25 YEARS OF LIBERALIZATION: A GLIMPSE OF INDIA’S GROWTH IN 13 CHARTS

(Article in “FIRST SPOT” DT 10.08.2017 BY Sri. Aprameya Rao & Kishor Kadam)

“No power on earth can stop an idea whose time has come,” said then finance minister Dr. Manmohan Singh quoting Victor Hugo while presenting the Union Budget on 24 July 1991. And with these words started the long process of economic liberalization in India

The liberalization was aimed at ending the license-permit raj by decreasing the government intervention in the business, thereby pushing economic growth through reforms. The policy opened up the country to global economy. It discouraged public sector monopoly and paved the way for competition in the market.

The policy was seen as the only way out for India after the balance of payments crisis that brought the country to its knees.

The size of the economy can often give the first impression of the might of a country. GDP gives the total worth of the goods and services produced in a country in one particular year. India’s GDP stood at Rs 5,86,212 crore in 1991. About 25 years later, it stands at Rs 1,35,76,086 crore, up 2216 percent. In dollar terms, India’s GDP crossed the $2 trillion mark in 2015-16. Currently, the country is ranked ninth in the world in terms of nominal GDP

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Once admonished for its “Hindu rate of growth” – cliché for low rate of economic growth – post-reforms, India remained the second fastest growing economy in the world, behind China until 2015. Especially, between 2005 and 2008, the economy clocked the 9% mark annually. With the NDA government revising the GDP growth figures and China slowing down, India is now being billed as the fastest growing major economy in the world, with a growth rate of 7.6% in 2015-16.

Foreign Direct Investment (FDI)

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Before 1991, foreign investment was negligible. The first year of reform saw a total foreign investment of only $74 million. However, investments have steadily risen since then, except for occasional blips between 1997 and 2000 and 2008 and 2012 – owing to the global economic slowdown. As of 31 March 2016, the country has received total FDI of $371 billion, since 1991. The year 2008 recorded the highest FDI inflow of $43.40 billion. The biggest spurt in inflow was between 2005 and 2006 – 175.54%. As of March 2016, India has attracted $10.55 billion worth of FDI. In 2015, India received $63 billion (nearly Rs 4.19 lakh crore) and replaced China as the top FDI destination, according to The Financial Times.

Foreign Exchange Reserves:

It was India’s dismal state of forex reserves that forced the government to bring in economic reforms. Now, 25 years later, forex reserves are at a record high. In 1991, it stood at just $5.8 billion. As of 24 June, the country’s forex reserves are at $360.8 billion. Usually, import coverage of 7-8 months is considered sufficient. The biggest jump in reserves was witnessed between 2007 and 2008 when the kitty bulged 55% to hit $309.2 billion.

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External Debt:

As the economy expanded so did the country’s external debt as companies started borrowing from the overseas markets to fund their growth. In 1991, the country’s external debt stood at $83.8 billion. The rise has been steady with the figure in December 2015 hitting $480.2 billion. Though the figure looks huge, as a percentage of GDP the external debt has declined. In 1991-92, external debt as a percentage of GDP stood at 38%. The corresponding figure in 2015 is just about 24%. Between 2007 and 2008, external debt rose by more than 30% which is the steepest rise in the last 25 years.

Foreign institutional investment:

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Unlike FDI, FII investment is not for long term and is sensitive to domestic and international volatility. FII inflows and outflows may often reflect a nation’s economic and political stability. In 1992-93, FII inflow stood at a meagre $4.2 million. By 1994-95, the figure had risen to $2.43 billion. However, there was a net outflow of $386 million for the first time in 1998-99. The reason for this may be the political instability and the Kargil War. Another major outflow was recorded in 2008-09 – $9.83 billion – during the global financial crisis. FII inflow rose to $45.69 billion in 2014-15 from $8.87 billion in 2013-14, a 414 percent spike in just one year. In 2015-16, however, there was a net FII outflow of $2.53 billion

Sensex:

Though only around small fraction of the Indian population plays in the share market, the ups and downs in the Sensex reflect the prevalent economic and political scenario in the country. The 30-share index was lingering around the 1000-level in 1991 before crossing the 4,000 mark the next year. However, the Harshad Mehta scam brought about a downturn, with markets ending 1992-93 below the 4,000 marks. The Sensex reached the high point of 15,644 by the end of 2007-08, but fell 38 percent to 9,708.50 points by the end of 2008-09. Since then, the Sensex has risen steadily to reach 25,341.86 points by the end of FY 16.

