The Indian Economy

An Overview and Analysis

Class Exercise: What else could have happened? What else can happen?
Counterfactuals & Scenarios Where would India’s economy be today if:
Gandhi’s economic vision had been adopted Liberalization had not occurred at all

What all could still go wrong with India on the economic front?
Different doomsday scenarios

How Has the Indian Economy Evolved?

25 % 23% 24% 16 % 3% 13% 4% 9% 4 .

What Happened? We missed the Industrial Revolution Impact of British Rule Positive Common currency Stable economy. stable polity. ICS. Data Collection) Negative Traditional industries decimated (Textiles) Did not invest in industrializing India . legal system Fiscal conservatism Infrastructure (Rail.

In the 1800s. The British Empire produced a new territorial domain for the evolution of the economy .

contrary to rhetoric.Aurobindo & Naoroji on British Rule Sri Aurobindo One great fact … the terrible poverty of India and its rapid increase during British rule. wisdom. the ‘drain’ represented by British economic imperialism Dadabhai Naoroji The cost to India of British colonization was. and work . to the vast benefit of Britain and the extreme disadvantage of India The evils of foreign rule involved the triple loss of wealth. that is to say.

Economic Strategy Pre-Independence
Congress did not have a clear economic strategy Agreement on problems: Poverty Threat of famine Need to maintain economic independence Inequalities within society Drain Theory: Dadabhai Naoroji

Congress: Strands of Thought
Bombay Plan (developed by leaders of industry) Economic development through growth of textile and consumer industries State to provide infrastructure, protect industry, invest in “expensive industries” Planned Modernization Advocated by Civil servants and Thinkers from princely states Influenced by Japan Pragmatic view of roles of industry, state Expert panel to provide intellectual brain

Congress: Strands of Thought
Nehru & Bose Imperialism propelled by capitalist expansion State to develop “mother” industries Ownership in public sector for redistributive and security reasons Gandhi “Industrialize and perish” Caste (and consequent occupational roles) can be dissolved through moral persuasion Decentralized, independent development

Influences on India’s Economic Development Arguments & Ideas of Intellectuals The Indian Economy Pressures & Claims of Democratic Politics Social & cultural norms .

Open foreign investment policy. relatively open trade policy until late 1950s. early 1960s Phase II (1965-81): Socialism struck with vengeance Phase III: Ad hoc liberalization during 1975-79. 1980-84 and then more substantial liberalization during 1985-86 and 1986-87. investment licensing tightens only towards the late 1950s.Four Phases of India’s Economic Growth—Panagariya (2008) Phase I (1951-65): Takeoff under Liberal Regime. Phase IV (1988-present): Systemic and systematic liberalization .

8 4.1: Average Growth Rate 7 6.1 4 3.Figure 1.3 6 4.2 3 5 2 1 0 1951-65 1965-81 1981-88 1988-06 .

Features Common to the Four Phases Reasons why India escaped prolonged stagnation or decline Macroeconomic stability Political stability Gradual and predictable policy changes Capacity to implement policies .

land to tenant Introduction of Cooperatives Growth with equity: therefore positive discrimination and reservations for SC & ST State to play central role through direct participation in the economic process => active public sector Planned rapid industrialisation within a democratic & civil libertarian framework (an uncharted path!) .Post-Independence: The Agenda in the Early Years (Phase I) Multipronged Development => Self-reliance Rapid industrialization. K goods Prevention of foreign capital domination Land reforms: abolish zamindari. import subs’n.

Forego quicker growth (through consumer industries) for long-term development State industrial investment would be a counterweight to “cyclical swings and fashions of private investment” Productive public sector => resources for redistribution (1947 AICC Committee: “transfer from private to public ownership should commence after a period of five years”) Nehru does not push fully due to lack of consensus => Mixed Economy prevails .Nehruvian Activist Agenda Constitutional democracy Economic & social redistribution State-directed industrialization State to create conditions for economic expansion.

Nehruvian Perspective: Theory & Practice Economic planning within mixed economy Unique combination of democracy. National Labs. the precondition for modern India’s development . CSIR => India’s scientific manpower In practice. not much opposition from organized business. neglected by British Science & Technology: Atomic Energy. pragmatism rather than doctrinaire approach. markets and economic planning Industrial licensing system More restrictive after Industrial Policy Resolution 1956 Tariff policy (infant industry protection) Emphasis on import substitution Foreign exchange shortages justify such regulation Mahalanobis Model: Heavy + Capital Goods Industries Public Sector captures “commanding heights of the economy” Small scale industry protection. expected to address unemployment Significant investments in health and education. lays the foundation for India’s physical and human infrastructure. which was actively consulted.

