24 giet kar lecture
TRANSCRIPT
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INDIA
&
Development14 March 2013
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Even though the world has just
discovered it, the India growth
story is not new. It has beengoing on for 25 years old
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What is the India story?
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1) Rising GDP growth
% average annual GDP growth
19001950 1.019501980 3.5
19802002 6.0
20022006 8.0
Sources: 1900-1990: Angus Maddison (1995),Monitoring the World Economy, 1990-2000:Census of India (2001), 2000-2005 Finance Ministry
India Story
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2) Population growth is slowing
% average annual growth
19011950 1.019511980 2.2
19811990 2.1
19912000 1.8
20012010 1.5
Sources: 1900-1990: Angus Maddison (1995),Monitoring the World Economy, 1990-2000:Census of India (2001)
India Story
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%
1950 17
1990 522000 65
2010 (proj) 80
Source: Census of India (2001)
3. Literacy is risingIndia Story
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% 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 explodingIndia Story
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1980 46%2000 37%
2011 30%
2015 22%1% of the people have been crossing poverty line
each year for 20 years. Equals ~ 200 million.
5. Poverty is decliningIndia Story
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6. Productivity is risingIndia Story
30% to 40% of GDP growth is due to
rising productivity
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(US$ ppp)
1980 1178
2000 3051
Source: World Bank
7. Per capita income gains
India Story
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8. India is now the 4th largest
economy
India Story
And it will cross Japan between 2012
and 2014 to become the 3rd largest
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THE INDIA MODEL ISUNIQUE
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DRIVERS OF GROWTH
India East and S.E. Asia
Domestic Exports
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DRIVERS OF GROWTH
India East and S.E. Asia
Domestic Exports
Services Manufacturing
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DRIVERS OF GROWTH
India East and S.E. Asia
Domestic Exports
Services Manufacturing
Consumption Investment
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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
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IMPLICATIONS OF INDIA MODEL
Domestic led
Insulation from global downturns
Less volatility
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IMPLICATION OF INDIA MODEL
Services led
Have we skipped the industrialrevolution?
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IMPLICATION OF INDIA MODEL
Consumption led
People friendly: Consumption as % of GDP
India 64
Europe 58China 42
Less inequalityGINI INDEX
India 33
U.S 41
China 45
Brazil 59
The world needs another big consuming economy after the U.S.
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Reasons for Success
Indias success is market led
whereas Chinas is state induced.The entrepreneur is at centre of
the Indian model
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Rise of globally competitive
Indian companies:
Reliance, Jet Airways, Infosys, Wipro,
Ranbaxy, Bharat Forge, Tata Motors,
TCS, Bharati, ICICI and HDFC Banks
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India has a vibrant private space
> 100 Indian Companies have marketcap of US$ 1 billion
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India has a vibrant private space
> 100 Indian Companies have market
cap of US$ 1 billion> 1000 Indian Companies have
received foreign institutional
investment
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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
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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.
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India has a vibrant private space
> 100 Indian Companies have marketcap of US$ 1 billion
> 1000 Indian Companies have
received foreign institutionalinvestment
> 125 Fortune 500 companies have
R&D bases in India
> 390 Fortune 500 companies have
outsourced software development to India.
< 2% bad loans in Indian banks (vs ~ 20% in China)
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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.
< 2% bad loans in Indian banks (vs ~ 20% in China)
> 80% credit goes to private sector (vs~10% in
China)
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But public space is a problem
Although we have a:
+ Dynamic democracy with
honest elections
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Public space is a problem
Although we have a:
+ Dynamic democracy+ Free, lively media and press
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Public space is a problem
+ Dynamic democracy with
+ Free, lively media and press
But there is:
- Poor governance
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Public space is a problem
+ Dynamic democracy
+ Free, lively media and press- Poor governance
- High populist subsidies, whichresults in a high fiscal deficit
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Public space is a problem
+ Dynamic democracy
+ Free, lively media and press- Poor governance
- High subsidies High fiscal deficit- No money for infrastructure
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Public space is a problem
+ Dynamic democracy
+ Free, lively media and press
- Poor governance
- High subsidies High fiscal deficit
- Creaky infrastructure
- Inefficient government companies
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Earlier we had world class
institutions, but they are now failing
Bureaucracy
Judiciary Police
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Contrast between public and privatespace raises the question :
Is India rising despite the state ?
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Economy grows at night when
government is asleep
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What explains Indias economic
success?
1) Even slow reforms add up- state getting out of the way
- every government has reformed
since 1991
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Key Reforms
Opened economy to trade and investment
Dismantled controls
Lowered tariffs
Dropped tax rates
Broke public sector monopolies
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What explains Indias economic
success?
1) Even slow reforms add up-state
getting out of the way
2) Young minds are liberated
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Mental Revolution
- I want to be Bilgay- Rajus secret of success
- Banianisation of society- 100 cable channels for $3
- Hinglish
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What explains Indias economic
success?
1) Even slow reforms add up-state
getting out of the way
2) Young minds are liberated
3) India has found its competitive
advantage in the knowledge economy
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Looking Forward
7% - 8% economic growth
Democracy will not permit more than 8%
1.5% Population growth
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($)
2000 2100
2005 3050
2020 5800
2040 16,800
2066 37,000
This means a per capita income
roughly of (on a ppp basis):
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Convergence in the 21st century
Why convergence is intuitive
Convergence didnt 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
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Why will growth continue?
Demographic dividend
D hi t d i t t h i i i t f t
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Demographic trend points to sharp increases in input factors
54%
46%
25+
yrs
0-25
yrs
Demographic Split
420
800
0
200
400
600
800
1,000
1,200
1,4001,600
2005 2025
1.5 bn
1.1 bn
LaborForce
Labor Force will double in the next 20 years
D hi t d i t t h i i i t f t
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Demographic trend points to sharp increases in input factorsAge Dependency
72%
45%
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Indias demographic advantage
means that its high growth will
continue longer term while Chinawill slow
INDIA WILL GRADUALLY TURN
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%1980 8
2000 22
2010 322020 50 West of the
Kanpur-Chennai line
2040 50 East of theKanpur-Chennai line
INDIA WILL GRADUALLY TURN
MIDDLE CLASS
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By 2010 India will have worldslargest number of English speakers
When 300 million Indians speak aword in a certain way, that will be
the way to speak it.
-Prof. David Crystal, Cambridge Encyclopedia of the English Language
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What could stop the show?
Fiscal deficit
Infrastructure
Bad governance
Nuclear war
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REFORM SCHOOL
Labour
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REFORM SCHOOL
LabourAgriculture
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Second Green Revolution
technologically led, based on
GM seeds labor intensive
needs reforms
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REFORM SCHOOL
Labour
Agriculture
Power
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REFORM SCHOOL
Labour
Agriculture
Power
Red tape
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REFORM SCHOOL
Labor
AgriculturePower
Red tapeGovernance
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Corporate Governance
- High in India- Low in China
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Bottom Line
Indian prosperity is on auto pilot
Cant do without government. But governancereform 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
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India has law, China has order
-India got democracy beforecapitalism and this has made all the
difference
-It will be slower than China but its
path will be surer
-India more likely to preserve itsway of life
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The Wise Elephant