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Per capita income:

Per capita income is the average income of every citizen arrived at by dividing the GDP by the country’s population. Though purely a statistical exercise which may not necessarily show the true picture of a country’s development, nevertheless the data makes for an interesting read. Between 1991 and 2016, per capita income rose from Rs 6,270 to Rs 93,293. This is a whopping 1388 percent jump. However, there’s nothing to be euphoric about the number. As earlier RBI governor said, with this number we are nowhere near ending poverty. “...we are still a $1,500 per capita economy. All the way from $1,500 per capita to $50,000, which is where Singapore is, there is a lot of things to do. We are still a relatively poor economy and to wipe the tear from every eye, one would at least want to be middle-income around $6,000-7,000 which, if reasonably distributed, will have dealt with extreme poverty. And that is two decades worth of work to be even moderately satisfied,” he said in a interview to The Times of India.

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Purchasing power parity:

Purchasing power parity (PPP) gives a comprehensive idea on the standard of living and the cost of living in a particular country. When per capita income of Indians is calculated in terms of PPP, the standard of living has improved for sure. However, the cost of living has risen too. In 1991, per capita PPP was $1,173. In 2014, it rose nearly five-fold to $5,701. Nevertheless, when compared with developed countries, India’s standard of living as well as cost of living is quite low.

Share of agriculture, industry and services in GDP

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The post-reform period shows the gradual decline in the agriculture sector’s contribution to the Indian economy. India’s traditional occupation, agriculture now contributes only about 15% to the GDP, down from 29 percent in 1991. The services sector has taken the lead role in propelling the economy at the global stage. The IT sector has been the torchbearer of the service sector in India. Currently, it contributes around 53 percent to the national economy. In the meanwhile, the industrial sector has undergone marginal growth in the last 25 years.

Power generation and consumption:

Electricity consumption is a proxy for growth. As a country prospers economically, its power consumption increases too. This has been the case with developed countries such as the US.

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Post-reforms, per-capita power consumption in India has increased each year. Cumulatively, there has been about 162 percent growth between 1990-91 and 2012-13 – from 291.8 KWh to 765 KWh.

Labour force and employment:

The labour force in India currently stands at 49.7 crores. In 1991, it stood at 33.7 crores. More or less two-fifth of population is part of the labour force. The most important fact is that the decline in unemployment rate over the last 25 years is only marginal – from 4.3% in 1991 to 3.6% in 2014. The sectoral composition of labour has witnessed a notable change. The agriculture sector, which is considered India’s backbone, now employs less than 50% of the labour force, while industrial and service sectors have marginally surged ahead.

Car sales:

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With the increase in per capita income, the prosperity of the middle class has also increased for sure. What else describes the rise in car sales in the country. In 1991-92, just over 2 lakh cars were sold. The figure rose to 3, 12,000 by March 1995. The sales crossed the one million mark in 2003-04. The latest figures show that about 20.3 lakh cars were sold by the end of 2015.

Telecommunication:

The telecom revolution in India can be called the biggest legacy of the post-1991 economy. Telephone, especially wireless, subscription has witnessed exponential growth since the dawn of this century. Telephone connections steadily rose in the initial few years, but could never match the rapid rise of SIM-based mobile subscriptions. In the last eight years, the number of telephone connections has been dipping marginally.

Mobile phones have revolutionized the way Indians communicate. In the last 15 years, wireless subscription has grown by a whopping 28,611 percent. As of March 2016, there are more than 103 crore mobile subscribers in the country. Currently, India is the second largest mobile subscribers in the world after China.

Economic reform is a continuing process and not a one-time action. The present NDA government – which recently opened the defence and aviation sector for 100 percent foreign investment – is carrying forward the legacy of the 1991 reforms. With China slowing down, US slowly losing its clout, and the EU weakening, the Indian economy seems better placed to reach new heights.

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FUTURE OF INDIAN ECONOMY

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Blog by Karolina Goswami dt 19.04.2017 a girl from Poland who is living in India and share her thoughts through this medium with the world citizens.

India has recently overtaken China as the world’s fastest growing major economy but can India continue this growth for the next few decades and can it also become the largest economy of the world? What are the challenges that India will be facing and what are India’s strengths?  Let’s discover the untold story of the Indian economy, something that the international mainstream media hardly talks about. In the world of today, India has re-emerged as an economic powerhouse and this re-emergence of India can easily be the most sensational success story of our times. Indian economy started to gain some real momentum a few years ago when the top international companies started to move their manufacturing facilities to India and not just that, they also started to outsource all sorts of jobs to India whether they were related to marketing, management or customer service. The most lucrative part of this international co-operation was that these global companies also got a chance to sell their products within India as the rise of the Indian consumer market was massive. This trend has continued for several years now and hence the overall economic growth is clearly visible. India is a land which is full of diversity and its vibrant democracy has encouraged its people to involve and participate in this growth.

