Download - Structure of Indian Economy
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Structure of Indian Economy
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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 OLD
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WHAT IS THE INDIA STORY?
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1) RISING GDP GROWTH
% average annual GDP growth
1900 – 1950 1.0 1950 – 1980 3.5 1980 – 2002 6.0 2002 – 2006 8.0 2006-2011 7.5
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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 – 2012 1.5
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3. LITERACY IS RISING
%
1950 17
1990 52
2000 65
2012 80
India Story
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4. MIDDLE CLASS IS EXPLODING
% Million People
1980 8 65
2000 22 220
2012 32 368
Source: The Consuming Class, National Council of Applied Economic Research, 2002
India Story
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5. POVERTY IS DECLINING
1980 46%
2000 26% 2012 16%
1% of the people have been crossing poverty line each year for 20 years. Equals ~ 200 million.
India Story
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6. PRODUCTIVITY IS RISING
30% to 40% of GDP growth
is due to rising productivity
India Story
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7. PER CAPITA INCOME GAINS
(US$ ppp)
1980 1178
2010 3051
India Story
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8. INDIA IS NOW THE 4TH LARGEST ECONOMY
And it will cross Japan between 2012 and 2014 to
become the 3rd largest
India Story
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REASONS FOR SUCCESS INDIA’S SUCCESS IS MARKET LED WHEREAS CHINA’S 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 market
cap 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 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)
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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, which results 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 PRIVATE SPACE 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 INDIA’S 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 INDIA’S ECONOMIC SUCCESS?
1) Even slow reforms add up-state
getting out of the way
2) Young minds are liberated
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WHAT EXPLAINS INDIA’S 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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THIS MEANS A PER CAPITA INCOME ROUGHLY OF (ON A PPP BASIS):
($)
2000 2100 2005
3050 2020 5800
2040 16,800 2066 37,000
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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
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Why will growth
continue?
Demographic dividend
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Demographic trend points to sharp increases in input factors
54%
46%
25+ yrs
0-25 yrs
Demographic Split
420800
0200400600800
1,0001,2001,4001,600
2005 2025
1.5 bn
1.1 bn
Labor Force
Labor Force will double in the next 20 years
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Demographic trend points to sharp increases in input factorsAge Dependency
72%
45%<50 %
62%
0%
20%
40%
60%
80%
1980's 2002 2025 China 2002
17%
42%
35+%
24%
0%
10%
20%
30%
40%
50%
1980's 2002 2025 China 2002
Savings Rate
Higher savings and investment rate will translate into higher GDP growth
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INDIA’S DEMOGRAPHIC ADVANTAGE MEANS THAT ITS HIGH GROWTH WILL CONTINUE LONGER TERM WHILE CHINA WILL SLOW
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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
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“BY 2013 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
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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
Labour Agriculture
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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 Agriculture Power Red tape Governance
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Corporate Governance
- High in India - Low in China
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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
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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
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The Wise Elephant