24 giet kar lecture

7/29/2019 24 giet Kar Lecture

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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


Domestic Exports

Services Manufacturing


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DRIVERS OF GROWTH


Domestic Exports


Consumption Investment


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DRIVERS OF GROWTH


Domestic Exports


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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> 100 Indian Companies have market

cap of US$ 1 billion> 1000 Indian Companies have

received foreign institutional

investment


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cap of US$ 1 billion

> 1000 Indian Companies have


investment

> 125 Fortune 500 companies have

R&D bases in India


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investment


R&D bases in India


outsourced software development to India.


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> 100 Indian Companies have marketcap of US$ 1 billion


received foreign institutionalinvestment


R&D bases in India



< 2% bad loans in Indian banks (vs ~ 20% in China)


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investment> 125 Fortune 500 companies have

R&D bases in 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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+ Dynamic democracy with

+ Free, lively media and press

But there is:

- Poor governance


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+ Dynamic democracy

+ Free, lively media and press- Poor governance

- High populist subsidies, whichresults in a high fiscal deficit


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+ Dynamic democracy

+ Free, lively media and press- Poor governance

- High subsidies High fiscal deficit- No money for infrastructure


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+ 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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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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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

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