& bureaucrats for implementation .Problems Nehru faced Unequal distribution of land ownership defended by a powerful social order Power to legislate regarding land reforms given to states Low levels of productivity ⇒ Great inequalities of social order largely preserved • Bureaucracy to push developmental agenda • Industrialization based on Planning Commission for strategy.

1966 Devaluation of currency to get IMF aid .Nehru’s Achievements and the Immediate Post-Nehru Period Moderate growth Democratic legitimacy Economic stability through prudent financial management Undermined by crises Political discontinuity – Shastri’s early death Wars with China (1962) & Pakistan (1965) Successive monsoon failures – 1965.

g.Indira Gandhi – Early Years (Phase II) Fears about India’s external vulnerability Had to establish herself politically Used economic policy as active instrument Success of green revolution created bullock capitalists as economic and political force State subsidies to gain their support Other interest groups flexed their muscles Economic populism to gain support of poor Leftward shift – bank nationalization Constraints on pvt. industry (e. MRTP) Indirect taxes to fund populism Fiscal conservatism broadly maintained .

the Public Call Offices make communication available to all easily Fiscal crisis in 1991 . more conditions put by foreign lenders Rajiv Gandhi enters and moves toward liberalization Lowers taxes and tariffs. introduces computers Telecom Revolution Even though teledensity does not rise that much. not support development Huge bureaucracy to “rein in business” Deficits increased. fiscal prudence slowly declined Rising interest rates made foreign borrowing costly to fund deficit.By the late 1980s … (Phase III) Protectionist system of controls primarily to sustain state.

00 1955-56 1959-60 1963-64 1967-68 1971-72 1975-76 1979-80 1983-84 1987-88 1991-92 1995-96 1999-00 inves tm ent rate GDP growth 5 years 2003-04 . 0.The Indian Economy grew at more than 5% per year for the last 25 years (1980-2005). Liberalisation in 1991 was a less significant break for either investment or efficiency of capital use.20 0.00 6.40 0. It rose in the early 1980s because of improved efficiency of capital use and again after 2001.10 8.30 0.00 2.00 4.15 0. because of higher investment.00 7.35 0.25 0.00 5.00 3.

The Public Sector Grew larger than envisaged. Sterlite Navratna privatization or disinvestment now opposed . and in more areas Over-zealous bureaucracy Compulsions of electoral politics Performance below expectations Inexperience in enterprise management Lack of requisite autonomy Constant interference by administrative ministries Excess manpower due to political interference But did achieve variety of social objectives PSU sales decline from 45% to 37% Seven of top 10 firms in 1998 are PSUs (six in oil) Privatization slow: Modern Foods.

.Sectoral Growth Agriculture grew consistently slower than the GDP Industrial growth picked up in Phase I but dropped drastically in Phase II Services showed a more stable pattern with growth accelerating particularly in Phase IV.

9 7.0 6.7 4.1 2.2 4.5 5 6.8 GDP 7 4.3 6.8 6 4.3 .4 4 6.1 3.6 3.7 4.5 7.1 6.1 3.3 6.Growth Rates of Sectoral GDP (at factor cost) Period 1 1951-65 1965-81 1981-88 1988-06 Agriculture & Allied Industry Manufacturing Services 2 2.9 2.8 6.

Sectoral Shares The share of consistently The share of stagnated in The share of consistently agriculture declined industry rose initially but Phases III and IV services rose .

The Composition of the GDP Year 1950-51 1964-65 1980-81 1987-88 2004-05 Agriculture and Allied Industry Manufacturing Services 57 49 40 33 21 15 21 24 26 27 9 12 14 16 17 28 31 36 41 52 .

Liberalization (Phase IV) Dismantling of licensing system Removal of MRTP Removal of technology import restrictions Removal of physical constraints on imports Reduced tariffs Reduced taxes FERA → FEMA & Current account convertibility Divestment in public sector .

with genuine liquidity.Changes in Indian Macroeconomics Old Indian Macroeconomy Sequence of Agricultural Shocks Closed Economy Distortionary Tax Policy and Fiscal Crisis Primitive financial markets with illiquidity. removal of trade barriers. and no government control over prices . and lack of speculative price discovery New Indian Macroeconomy Conventional Business Cycle Open economy. de facto convertability Tax distortions eased and fiscal crisis in check Equity market a success. government control.

