Incredible India Growth Story

Slideshow Transcript

1. Slide 1: INDIA’S FUTURE R B Roy Choudhury Memorial lecture 29 January 2007 Mumbai
2. Slide 2: Even though the world has just discovered it, the India growth story is not new. It has been going on for 25 years old
3. Slide 3: What is the India story?
4. Slide 4: India Story 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
5. Slide 5: India Story 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)
6. Slide 6: India Story 3. Literacy is rising % 1950 17 1990 52 2000 65 2010 (proj) 80 Source: Census of India (2001)
7. Slide 7: India Story 4. Middle class is exploding % Million People 1980 8 65 2000 22 220 2010 (proj) 32 368
8. Slide 8: 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.
9. Slide 9: India Story 6. Productivity is rising 30% to 40% of GDP growth is due to rising productivity
10. Slide 10: India Story 7. Per capita income gains (US$ ppp) 1980 1178 2000 3051 Source: World Bank
11. Slide 11: India Story 8. India is now the 4th largest economy And it will cross Japan between 2012 and 2014 to become the 3rd largest
12. Slide 12: THE INDIA MODEL IS UNIQUE
13. Slide 13: DRIVERS OF GROWTH India East and S.E. Asia Domestic Exports
14. Slide 14: DRIVERS OF GROWTH India East and S.E. Asia Domestic Exports Services Manufacturing
15. Slide 15: DRIVERS OF GROWTH India East and S.E. Asia Domestic Exports Services Manufacturing Consumption Investment
16. Slide 16: 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
17. Slide 17: IMPLICATIONS OF INDIA MODEL Domestic led • Insulation from global downturns • Less volatility
18. Slide 18: IMPLICATION OF INDIA MODEL Services led • Have we skipped the industrial revolution? • How do we take people from farms to cities?
19. Slide 19: 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.
20. Slide 20: Reasons for Success India’s success is market led whereas China’s is state induced. The entrepreneur is at centre of the Indian model
21. Slide 21: Rise of globally competitive Indian companies: Reliance, Jet Airways, Infosys, Wipro, Ranbaxy, Bharat Forge, Tata Motors, TCS, Bharati, ICICI and HDFC Banks
22. Slide 22: India has a vibrant private space > 100 Indian Companies have market cap of US$ 1 billion
23. Slide 23: India has a vibrant private space > 100 Indian Companies have market cap of US$ 1 billion > 1000 Indian Companies have received foreign institutional investment
24. Slide 24: 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
25. Slide 25: 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.
26. Slide 26: 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)
27. Slide 27: 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)
28. Slide 28: But public space is a problem Although we have a: + Dynamic democracy with honest elections
29. Slide 29: Public space is a problem Although we have a: + Dynamic democracy + Free, lively media and press
30. Slide 30: Public space is a problem + Dynamic democracy with + Free, lively media and press But there is: - Poor governance
31. Slide 31: Public space is a problem + Dynamic democracy + Free, lively media and press - Poor governance - High populist subsidies, which results in a high fiscal deficit
32. Slide 32: Public space is a problem + Dynamic democracy + Free, lively media and press - Poor governance - High subsidies High fiscal deficit - No money for infrastructure
33. Slide 33: Public space is a problem + Dynamic democracy + Free, lively media and press - Poor governance - High subsidies High fiscal deficit - Creaky infrastructure - Inefficient government companies
34. Slide 34: Earlier we had world class institutions, but they are now failing • Bureaucracy • Judiciary • Police
35. Slide 35: Contrast between public and private space raises the question : Is India rising despite the state ?
36. Slide 36: Economy grows at night when government is asleep
37. Slide 37: What explains India’s economic success? 2) Even slow reforms add up - state getting out of the way - every government has reformed since 1991
38. Slide 38: Key Reforms • Opened economy to trade and investment • Dismantled controls • Lowered tariffs • Dropped tax rates • Broke public sector monopolies
39. Slide 39: What explains India’s economic success? 1) Even slow reforms add up-state getting out of the way 2) Young minds are liberated
40. Slide 40: Mental Revolution - ‘I want to be Bilgay’ - Raju’s secret of success - Banianisation of society - 100 cable channels for $3 - Hinglish
41. Slide 41: What explains India’s economic success? 1) Even slow reforms add up-state getting out of the way 4) Young minds are liberated 3) India has found its competitive advantage in the knowledge economy
42. Slide 42: Looking Forward • 7% - 8% economic growth • Democracy will not permit more than 8% • 1.5% Population growth
43. Slide 43: This means a per capita income roughly of (on a ppp basis): ($) 2000 2100 2005 3050 2020 5800 2040 16,800 2066 37,000
44. Slide 44: Why will growth continue? Demographic dividend
45. Slide 45: Demographic trend points to sharp increases in input factors Demographic Split 1.5 bn 1,600 1,400 1,200 1.1 bn 1,000 800 54% 600 0-25 46% Labor 400 800 yrs 25+ Force 420 200 yrs 0 2005 2025 Labor Force will double in the next 20 years
46. Slide 46: Demographic trend points to sharp increases in input factors Age Dependency 72% 80% 62% 60% <50 % 45% 40% 20% 0% 1980's 2002 2025 China 2002 Savings Rate 50% 42% 40% 35+% 30% 24% 17% 20% 10% 0% 1980's 2002 2025 China 2002 Higher savings and investment rate will translate into higher GDP growth
47. Slide 47: India’s demographic advantage means that its high growth will continue longer term while China will slow
48. Slide 48: 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
49. Slide 49: “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
50. Slide 50: What could stop the show? • Fiscal deficit • Infrastructure • Bad governance • Nuclear war
51. Slide 51: REFORM SCHOOL Labour
52. Slide 52: REFORM SCHOOL Labour Agriculture
53. Slide 53: Second Green Revolution • technologically led, based on GM seeds • labor intensive • needs reforms
54. Slide 54: REFORM SCHOOL Labour Agriculture Power
55. Slide 55: REFORM SCHOOL Labour Agriculture Power Red tape
56. Slide 56: REFORM SCHOOL Labor Agriculture Power Red tape Governance
57. Slide 57: Corporate Governance - High in India - Low in China
58. Slide 58: 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
59. Slide 59: 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
60. Slide 60: The Wise Elephant