india's future

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ITS ON INDIA'S FUTURE POWERPOINT PRESENTATION

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Slide 1:

INDIA’s FUTURE 17 March 2007 Kelkar Alumni Lecture IIT Kanpur

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

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

What is the India story? :

What is the India story?

1) Rising GDP growth :

1) Rising GDP growth % average annual GDP growth 1900 – 1950 1.0 1950 – 1980 3.5 1980 – 2002 6.0 2002 – 2006 8.0 Sources: 1900-1990: Angus Maddison (1995), Monitoring the World Economy, 1990-2000:Census of India (2001), 2000-2005 Finance Ministry India Story

2) Population growth is slowing :

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

3. Literacy is rising :

% 1950 17 1990 52 2000 65 2010 (proj) 80 Source: Census of India (2001) 3. Literacy is rising India Story

4. Middle class is exploding :

% Million People 1980 8 65 2000 22 220 2010 (proj) 32 368 Source: The Consuming Class, National Council of Applied Economic Research, 2002 4. Middle class is exploding India Story

5. Poverty is declining :

1980 46% 2000 26% 2010 (proj) 16% 1% of the people have been crossing poverty line each year for 20 years. Equals ~ 200 million. 5. Poverty is declining India Story

6. Productivity is rising :

6. Productivity is rising India Story 30% to 40% of GDP growth is due to rising productivity

7. Per capita income gains :

(US$ ppp) 1980 1178 2000 3051 Source: World Bank 7. Per capita income gains India Story

8. India is now the 4th largest economy :

8. India is now the 4th largest economy India Story And it will cross Japan between 2012 and 2014 to become the 3rd largest

THE INDIA MODEL IS UNIQUE :

THE INDIA MODEL IS UNIQUE

DRIVERS OF GROWTH :

DRIVERS OF GROWTH India East and S.E. Asia Domestic Exports

DRIVERS OF GROWTH :

DRIVERS OF GROWTH India East and S.E. Asia Domestic Exports Services Manufacturing

DRIVERS OF GROWTH :

DRIVERS OF GROWTH India East and S.E. Asia Domestic Exports Services Manufacturing Consumption Investment

DRIVERS OF GROWTH :

DRIVERS OF GROWTH India East and S.E. Asia Domestic Exports Services Manufacturing Consumption Investment High tech, capital Low tech, labour intensive industry intensive industry

IMPLICATIONS OF INDIA MODEL :

IMPLICATIONS OF INDIA MODEL Domestic led Insulation from global downturns Less volatility

IMPLICATION OF INDIA MODEL :

IMPLICATION OF INDIA MODEL Services led Have we skipped the industrial revolution? How do we take people from farms to cities?

IMPLICATION OF INDIA MODEL :

IMPLICATION OF INDIA MODEL Consumption led People friendly: Consumption as % of GDP India 64 Europe 58 China 42 Less inequality – GINI INDEX India 33 U.S 41 China 45 Brazil 59 The world needs another big consuming economy after the U.S.

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

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

Slide 21:

Rise of globally competitive Indian companies: Reliance, Jet Airways, Infosys, Wipro, Ranbaxy, Bharat Forge, Tata Motors, TCS, Bharati, ICICI and HDFC Banks

India has a vibrant private space :

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

India has a vibrant private space :

India has a vibrant private space > 100 Indian Companies have market cap of US$ 1 billion > 1000 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$ 1 billion > 1000 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 :

But public space is a problem :

But public space is a problem Although we have a: + Dynamic democracy with honest elections

Public space is a problem :

Public space is a problem Although we have a: + Dynamic democracy + Free, lively media and press

Public space is a problem :

Public space is a problem + Dynamic democracy with + Free, lively media and press But there is: - Poor governance

Public space is a problem :

Public space is a problem + Dynamic democracy + Free, lively media and press - Poor governance - High populist subsidies, which results in a high fiscal deficit

Public space is a problem :

Public space is a problem + Dynamic democracy + Free, lively media and press - Poor governance - High subsidies High fiscal deficit - No money for infrastructure

Public space is a problem :

Public space is a problem + Dynamic democracy + Free, lively media and press - Poor governance - High subsidies High fiscal deficit - Creaky infrastructure - Inefficient government companies

Earlier we had world class institutions, but they are now failing :

Earlier we had world class institutions, but they are now failing Bureaucracy Judiciary Police

Contrast between public and private space raises the question : :

Contrast between public and private space raises the question : Is India rising despite the state ?

Economy grows at night when government is asleep :

Economy grows at night when government is asleep

What explains India’s economic success? :

What explains India’s economic success? Even slow reforms add up - state getting out of the way - every government has reformed since 1991

Slide 39:

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

What explains India’s economic success? :

What explains India’s economic success? Even slow reforms add up-state getting out of the way 2) Young minds are liberated

Slide 41:

Mental Revolution - ‘I want to be Bilgay’ - Raju’s secret of success - Banianisation of society - 100 cable channels for $3 - Hinglish

What explains India’s economic success? :

What explains India’s economic success? Even slow reforms add up-state getting out of the way Young minds are liberated 3) India has found its competitive advantage in the knowledge economy

Slide 43:

Looking Forward 7% - 8% economic growth Democracy will not permit more than 8% 1.5% Population growth

This means a per capita income roughly of (on a ppp basis): :

($) 2000 2100 2005 3050 2020 5800 2040 16,800 2066 37,000 This means a per capita income roughly of (on a ppp basis):

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

Slide 46:

Why will growth continue? Demographic dividend

Slide 47:

Demographic trend points to sharp increases in input factors 25+ yrs 0-25 yrs Demographic Split 1.5 bn 1.1 bn Labor Force Labor Force will double in the next 20 years

Slide 48:

Demographic trend points to sharp increases in input factors Age Dependency Savings Rate Higher savings and investment rate will translate into higher GDP growth

India’s demographic advantage means that its high growth will continue longer term while China will slow :

India’s demographic advantage means that its high growth will continue longer term while China will slow

INDIA WILL GRADUALLY TURN MIDDLE CLASS :

% 1980 8 2000 22 2010 32 2020 50 West of the Kanpur-Chennai line 2040 50 East of the Kanpur-Chennai line INDIA WILL GRADUALLY TURN MIDDLE CLASS

“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.” -Prof. David Crystal, Cambridge Encyclopedia of the English Language :

“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.” -Prof. David Crystal, Cambridge Encyclopedia of the English Language

What could stop the show? :

What could stop the show? Fiscal deficit Infrastructure Bad governance Nuclear war

REFORM SCHOOL :

REFORM SCHOOL Labour

REFORM SCHOOL :

REFORM SCHOOL Labour Agriculture

Slide 55:

Second Green Revolution technologically led, based on GM seeds labor intensive needs reforms

REFORM SCHOOL :

REFORM SCHOOL Labour Agriculture Power

REFORM SCHOOL :

REFORM SCHOOL Labour Agriculture Power Red tape

REFORM SCHOOL :

REFORM SCHOOL Labor Agriculture Power Red tape Governance

Slide 59:

Corporate Governance - High in India - Low in China

Slide 60:

Bottom Line Indian prosperity is on auto pilot Can’t do without government. But governance reform will take time, till middle class is dominant. Human capital will continue to flower based on private initiative, and drive the nation

India has law, China has order-India got democracy before capitalism and this has made all the difference-It will be slower than China but its path will be surer-India more likely to preserve its way of life :

India has law, China has order-India got democracy before capitalism and this has made all the difference-It will be slower than China but its path will be surer-India more likely to preserve its way of life

Slide 62:

The Wise Elephant