Political Economy of Liberalization By or on behalf of elites who have been in revolt against earlier model of state-directed economic development Liberalization also helps children of government servants (IIMs?) Crisis of 1989-91 offered elites a window of opportunity to renegotiate state’s relationship to private capital Governing elites thought liberalization would offer new sources of patronage to compensate for those lost due to shrinkage of regulatory role – successful ones managed to do this (Deve Gowda. Sharad Pawar. success due to stealth.) “Not yet run counter to the interests of the country’s most powerful social groups” No role of vision. reformers perish Sequencing influenced by political considerations Increasingly being implemented in successive micro-reforms at state level . etc.

Concerns Unaimed liberalization could: Widen the gap in social opportunity between rich & poor Sharpen rural-urban divide Increase regional imbalances Number of poor large in absolute terms Economy has to be evaluated on the basis of what happens to poor & dispossessed Is growth all that matters? What about quality of life? Is India drifting dangerously towards a state of indebtedness and economic dependency in an uncertain world economy? Is Indian policy to be dictated by World Bank etc? .

health—get privatized. are less prepared for marketplace competition Liberalization. displaced poor without making them benefit from progress .Liberalization: Dalit Perspectives State and public sector are emancipators Even this benefits only a small portion of Dalits Dalit communities. people Below Poverty Line still constitute more than 25% of India Now SEZs. (earlier development). due to history. without private sector social justice oriented initiatives will result in a new exclusion As basic stepping stones to development—education. exclusion of Dalits will worsen What applies to Dalits also applies to numerous historically disadvantaged groups 60 years after Independence.

The reforms are not simply about the renegotiation of India’s relationships with the global market-place. nor even are they about the relationships of private capital with the Indian state in the formal economy. the reforms are also about the reworking of the idea of the State itself and of the state’s capacity to work on behalf of those who stand outside India’s (expanding) social and economic elites. .

com/watch?v=pr MwTWOYDz8&feature=related .Today’s and Tomorrow’s India http://www.youtube.

India is growing! Source: Economist India will be the third largest economy by 2040 India will be the 5th largest consumer market by 2025 .

The BRICs Verdict on the Indian Economy Overtaking the G6: When BRICs’ US$GDP will exceed G6 UK China Italy India Italy Russia Italy Brazil G6 BRICs France Germany France Germany France Germany Japan Germany Japan US * dots indicate when BRICs US$GDP exceeds US$GDP in the G6 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 G-6. India’s growth rate to remain above 5% throughout India’s GDP to outstrip Japan’s in 2032 India per capita income to rise to 35 times current levels by 2050 GS BRICSs Model Projections . Brazil. Russia & China expected to slow down over the next 50 years.

5 7.2 6.7 9.7 7.2 .Strong growth in the last few years GDP growth (%) 12 10 8 6 4 2 0 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 AE 9.5 9.

4 1.4 .2 7.6 2.0 7.7 3.India set to grow faster than other regions Annual Percentage change Economies World Advanced Economies United States Euro Area Japan Developing Asia China India Brazil Source: IMF.0 0.1 -0. January 2010 2008 2009 Projections 2010 2011 3.3 6.7 4.7 1.5 8.5 -3.8 3.7 8.1 2.2 8.8 -3.3 2.4 2.3 5.5 0.6 -0.6 7.4 9.7 5.6 -1.4 10.7 7.0 1.9 2.9 -5.2 -2.9 9.7 4.4 0.

9 49.3 909.4 53.Integration with Global Economy Gross Flows (Current and Capital Accounts) Year 1957 1967 1977 1987 1997 2007 Billion USD 5.5 20.7 22.0 177.0 .6 20.3 % to GDP 19.0 23.2 9.9 110.

2 114.India's trade performance….1 68.6% in 2008 . average annual growth in Exports – 25% Imports – 31% Trade – 28% However total trade grew only by 10% in 2008-09 due to the global slowdown 300 252. India’s total share in goods and services trade was 1.9 200 95.5 414.3 195 141.3 400 312 Over the six year period 2002-032007-08.5 42.2 95.1 100 0 1990-911995-962000-012001-022002-032003-042004-052005-062006-072007-08 2008-09 -100 Exports Imports Total Linear (Total ) Source: Reserve Bank of India Government envisages to double the share of India in global trade by 2020. US$ billion 500 450.

