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Takes in the macro economic development of India, its socio-economic factors that impact its future. How our economy is insulated against global recession & is consumption-driven unlike export-driven countries of Asia.
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INDIA’S FUTUREINDIA’S FUTUREOr prosperity will spread in India p p y p
but happiness will not, until we fix governance
byGurcharan DasGurcharan Das
November 12, 2009WIPROMarbella
h fWhere are we coming from?
Where are we today?
Where are we going in the
future?
E th h th ld hEven though the world hasjust discovered it, the India
growth story is not newIt h b i f 25It has been going on for 25 years
What is the India story?What is the India story?
28 years of high growth
Average annual GDP growth
10
(%)
6.08.9
6
8
10
1.0
3.5
2
4
6
0
2
1900-1950 1950-1980 1980-2002 2002-20071900-1950 1950-1980 1980-2002 2002-2007
Population growth is slowing
2.2 2.12.5
(%)
1 0
2.11.8
1.51.5
2.0
1.0
0.5
1.0
0
0.5
1901-1950 1951-1980 1981-1990 1991-2000 2001-2010
Sources: 1900-1990: Angus Maddison (1995), Monitoring the World Economy, 1990-2000:Census of India (2001)
Literacy is rising
80100
(%)
5265
80
60
80
1720
40
0
20
1950 1990 2000 2010 (proj)
Source: Census of India (2001)
When middle class is 50% then the politics will also change
8%22% 32%
400
(m)
368300
400
220
100
200
650
100
1980 2000 2010
Source: The Consuming Class, National Council of Applied Economic Research, 2002
1980 2000 2010
Poverty is declining
1% of the people have 50
(%)
46p p
been crossing poverty line each year for 25
years30
40
26
16
years
Equals ~ 200m20
30
16
0
10
1980 2000 20101980 2000 2010
Per capita income gains
US$ ppp
1 178
1980
1,178
20053,051
Source: World Bank
India is now the 4th largest economy
It will overtake Japan b t 2012 d 2014between 2012 and 2014
to become the 3rd largest
The India model is uniqueThe India model is unique
Drivers of growth
India East and S.E. Asia ■ Domestic ■ Exports
Drivers of growth
India East and S.E. Asia ■ Domestic
■ Services
■ Exports
■ Manufacturing
Drivers of growth
India East and S.E. Asia ■ Domestic
■ Services
■ Exports
■ Manufacturing
■ Consumption ■ Investment
Drivers of growth
India East and S.E. Asia ■ Domestic
■ Services
■ Exports
■ Manufacturing
■ Consumption
■ High tech, capital
■ Investment
■ Low tech, labour g pintensive industry intensive industry
Implications of India model
‘Domestically led’ means:■ Insulation from global downturns
■ Less volatility
■ We will come out of the global crisis
faster
Implication of India model
‘Services led’ raises f t bl tiuncomfortable questions:
■ Have we skipped the industrial revolution?revolution?
■ How do we take people from farms to cities?cities?
■ Will SEZ’s be our tipping point?
Implication of India model – Consumption led
People Friendly:Consumption as % of GDP
People Friendly, Less inequality: Gini Index
59%33%
42% 64%41%
59%
U.S.China
B il
India
58%
42% 64%
EuropeChinaIndia
45% Brazil%
Will India become the next big consuming economy after the U.S.?
Reasons for success
India’s success is market ledIndia s success is market-led whereas China’s is state induced
The entrepreneur is at thecentre of the Indian model
Rise of globally competitive Indian companies
India has a vibrant private space
■ 100 Indian Companies have market cap of US$ 1bn
India has a vibrant private space
■ 100 Indian Companies have market cap of US$ 1bn
■ 1,000 Indian Companies have received foreign institutional investment
India has a vibrant private space
■ 100 Indian Companies have market cap of US$ 1bn
■ 1,000 Indian Companies have received foreign institutional investment
125 F t 500 i h R&D b i I di■ 125 Fortune 500 companies have R&D bases in India
India has a vibrant private space
■ 100 Indian Companies have market cap of US$ 1bn
■ 1,000 Indian Companies have received foreign institutional investment
125 F t 500 i h R&D b i I di■ 125 Fortune 500 companies have R&D bases in India
■ 390 Fortune 500 companies have outsourced software development to Indiadevelopment to India
India has a vibrant private space
■ 100 Indian Companies have market cap of US$ 1bn
■ 1,000 Indian Companies have received foreign institutional investment
125 F t 500 i h R&D b i I di■ 125 Fortune 500 companies have R&D bases in India
■ 390 Fortune 500 companies have outsourced software development to Indiadevelopment to India
■ 2% bad loans in Indian banks (v~20% in China)
India has a vibrant private space
■ 100 Indian Companies have market cap of US$ 1bn
■ 1,000 Indian Companies have received foreign institutional investment
125 F t 500 i h R&D b i I di■ 125 Fortune 500 companies have R&D bases in India
■ 390 Fortune 500 companies have outsourced software development to Indiadevelopment to India
■ 2% bad loans in Indian banks (v~20% in China)
■ 80% credit goes to private sector (v~10% in China)■ 80% credit goes to private sector (v~10% in China)
Public space is a problem
We have■ Dynamic democracy with
honest elections
■ Free, lively media and press
But we also havePoor governance!