India’s GDP in PPP terms

It is important to know that Since 2011, over 65% of Indian GDP has come from the domestic consumption, unlike China where domestic consumption averaged around 40% of its GDP. Today, at a massive 9 trillion USD, India is the third largest economy of the world in purchasing power parity terms and only China and the USA are ahead of India. If some of you don’t know what it means, let me explain this for you. There are mainly two ways in which countries GDP is looked at. Purchasing power terms and nominal terms. It is widely believed by the economists that Purchasing power parity is a more accurate and realistic way to understand the real economic condition of a country as it takes the costs of living into account. The mainstream international media largely ignores the fact that India is already the third largest economy of the world in PPP terms. I have also noticed that the western countries still prefer to compare their economies in the nominal terms as their GDP tend to appear bigger by this way of calculation. In the nominal terms of calculating GDP, currencies of all countries are converted into US Dollar which is not considered very fair by many top economists.

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The economic power is going back to the east and that is why many international financial institutions are starting to take interest in India’s growth even though the mainstream international media still does not give enough coverage to the development stories of India.

Future of the economy of India

To start with, HSBC published a report in 2011 predicting India to be a top 3 economies in nominal terms over the coming decades. In 2015, another study was done by the US Department of Agriculture which predicted very similar results.

On the other hand, in PPP terms, PricewaterhouseCoopers predicts India to overtake the USA in 2050 as a 42 trillion economy.

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The same institution also predicted India to be the top 3 economies in 2030 and very close to the USA in 2050 when it becomes a massive 28 trillion economy in nominal terms.

Citigroup predicts India to be the second largest economy in 2050 and according to them, in 2030 it will already be the third largest.

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Other institutions like Standard Chartered are also very positive about the future of Indian economy and so is the CEBR which predicts India to be the largest economy of the planet in the future.

My personal assessment is that in PPP terms, India’s GDP should easily overtake the GDP of USA before 2030. A successful implementation of GST (Goods and service tax) is going to give the GDP a good boost. It has to be noted that the recent demonetization did not bring the GDP down as predicted by many experts and it has actually encouraged people to do more cashless transactions and I believe that in the long run, it should be positively affecting the GDP of India as well. Also, in my opinion, India should overtake China in the long run. India is also going to have a young population for years to come in comparison to China where the non-working population is going to be on the rise.  Being a democracy, India does slow down a bit in decision making, but in the long run, this is India’s real strength. It is because of its democracy that India is powered by 1.3 billion brains but China as a communist country is driven only by a few hundred brains.

Another massive advantage that India has is that it is developing in times when the technology is digital. In the tiniest of Indian villages, thousands of new innovations and experiments are taking place every day as the information which used to be available in the libraries or universities is now available in a smartphone. It also has to be noted that India has to import crude oil to meet its energy needs and the fall in Global crude oil prices are in India’s favor as well.

Is India’s economy underestimated?

All of this sounds really great but there is something more. And that is the fact that India’s economic activity is very underestimated. For example, a big part of India’s economic activity is not on any kind of record and it doesn’t have anything to do even with the cashless or cash

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transactions. It is because many economic activities in India are totally undetected. To give you an example, in many houses of India, people have their own cows. Their requirement of butter, milk or cheese is fulfilled by their own cow at home. The cow can simply eat grass or other low-cost food. On the other hand, even in the villages of the western countries, the cow’s milk is sold to the companies which pack them, put a price tag on them and sell it back to villagers giving birth to so many economic transactions rising the GDP of their countries. Indian cows milk reach to the mouth of many Indians without going through any kind of trade whether it is in cash or is cashless. So, one can easily see that in India, in many cases, there is production, there is consumption but there is no trade. On the other hand, western countries have managed to count their last penny available and commercialized everything that they could which inflates their GDP a lot.

Also, one has to remember that a country in which people cure themselves from the home remedies and Yoga are going to contribute lesser to the GDP in comparison to those countries which are known to make a commercial industry out of everything even when it is against human welfare.

For example, more people practice Yoga in India than anywhere else in the world. Yoga is known as the greatest gift by Indians to the world. But, the USA has the biggest chunk of around 27 billion USD in the 80 billion USD global industry of Yoga and India stands almost nowhere. So, even though more Indians practice Yoga in India, Yoga helps the GDP of America more than it helps India’s and it is all because traditionally, Indians are known to share their knowledge, and the west is known to sell any knowledge that they get their hands on.