India’s forex reserves…..fifth largest in world
US$ billion
350.0
309.7

300.0
252.0

Largest holders of forex reserves
1.People’s Republic of China 2.Japan & Euro zone 3.Russia 4.Taiwan 5.India 6.South Korea 7.Brazil 8.Hong Kong 9.Singapore 10.Germany
Source: Wikipedia

250.0
199.2

200.0 150.0
113.0 141.5 151.6

100.0 50.0 0.0
42.3 54.1

76.1

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Source: Reserve Bank of India

Forex reserves touched an all time high of US$ 314.6 billion in May 2008 Forex reserves for the week ending March 26, 2010 stood at US$ 277.0 billion

Inflation level….
Wholesale Price Index
9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Average 1991-92 to 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 3.7 3.4 5.4 4.4 7.9 7.1 6.4 5.4 4.7

(in percent)
8.4

Source: Reserve Bank of India

Inflation touched a peak of 12.8% in August 2008 due to increased pressure on global commodity prices Wholesale price index for the month of February 2010 was 9.9% (y-o-y)

Index of Industrial Production
(in percent)
14.0 12.0 10.0 8.0
6.26.1 7.4 7.0 5.35.0 2.92.7 6.05.7 9.2 8.4 9.1 8.2 12.5 11.6

9.0 8.5

6.0 4.0 2.0 0.0

Manufacturing sector has witnessed a perceptible slowdown due to (i) Global meltdown and (ii) Contractionary monetary policy stance of RBI IIP Growth in
April’09 May’09 June’09 July’09 Aug’09 Sept’09 Oct’09 Nov’09 Dec’09 Jan’10 1.2% 2.2% 7.8% 7.2% 10.2% 9.1% 10.3% 11.7% 16.8% 16.7%

2.52.6

Avg 2000-012001-022002-032003-042004-052005-062006-072007-082008-09 growth 1990s Manufacturing General Source: Central Statistical Organization

For the economy to clock 8-10% growth, manufacturing sector needs to grow by at least 12%

Increasing Discretionary Income Increasing discretionary income .

Beverages. Share of Average Household Consumption 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2005 Food.. and Tobacco Household Products Communication Apparel Personal Products & Services Education & Recreation 2025 Housing Utilities Transportation Health Care Necessities (48%) Discretionary Expenditure (52%) 7 5 2 17 8 3 12 6 13 9 6 20 11 3 10 5 25 Necessities (30%) Discretionary Expenditure (70%) India’s middle class constitutes 50 million people at present. Likely to go up to 583 million people by 2025 Households that can discretionary afford spending likely to go up from 8 million at present to 94 million by 2025 42 Source : McKinsey Global Institute .. India has huge untapped market potential…. Given the demography & rapidly growing middle class.Growing middle class….

two.5 9.The domestic market is growing Telecom subscriber base (in millions) Higher disposable income.4 * Apr-Jan 2010 .9 11. easy availability of credit and high exposure to media and brands has increased the average propensity to consume India has a mobile subscriber base of over 500 million and is currently adding around 8-10 million subscribers every month.3 7.2 11.7 11.2 8.1 10.and three-wheelers 2009* 2008 2007 2006 2005 2004 77 104 153 225 326 562 0 100 200 300 400 500 600 *Upto 31st Dec 2009 Automobile production (in millions) 15 10 5 0 2009-10* 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 6. commercial vehicles. about 50% penetration is expected by 2012 Automobile production now exceeds 10 million units per annum including passenger vehicles.

. .What sets India apart…. about 52% of India’s population was below 25 years Median age would be 30 years even as late as 2025 India’s work force (15-59 years) would go up by around 324 million by 2050. India has the advantage of being one of the “youngest” countries Size of 15-59 age group in 2007 (in million) Size of 15-59 age group in 2050 (in million) Growth of 15-59 age group ( in million) India United States Japan Germany United Kingdom France China 696 191 76 50 36 37 895 1020 225 45 36 36 35 755 324 34 -31 -14 0 -2 -140 Source: United Nations In the year 2006.

