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[ apunkaweb.com ] India's Future - by Gurcharan Das

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INDIA’S FUTURE Or prosperity will spread in India but happiness will not, until we fix governance by Gurcharan Das November 12, 2009 WIPRO Marbella

PowerPoint Presentation:

Where are we coming from? Where are we today? Where are we going in the future?

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Even though the world has just discovered it, the India growth story is not new It has been going on for 25 years

What is the India story? :

What is the India story?

28 years of high growth:

28 years of high growth 1.0 3.5 6.0 8.9 Average annual GDP growth 0 2 4 6 8 10 1900-1950 1950-1980 1980-2002 2002-2007 (%)

Population growth is slowing :

Population growth is slowing Sources: 1900-1990: Angus Maddison (1995), Monitoring the World Economy, 1990-2000:Census of India (2001) 1.0 2.2 2.1 1.8 1.5 0 0.5 1.0 1.5 2.0 2.5 1901-1950 1951-1980 1981-1990 1991-2000 2001-2010 (%)

Literacy is rising:

Literacy is rising Source: Census of India (2001) 17 52 65 80 0 20 40 60 80 100 1950 1990 2000 2010 (proj) (%)

When middle class is 50% then the politics will also change:

When middle class is 50% then the politics will also change Source: The Consuming Class, National Council of Applied Economic Research, 2002 65 220 368 8% 22% 32% 0 100 200 300 400 1980 2000 2010 (m)

Poverty is declining:

Poverty is declining 46 26 16 1% of the people have been crossing poverty line each year for 25 years Equals ~ 200m 0 10 20 30 40 50 1980 2000 2010 (%)

Per capita income gains:

Per capita income gains Source: World Bank US$ ppp 2005 3,051 1980 1,178

India is now the 4th largest economy:

India is now the 4th largest economy It will overtake Japan between 2012 and 2014 to become the 3rd largest

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The India model is unique

Drivers of growth:

Drivers of growth India Domestic East and S.E. Asia Exports

Drivers of growth:

Drivers of growth India Domestic Services East and S.E. Asia Exports Manufacturing

Drivers of growth:

Drivers of growth India Domestic Services Consumption East and S.E. Asia Exports Manufacturing Investment

Drivers of growth:

Drivers of growth India Domestic Services Consumption High tech, capital intensive industry East and S.E. Asia Exports Manufacturing Investment Low tech, labour intensive industry

Implications of India model :

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 :

Implication of India model ‘Services led’ raises uncomfortable questions: Have we skipped the industrial revolution? How do we take people from farms to cities? Will SEZ’s be our tipping point?

Implication of India model – Consumption led:

Implication of India model – Consumption led 41% 45% 59% U.S. China Brazil India 33% People Friendly: Consumption as % of GDP People Friendly, Less inequality: Gini Index 58% 42% 64% Europe China India Will India become the next big consuming economy after the U.S.?

Reasons for success:

Reasons for success India’s success is market-led whereas China’s is state induced The entrepreneur is at the centre of the Indian model

Rise of globally competitive Indian companies:

Rise of globally competitive Indian companies

India has a vibrant private space :

India has a vibrant private space 100 Indian Companies have market cap of US$ 1bn

India has a vibrant private space :

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 :

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 Fortune 500 companies have R&D bases in India 390 Fortune 500 companies have outsourced software development to India

India has a vibrant private space :

Public space is a problem :

Public space is a problem We have Dynamic democracy with honest elections Free, lively media and press But we also have Poor governance !

Governance Failures:

Governance Failures Not the minister caught with a bribe 1 out of 4 school teachers absent in government schools 2 out of 5 doctors absent in primary health centers Delhi’s water Land titles Etc

Ironically, we used to have world class institutions from 1950-1980, but our problem was growth. Now we have growth, but our institutions are failing :

Ironically, we used to have world class institutions from 1950-1980, but our problem was growth. Now we have growth, but our institutions are failing Bureaucracy Judiciary Police

PowerPoint Presentation:

The economy grows at night when the government is asleep

Key reforms:

Key reforms Opened economy to trade and investment Dismantled controls Lowered tariffs Dropped tax rates Broke public sector monopolies

Understanding India’s economic success :

Understanding India’s economic success 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 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.”:

“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 Crystal Cambridge Encyclopedia of the English Language

Understanding India’s economic success:

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?:

Where are we today? Growth fell to 6.7% in 08-09; 7% in 09-10 Pain has been less than in China Competitive companies have recovered faster. Risk of protectionism has receded Recovery has been ahead of the world

Where are we going?:

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:

Per capita income 2,100 3,050 5,800 16,800 37,000 On a ppp basis 2000 2005 2020 2040 2066 0 10 20 30 40 ($000)

Convergence in the 21st century:

Convergence in the 21st century Why convergence is intuitive? Convergence didn’t happen in the 20th century because the world was closed 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:

50% 50% India will gradually turn middle-class 8% 22% 32% 1980 2000 2010 2020 2040 West of the Kanpur- Chennai line East of the Kanpur- Chennai line Chennai Kanpur-

What could stop the show?:

What could stop the show? Infrastructure - Improving via public-private parterships Fiscal Deficit Governance None of these stopped the show in the past 25 years - Nuclear War?

Education System:

Education System Is reasonably good for the top 20% But it is abysmal for the rest 1 in 4 teachers is absent in government primary schools Hence, 54% of children in urban India are in private schools Solution: Education Vouchers

Caste system:

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:

Role of Religion India’s pluralism, diversity and tolerance Hinduism Spiritual entrepreneurialism: Gurus No hierarchy: Every Brahmin thinks he is the Pope 300 million gods: Lack of theological narcissism Nasadiya Temper 85% Hindu 12% Muslim 2% Sikh 1% Christian

Elephant and not Tiger:

Elephant and not Tiger India got democracy before capitalism and this has made all the difference It is slower than China but its path is surer 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

PowerPoint Presentation:

The Wise Elephant