The informal economy of India

Apart from this India also has a big informal economy and even in the formal economy people tend to under invoice a lot. Also, there are so many cash transactions which do not go on record and thus many foreign institutions end up over-estimating India’s poverty and they do not show the ground reality at all.   The government of India has recently tried to merge India’s informal economy into its mainstream economy by demonetization encouraging people to do cashless transactions.

Size of an economy

Here, I want to remind the world citizens that on the global scale, the overall size of a country’s economy matters a lot more than per capita statistics and that is why, Brunei, Qatar, Norway which are richer than the US are not known as superpowers. It is because a big overall size of GDP increases a country’s influence in the world’s economy. With due respect to all these smaller countries which may have a better per capita/per person statistic of GDP, the fact is that they hardly have any influence in the global financial world and nobody is going to suffer if they were to face a recession. On the other hand, China, India and the US are known as the big players because of the massive size of their national GDP. You will be shocked to know that with in India, there are many states which have similar GDP to the GDP of some of the European countries. For example, Maharastra’s GDP  is pretty similar to the GDP of Norway(in Nominal terms).. and Tamil Nadu’s  GDP is equivalent to the GDP of Portugal.(Nominal terms).

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Now you must be wondering that these states of India have a lot more population than these two European countries and that is exactly what I want you to notice.  It actually shows that India has already become such a large economy even though there is so much room left for the improvement in per capita terms. It means that India’s GDP can afford to grow at a very high percentage for the next many decades or even for a century before a saturation is reached like it did in Europe.

Big MAC Index

Further, we should not forget the fact that the cost of living is different in every country. For instance, 2 USD may sound too less in the USA but in India, it is good enough to buy three meals. So, all the comparisons which are done in USD do not show the actual reality of a country’s economic status at all. And that is why the big MAC index becomes very important. The big MAC index actually indicates if the currencies are at their ”correct” level.  Swiss Francs are the most inflated currencies in the world and the USA is not far behind. On the other hand, Indian Rupee is one of the most undervalued currency in the world. But, still world bank continues to measure the poverty line in US dollars and to make the matters even worse and it also continues to overlook the informal economy of India. Further, it has absolutely no idea how much gold is owned in India by many of those who live in slums and are living below the so-called poverty line.

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On the other hand, in India, 45% of the wealth is owned by its millionaires according to the report by ”New World Wealth”.  But one must remember that in India, the wealth inequality statistics do not show the true picture at all. It is because a majority of Indians do not declare their actual wealth or income honestly and they are also known for keeping a big stock of household gold which in most cases stay undeclared. Let me shock the world citizens by the fact that Indian housewives own a massive stock of gold that is estimated somewhere around 25000 tons or even more and as expected, this is never told to you by any international institution which loves to discuss the so called over estimated poverty  statistics from India and by the way this 25000 tonnes of gold is very much evenly distributed and not held by the top 1%.

Apart from this, there are more pieces of evidence which show clearly that poverty and wealth inequality in India is over estimated. In the assessment year 2014-2015, it was revealed that their share were only 2.4 million tax payers in India who declared their annual income over 15thousands USD but still almost 2.5 million cars continued to be sold annually. Out of these cars, around 35000 were luxury cars which continue to be sold every year as well and shockingly only around 48000 people reported their income of more than 150 thousands USD per annum. And this is only about the new cars. Second-hand cars are also purchased every year which are not even involved here. You will be shocked to know that in India only around 36 million people out of 1.3 billion file the tax returns.  It is absolutely clear that Indians purposely show lesser incomes to avoid taxes and a majority does not even file any income tax returns. In such condition, how can you expect the world bank to provide you clear figure of poor or unemployed people in India?  All of this clearly proves Indian economy is extremely underestimated. The fact is that Indian tax authorities are not very strict yet and many citizens are taking advantage of that.

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Unemployment

Now here is a chart that shows the unemployment rates in different countries and as you can see, the unemployment in the western world is pretty alarming.  Even though the percentage of the unemployed people is lesser in India than these western countries, it still does not show the actual figure. It is because there are so many Indians who are employed by the informal economy and stay invisible to the international financial institutions. To give you an example, many of these stall owners in India can easily be officially unemployed and perhaps many of them do not even have a tax number (PAN CARD). Those who have a tax number are mostly not declaring their true incomes. And the international financial institutions have no idea that many of these so-called unemployed or poor are earning more than 800 USD per month which is a pretty big amount in India considering the low cost of living.