INDIA’S DEMOGRAPHIC DIVIDEND WILL CONTINUE TILL 2025 (% share of age groups) 80 70 60 50 40 30 20 10 0 0-14 years 2000 2005 15-64 years 2010 2015 2020 2025 65+ 5 5 5 6 6 7 36 33 30 27 25 25 60 62 65 68 69 68 India will remain a young nation with the median age going up from 21 in 2000 to 26 in 2025 .

Availability of Graduates 0 500000 1000000 1500000 2000000 2500000 Graduates 1989000 Post Graduates 258000 PhD's 9000 India’s educational infrastructure •Over 380 universities (11.200 colleges) •1..500 research institutions and around 9. Kearney India has the third largest scientific and technical manpower in the world The number of MNCs undertaking R&D activity in India has gone up from 100 in the year 2003 to 300 in 2007 .000 graduates •India has a significant English speaking population Source : A.What sets India apart….T. Strong knowledge base….000.000 PhDs •Over 200.000 engineering graduates •Over 250.000 post graduates and 2.

airport. seaports) Policy and institutional determinants of growth Macro policies Institutional and regulatory environment . especially in USA Investment trends: huge potential in infrastructure PPP to finance and execute infrastructure projects (rail.Factors Driving India’s Growth Population & demographic trends: Every two years. trained IT specialists. India would be adding all of Germany’s labor force! Human capital English-speaking skilled workers: scientists. technicians and engineers Rising integration into global trade and investment Can also capitalize on Diaspora.

taking cue from successful entrepreneurs in the Silicon Valley IT industry leveraged on Modular Development and Global Delivery Model Benefits from 24 hr work day and productivity gains Technology drove outsourcing of business processes Indian IT Cos devising strategies to move up value chain Other sectors transforming are Pharma and Auto-ancillaries Huge opportunities seen in improving supply chain efficiencies and catering to domestic market across sectors Telecom revolution unleashes tremendous economic impact .Drivers of Economic Transformation Spirit of entrepreneurship Unleashed with the IT revolution and emergence of BPO / outsourcing industry Rise of knowledge based industry.

occupation of 60% people Urbanization at a rapid pace. but not planned or managed carefully Can lead to huge impacts on environment & efficiency Challenge to ensure inclusive growth. not innovation-oriented How can we educate 500 million youngsters properly? PSUs still hold monopoly in some sectors Aerospace. Reforms slowed due to need for political consensus Capital markets still not very efficient Slow growth in agriculture. Economic gains to be equitably distributed while evolving right incentives for growth .India Growth Story Several constraints still exist Infrastructure remains a critical bottleneck Quality of education archaic. defense production & nuclear power prodn.

INDIA’S BOOMING MIDDLE CLASS .

How many? India's 200m-strong middle class is the most economically dynamic group on the planet. more than 400m (out of a total population of 1bn) have risen out of relative poverty—to $5 a day—and another 300m will follow over the next two decades if the economy continues to grow at over 7 per cent a year . but is largely uninterested in politics or social reform 300 million Indians live on less than $1 a day—a quarter of the world's utterly poor Yet since 1985.

Nevertheless. But this definition suits only about 60m (under 6 per cent) of the population. there seems to be an underlying intuition about the "middle class-ness" of those moving up from $5 a day to $10 People who employ household help are middle class? .000 a year ($20.Who are they? According to the National Council of Applied Economic Research.000 in purchasing power parity terms).000-$120. the term "middle class" applies to those earning between $4.000 and $21.

546 New research from the McKinsey Global Institute (MGI) shows that within a generation. In two decades the country will surpass Germany as the world's fifth largest consumer market . consuming goods ranging from high-end cars to designer clothing. the country will become a nation of upwardly mobile middle-class households.Impact? The shifting of expenditure from needs to wants is what distinguishes the Indian middle class most sharply from the middling social groups of the past The average middle class consumption per capita per year works out to Rs 12.

there will be 9.5 million Indians in this class and their spending power will hit 14. B By 2025. and regularly vacation abroad. easy access to the Internet and plethora of media options .A new breed of ferociously upwardly mobile Indians is emerging—young graduates of India's top colleges who can command large salaries from Indian and foreign multinationals Their tastes are indistinguishable from those of prosperous young Westerners—many own high-end luxury cars and wear designer clothes. employ maids and full-time cooks.1 trillion rupees— 20 percent of total Indian consumption Consumerism spurred by advertising.

the country had only 0. and virtually no mobile phones.Value-conscious consumers Before India embarked on its program of economic reforms. and overall communications spending will grow at a very rapid 13. But India’s mobile telephony costs are among the lowest in the world (and companies still make profits!) . India's mobile market is currently growing even faster than China's.8 fixed telephones per 100 people. Other fast-growing categories will include transport.4 percent per year over the next two decades. mobile phone subscribers are expected to reach 211 million by end-2008. education and health care. Now.

com/watch?v=P 6NoYjf4--Q&feature=related .How the Indian Consumer Really Behaves http://www.youtube.

