mankind India and China has always dominated the world economy

We are in the beginning of a spectacular reversal of the world economic order

By 2050 India and China would lead the economic order of the world as centuries before

Un-paralleled Growth

The growth was sudden without any heavy capital formation in the previous years

A sustainable 8% growth for the next 10 years is almost given, if everything remaining common

The economy is consumption led and so guarded against the abrupt changes of the global economies

Indian Economy in the Last 10 yrs An Economy that Challenges Norms

Rapid Economic GrowthFastest Growth Against Major

World EconomiesExternal Debt to GDP Ratio one of the

best among major world economies

External Debt-to-GDP Ratio

21.120.4

17.817.3

15.816.4

10

13

16

19

22

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Ratio

A Strong ContenderIndia the 9th Largest Economy in

Real Terms in PPP 4th LargestTo be 3rd Largest Economy by

2050 in Real Terms

All figure in US $ BillionsSource: WB Economic Outlook 2007-08, BRIC Report,

Goldman Sacs

Size of the Economy The Economy is Growing

at a massive 9.4% and is likely to achieve double digit by 2010

Indian Economy is the fourth largest at US$3.6 trillion on PPP terms and is likely to overtake Japan and become the third largest at this growth rate in the year 2007-08

High Private Consumption/ Entrepreneurial Capital Formation

An Economy Led by ServicesThis is an economy Modern in all its looks from the contribution

The mix of China’s GDP is 15% Agriculture, 57% manufacturing and 28% services

The same for US is 70% Services, 18% manufacturing and 12% Agriculture

This is an economy Modern in all its looks from the contribution

The mix of China’s GDP is 15% Agriculture, 57% manufacturing and 28% services

The same for US is 70% Services, 18% manufacturing and 12% Agriculture

Sector-wise Absorption of Labor

Low Investment on InfrastructureHigh Government Controls

Why Haven’t We Achieved a Balanced Growth

Cost of Poor Infrastructure India is suffering a peak power shortage

of 12%. This represents US$3.5 billion of forgone generation capacity and it costs the economy US$68 billion

The average ship turnaround time in Indian ports is 3 days compared to 8 hours in Hong Kong and Singapore. This represents an wasteful cost of US$ 18 billion per annum

India has the world’s second longest road network but only 2% of that is National Highways, out of this only 12% is four lane roads. An amount of US$42 billion due to increase in logistics cost per annum

Some Comparisons

In 1978 China’s GDP was 28% higher than India compared to 2.4 times in 2006-07

India built 5000 kms of roads in the last 5 years the same for China is 40,000 kms

In the last 5 years India built 36,000 Mw of power capacity the same for China is 100,000 Mw

India commissioned 40 Mw per day in 2007 at an investment of 200 cr and is likely to continue for the next 5 years

Added 7 kms per day at an investment of 30 cr and is likely to continue for the next 5 years

India will add 40 mt of refining capacity which is more than the whole world put together in the next 5 years.

In the Last Five years ending 2006 The Catch-up from 2007-2012

Growth cannot be compromised At 8% India will take

25 years to catch up with South East Asian Countries

At 8 + growth India will take 40 years to catch up with China

So economic growth is a necessity and not a desired target.

We Need to Run Faster to have our share of the meal

The Opportunities are Un-limited. ARE WE READY?

Thank you