Governance Failures
Not the minister caught with a bribe1 out of 4 school teachers absent in government schools2 out of 5 doctors absent in primary health2 out of 5 doctors absent in primary healthcentersDelhi’s waterLand titles Etc
Ironically, we used to have world class institutions from 1950-1980, but our problem was growth.N h th b t i tit ti f iliNow we have growth, but our institutions are failing
■ Bureaucracy
■ Judiciary y
■ Police
The economy grows at night when thewhen the government is asleepasleep
Key reforms
■ Opened economy to trade and investment
■ Dismantled controls
■ Lowered tariffs
■ Dropped tax rates
■ Broke public sector monopolies
Understanding India’s economic successg
Remarkable --every government has reformed (slowly)
since 1991
Even slow reforms add up
65 countries have done the same reforms – why did India
become the second fastest in the world?
Unappreciated fact – rule of lawUnappreciated fact rule of law
“By 2010 India will have world’s largest number of English speakers”
“When 300 million Indians speak a word in a certain way, that will be the way to speak it.”
Professor David CrystalCambridge Encyclopedia of the English Language
Understanding India’s economic success
■ Mental revolution among the young
■ ‘I want to be Bilgay’
■ Raju’s secret of success
■ Banianisation of society
■ 180 TV channels; 65 news channels
■ The rise of Hinglish
Where are we today?
Growth fell to 6.7% in 08-09; 7% in 09-10P i h b l th i ChiPain has been less than in ChinaCompetitive companies have recovered faster. Risk of protectionism has recededRisk of protectionism has recededRecovery has been ahead of the world
Where are we going?
■ Base case post recovery is 7.5 % – 8.5 % GDP growth
■ Democracy will not permit more than 8% unless you have a Thatcher
■ 1.5% population growth
■ Demographic dividend – growth will continue beyond China’s
Per capita income
37,000On a ppp basis
40($000)
30
16,80020
2,100 3,0505,800
0
10
2000 2005 2020 2040 20660
Convergence in the 21st century
■ Why convergence is intuitive?
■ Convergence didn’t happen in the 20th century because the world was closed
R t i t ld f lit i t 1750■ Returning to a world of equality prior to 1750
■ When China and India accounted for 45% of world GDP
India will gradually turn middle-class
West of theKanpur-
Chennai line
East of theKanpur-
Chennai line
50% 50%Chennai line Chennai line
Kanpur-
22%
32%
8%
Chennai
1980 2000 2010 2020 2040
What could stop the show?
- InfrastructureImproving via public private parterships- Improving via public-private parterships
- Fiscal Deficit - Governance
None of these stopped the show in the past 25 years
- Nuclear War?
Education System
Is reasonably good for the top 20%
But it is abysmal for the rest1 i 4 t h i b t i t■ 1 in 4 teachers is absent in government primary schools
■ Hence, 54% of children in urban India are in■ Hence, 54% of children in urban India are in
private schools
Solution: Education VouchersSolution: Education Vouchers
Caste system
■ Origin of India’s caste system
■ Classical four castes vs 3000 jatis
■ Hostage to competitive politics
■ Source of competitive advantage
■ Affirmative action
Role of Religion
India’s pluralism, diversity and tolerance
Hinduismand tolerance ■ Spiritual entrepreneurialism: Gurus
■ No hierarchy: Every Brahmin thinks he is the Pope
2% 1%
Every Brahmin thinks he is the Pope
■ 300 million gods: Lack of theological narcissism
12%
■ Nasadiya Temper85%
Hindu Muslim Sikh Christian
Elephant and not Tiger
■ India got democracy before capitalism and this has made all the differenceall the difference
■ It is slower than China but its path is surer
% f■ However, an elephant at 8% growth is a formidable beast
■ We have waited 3000 years for this moment
■ India is more likely to preserve its way of life
The Wise Elephant