Consumption Patterns The character of consumption will change dramatically over the next 20 years. A huge shift is underway from spending on necessities (food. clothing) to choice-based spending on categories such as household appliances and restaurants Households that can afford discretionary consumption will grow from 8 million today to 94 million by 2025 Companies have to understand the psyche of those classes which are beginning to join the “middle classes” - .

Growth of Middle India Much of the consumption and income growth is not in the metros.000. they have twice the market potential of the four metros (Mumbai. (RK Swamy BBDO) Towns such as Chandigarh. Indore and Pune have three-quarters or more of the affluence levels of Mumbai. Lucknow. Chennai and Kolkata) combined. Ahmedabad. and product consumption comes across clearly. . time spent on media. Jaipur. That small-town urban India is attractive in terms of purchasing power. On growth potential they do even better. Delhi. Together. its in the Tier II and Tier III cities 51 districts in India have at least one town with a population of more than 500.

respectively. only 25 million are in Tier I cities.Myths & Realities Myth: The Indian middle class lives in the metros. Reality: For products such as Vim Bar dishwashing detergent and Head & Shoulders shampoo. in 2007. Value sensitivity. Yet for years. The days of "imported equals premium" are long past. Myth: India is a "price sensitive" market. Mercedes sells more cars in small-town Ludhiana than it does in Mumbai. . Reality: Of the 80 million households that constitute the Indian middle class. not price sensitivity. is the buzzword. Myth: Imported is always premium. Close to 55 million belong to the smaller towns. the Indian market easily absorbed price hikes of 13% and 18%. candy manufacturers have been trying in vain to increase prices from 50p to Re 1. Reality: Euro RSCG's brand momentum study in 2004 showed that eight of the top 10 brands in the country were of Indian origin.

Reemergence of Gandhian values. parents seem to trump the more prolific cricketers and Bollywood stars. Youth in Tier II cities have always been proud of being Indian. Family as the cornerstone of existence. The desire to experience the unknown -.a constant need for adventure -. . one might expect to see increased importance of friends over family. much higher than that of their counterparts in Tier I cities. Pride of being Indian. Walking on the wild side. But the opposite is true.The Bunty Consumer High confidence in their abilities.is much more prevalent among youth in Tier II cities. With rapid nuclearization of families and the advent of social networking. and that belief has become even stronger. Social conscience is at an all-time high. Even in the selection of role models.

Gandhian values: Idea.Tapping the Bunty Syndrome Confidence: Grasim." has saluted the "We'll get there no matter what" spirit of the youth. a mobile-services brand. The message is enhanced by the use of a celebrity (the actor Akshay Kumar) who has made a name for himself on his own in a field where relatives already in the profession are seen as a prerequisite for creating equity in the industry. through the message of "be self-made. a brand of suits. while Tata Tea has tried to appeal to the young in Tier II cities with a call to "wake up to the issues. has propagated caste equality." Pride: Durables brand Voltas has challenged the monopoly of Korean brands in the air-conditioner space by projecting itself as "India's own AC." Family values: The concept of being able to give back to parents has been used to good effect by MasterCard and HDFC Bank. .

It also distributed sewing-machine attachments for stitching the heavy denim and trained the tailors to use the kits. Arvind Mills. For generations. India's leading denim manufacturer. more than a million of these Ruf 'n Tuf kits were sold . overcame these misgivings by offering a "ready to stitch" jeans kit to local village tailors. Many remain suspicious of ready-to-wear clothes.Tailoring Products to These Consumers Smart companies know that old consumer habits die hard. Within two months. rural Indian families have either made their own clothes from bolts of cloth or had the local tailor make their garments relatively cheaply.

relentlessly concentrating on expanding its choice of lifestyles while taking political parties to be as bad as each other and non-party politics to be hopelessly idealistic Rarely mobilize politically—brief exceptions.Middle Class Politics Middle-class skeptical about the capacity of the state Behaves more like the contemporary consuming classes of the west. the Anti-Reservation Movement Or as part of Resident Welfare Associations .