Factors important to assess the power of a country’s economy

Apart from a country’s GDP, income inequality and wealth inequality there are other factors that play a crucial role too, such as external debt, net international investment position (NIIP) ,fiscal deficit, current account deficit, foreign reserves, gold reserves of the government and also the gold reserves of the common households or in India’s case even the Gold reserves of its temples.  The health of a country’s financial institutions, the size of the informal economy, health of its stock exchanges, the proportion of foreign investment in the private  and public entities are important as well.  There are also some other parameters like HDI (Human development index) and life expectancy. Life expectancy also gets greatly affected by natural disasters, child mortality, wars and by terrorist attacks and it does not just reflect the health of a nation as assumed by many.

Let me also talk about some other aspects of India that will play an important role to make it the largest economy of the world. India needs political and internal stability and the current

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government of India has a huge majority in the lower house and is now looking to get stronger in the upper house or Rajyasabha as well. This is going to ease the way to pass the necessary bills. In the recent state and central elections that were held in India, the people have largely shown that they want to vote for development.  Even though India has been growing so fast over the last many years, it could not reach its full potential due to the high-level corruption which in the last few years has significantly gone down and that is good news for India.

India must find an alternative fuel of the future so that it does not have to rely on other countries for crude oil. India should also avoid any full-fledged wars, however, after a decade of high growth, if absolutely required, India can even afford limited wars without having much effect on its economy.

India must ensure that its own brands grow in their stature worldwide. This can not be achieved until Indians start to support their own indigenous brands and companies. India has to have its own luxurious brands which get admired and desired all over the world. Actually, something similar is also said by my husband. He says-   ”I want to encourage the people of my country who are passionate about designing to create and establish our own luxury brands and not be inspired or influenced by anyone.  Start your own trends, don’t compromise on the quality and the Indian premium consumer market will prefer you over the Italians and the French. After all, we are the land of Maharajas. Who knows luxury and art better than us?”

Apart from growing its own research and development sector, India should also be more focused on acquiring the latest technologies from around the world. At some stage, it should completely stop importing the ready to use defense equipment until there is an offer of complete technology transfer. As India will grow, its requirement of clean water will grow too. If India stays pro-active and makes smart policies in time, it is able to handle that situation too.

India’s foreign policy

India is also getting more pro-active in its foreign policy. India is building a port in Chabahar in Iran which is said to be an answer to the port at Gwadar which is being built by China. India also enjoys a good relationship with the countries in South China sea and its strategic partnership with countries like Vietnam is seen as something that is intended to encounter China on its strategy of strings of pearls. India and Japan also enjoy multi-dimensional relationships and hence it can easily be noticed that India is doing what is needed to attain a balance of power with China to attain the stability it needs in order to continue its massive growth.

India’s rise

The rise of India should see the rise of its status as a country that sets the trends in the world of technology and also in the world of luxury. The rise of India should see multi-billion startups originating from India which will saturate the world of startups. The rise of India should see India emerging with its own global social media platforms and also its own institutions that give the world’s most prestigious awards to the filmmakers and also to the authors and journalists. The rise of India should see India emerging with its own institutions which set their own

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parameters to measure the statistics of all kinds around the world. The rise of India will not be complete until it has its own global media house which plays its role to form the opinions of the world citizens, the rise of India will not be complete until it has its own mega global banks, its own versions of S&P and Moodys which will downgrade or upgrade the ratings of the countries at their will controlling the global sentiment of investors and controlling the money flow. The rise of India should see India attaining self-dependency in its fuel and energy needs. The rise of India should also see India having a permanent seat on the United Nations security council influencing the international policy making and global affairs.

Looking forward

Overall, the glass remains half-full but it is hardly the time to be complacent. The present remains imperfect and the future cautiously optimistic. India is currently the world’s fastest-growing major economy. And before long, it may leapfrog the US on a ranking of the largest. In a new report titled “The World in 2050,” consulting firm PwC projects that India’s GDP would exceed US GDP in purchasing power parity terms by 2040 (purchasing power parity accounts for the different prices levels across countries). This would make India the largest economy in the world after China.

Though PwC expects India to make significant strides in converging the gap with rich nations like the United States and Japan, Indians won’t fully catch up with their American counterparts. In 2050, Indian GDP per capita would still be less than one third of that of the average American. There is a long way to go before Indian living standards rise to the levels of the world’s most prosperous countries but, despite short-term challenges like rising oil prices and demonetization, optimism for the long-term is warranted.

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