Indian economy’s liberalization Now. it is through software and finance Sense of citizenship is weak: they do not. post-nuclear tests. instead of through "non-aligned" solidarity and ancient history. they often do not acknowledge the role of the state in their own rise or its capacity to solve any of the country's problems .Global Outlook Keen on expanding frontiers: supported nuclear tests. extend a sense of solidarity to the poor. and move on to talk of economic opportunities Commitment to an India which plays a decisive role on the international stage—but now. they simply assume it is India's due to be treated as the "equal" of the US and the rest. on the whole. take India’s new status for granted.

and meticulous in execution – Rishikesha T. IIMB Professor Represented by companies such as Infosys and Bharti Airtel All have been global in outlook in terms of adopting global standards. the best technology and operating on global scales Examples of middle class to billionaires .Entrepreneurial Indian middle class also marked by entrepreneurial spirit — focused in thought. global in outlook. Krishnan. proactive in approach.

The Formal Corporate Sector .

etc Inter-War Period Heavy Industry Tatas. Dalmias. Birlas. Walchand. Singhanias Maharaja of Mysore—Steel (Vishweshwarayya) Textile Mill Magnates .Indian Entrepreneurship Before Independence… 1800s Opium Trade with China-Jamsetji Jeejeebhoy.

Context and Corporate Growth .

LIC.g. Great Depression Strategic use of industrial licensing system Corner licenses to prevent competition Expand into unrelated lines just because license is obtained Compete easily in political markets of corridors of power Precious little innovation Dependent on State Funds Industrialists often owned small % of shares. Aditya Birla) Third generation splits weakened many houses External pressures on joint-family Availability of funding from FIs and banks . etc.Indian Business Houses in Pre-liberalization Era Expansion & consolidation (in spite of constraints of industrial policy) → expansion of industrial base Acquisition of British business houses in India Growth in 1914-47 due to British focus on World Wars. rest Global expansion by far-sighted houses (e.

quality Control remained with family members. though family members better educated over time Forward-looking houses high on professionalization Business became more respectable.Indian Business Houses in Pre-liberalization Era Weak on technology. but few could attain the status of preindependence business leaders! .

not old money IT Success No products.Impact of liberalization on Business Liberalization => competition => technical change. acquisition of Indian firms (Parle) New class of entrepreneurs Educated. tended to be more focused Tatas sell TOMCO to HLL. ambitious. buys core biz Some efforts at tech development. different sources) Nicholas Piramal buys entire R&D lab of Hoechst Entry of multinationals challenges Indian cos. M&A. But Indian business also now more ambitious & efficient (better K/output) Existing business houses invested in new product lines. i. Pharma) Import of technology (Auto: unpacking. progressive. Lots of JV. efficient processes. more R&D (esp. informed. leverage educated raw material & labour cost arbitrage.. SRF sells finance arm. untouched by government .e.

Now. Moser Baer. Tata Steel. Wipro. Aditya Birla. the Indian Multinational? LN Mittal: does his empire qualify? Bharat Forge. to avoid dealing with Indian government restrictions on growth ONGC Videsh: a PSU playing in international markets The Entrepreneurial Success of the Indian Diaspora and its demonstration effect . all busy buying companies abroad Aditya Birla overseas expansion since licensepermit raj days.

India: Some Complexities and Contradictions .

India ranks #4 on Forbes billionaires! (53/1125) Literacy 65-70% More than 20% lack access to potable water Only 36% households have toilets Life expectancy at birth 61 years 77 .India: The Cold Statistics More than one-third below poverty line 42% of rural population spend just Rs 447 a month on food. clothing. light. etc.

4 / 10 Germany #14 8.0 / 10 France #24 6.9 / 10 China #79 3.India: Corruption An Endemic Problem India is ranked at #84 out of 180 countries on TI’s Corruption Perception Index 2009 with score of 3.4 / 10 New Zealand #1 9.6 / 10 India’s rank slipped by 14 positions in last 4 years! 78 .

India: Governance Indicators 79 .

Who’s Losing Out? Who’s Ignored? The Other Side of India Shining India’s Informal Economy .

small in scale usually employing < ten workers and often from the immediate family. usually no formal training as workers learn on the job. cannot organise them and have little negotiating power with their employers and intermediaries (ILO 2000). Heterogeneity in activities. informal capital sources Mostly labour intensive work. workers in the informal sector are often largely unaware of their rights. . requiring low-level skills. Due to their isolation and invisibility. little or no division between labour and capital. Easier entry and exit than in formal sector.India’s Informal Sector Low level of organisation. Usually minimal capital investment. Labour relations based on casual employment and or social relationships as opposed to formal contracts.

[Kabra 2003] Whereas a report by National Commission for Enterprises in the Unorganised Sector (NCEUS) “estimated the un-organised/informal sector workers as comprising about 86% of work force in the Indian economy in 2004-2005 and informal employment both in the organised and unorganised sector as 92% .Magnitude of Informal Sector Larger than the organized sector in terms of the relative share in GDP as well as the workforce. Produces about 60 per cent of India’s GDP and also provides livelihood to nearly 93 per cent of the work force.

unregulated. dominate non-metros State Regulation: doesn’t go below surface Huge untaxed. externality-driven economy Tremendous corruption at implementation level Reforms create more opportunity for market exploitation of rents and labour Conversion of black to white .Social Regulation of Indian Economy Gender Caste Religion Spatial Clusters Classes: Labour: in dependent alliance with caste patrons Capital: rise of Intermediate Class.

especially in the organised sector.Monthly incomes of cultivators have declined in the latest period. 18000 15000 12000 9000 6000 3000 0 self-emp agri self-emp nonagri nonag wages private salaries ag-wages govt salaries 1993-94 1999-00 2004-05 . All other workers’ incomes have increased.

0 180. Real incomes of self-employed in agriculture have declined since the onset of agrarian crisis after 1997-98 Indices of per worker income (1999-00 series) 480.0 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 ag-wages nonag wages self-em p agri self-em p nonagri private salaries govt salaries .0 230.0 430.0 380.0 130.The gap between organised sector salaries and selfemployed/wages started at the end of 1990s and has been growing thereafter.0 280.0 330.0 80.

Inequality Among States .

1 1973-74 1977-78 1883 1987-88 1993-94 1999-00 Poverty ratio (%) .0 26.YET POVERTY LEVEL HAS DECLINED SIGNIFICANTLY IN 1990s 60 50 40 30 20 10 0 54.9 51.3 44.9 36.5 38.

According to the Arjun Sengupta Committee Report on Unorganised Sector Workers. The Right to Food campaign registered more than 5.ie 2. . 46% of children under the age of five are undernourished. in her study of nutritional status and hunger in India. Further.400 calories for rural residents.Has it really? Professor Utsa Patnaik. the National Family Health Survey-3 states that in India.000 starvation deaths in different parts of the country between 2001 and 2005. about 77% of people in the country subsist on under Rs 20 per day. showed how 76% of families or 840 million people in India do not get the requisite daily intake of calories -.100 calories for urban and 2.

The desperation on the farm … .

Human Development Index: India and Her Neighbours (2005) .

Thus.8.30 a month. In urban areas it has risen from Rs538. New Government Estimates: Every Third Indian Is Poor The Suresh Tendulkar committee has revised the poverty line in terms of money spent per person per month.60 to Rs578.68 in rural areas. . From Rs356. the Centre measures poverty by measuring calorie intake. this has increased to Rs446. At present.

Absence of Social Safety Nets People Fall Into Poverty Too! The World Bank estimates that onequarter of all Indians fall into poverty as a direct result of medical expenses in the event of hospitalisation Other factors: excessive spending on weddings and deaths Indians investment in gold is partly a traditional social safety net .

we will do so only by putting our political democracy in peril. one vote and one value. one value.” . We must remove this contradiction at the earliest possible moment or else those who suffer for inequality will blow up the structure of political democracy which this assembly has so laboriously built up. In our social and economic life. “How long shall we continue to lead this life of contradiction? How long shall we continue to deny equality in our social and economic life? If we continue to deny it for long.Ambedkar “On 26th January 1950. In politics we will have equality and in social and economic life we will have inequality. continue to be denied the principle of one man. by reason of our social and economic structure. we are going to enter into a life of contradictions. we shall. In politics we will be recognized by the principle of one man.

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