The India Story

INDIA`S
FUTURE
29 January 2007
R B Roy Choudhury Memorial lecture
Mumbai
Even though the world has just
discovered it, the India growth
story is not new. It has been
going on Ior 25 years old
hat is the India story?
Rising GDP growth
average annual GDP growth
900 950 .0
950 980 3.5
980 2002 6.0
2002 2006 8.0
Sources: 900-990: Angus Maddison (995, Monitoring the World Economy, 990-2000:Census oI India (200, 2000-
2005 Finance Ministry
India Story
2 Population growth is slowing
average annual growth
90 950 .0
95 980 2.2
98 990 2.
99 2000 .8
200 200 .5
Sources: 900-990: Angus Maddison (995, Monitoring the World Economy, 990-2000:Census oI India (200
India Story
950 7
990 52
2000 65
200 (proj 80
Source: Census oI India (200
3. Literacy is rising
India Story
Million
People
980 8 65
2000 22 220
200 (proj 32 368
Source: %he Consuming Class, National Council oI Applied Economic Research, 2002
4. Middle class is exploding
India Story
980 46
2000 26
200 (proj 6
oI the people have been crossing poverty line
each year Ior 20 years. Equals ~ 200 million.
5. Poverty is declining
India Story
6. Productivity is rising
India Story
30 to 40 oI GDP growth is due to
rising productivity
(US$ ppp
980 78
2000 305
Source: orld Bank
7. Per capita income gains
India Story
8. India is now the 4
th
largest
economy
India Story
And it will cross Japan between 202
and 204 to become the 3
rd
largest
THE INDIA MODEL IS
UNIQUE
DRIVERS OF GROTH
India East and S.E. Asia
Domestic Exports
DRIVERS OF GROTH
Domestic Exports
Services ManuIacturing
DRIVERS OF GROTH
Domestic Exports
Consumption Investment
DRIVERS OF GROTH
Domestic Exports
Consumption Investment
High tech, capital Low tech, labour
intensive industry intensive industry
IMPLICATIONS OF INDIA MODEL
Domestic led
Insulation Irom global downturns
Less volatility
IMPLICATION OF INDIA MODEL
Services led
Have we skipped the industrial
revolution?
How do we take people Irom Iarms
to cities?
IMPLICATION OF INDIA MODEL
Consumption led
People Iriendly: Consumption as oI GDP
India 64
Europe 58
China 42
Less inequality GINI INDEX
India 33
U.S 4
China 45
Brazil 59
The world needs another big consuming economy aIter the U.S.
Reasons Ior Success
India`s success is market led
whereas China`s is state induced.
The entrepreneur is at centre oI
the Indian model
Rise oI globally competitive
Indian companies:
Reliance, Jet Airways, InIosys, ipro,
Ranbaxy, Bharat Forge, Tata Motors,
TCS, Bharati, ICICI and HDFC Banks
India has a vibrant private space
~ 00 Indian Companies have market
cap oI US$ billion
cap oI US$ billion
~ 000 Indian Companies have
received Ioreign institutional
investment
cap oI US$ billion
investment
~ 25 Fortune 500 companies have
R&D bases in India
cap oI US$ billion
investment
R&D bases in India
outsourced soItware development to India.
cap oI US$ billion
investment
R&D bases in India
2 bad loans in Indian banks (vs ~ 20 in China
cap oI US$ billion
investment
R&D bases in India
2 bad loans in Indian banks (vs ~ 20 in China
~ 80 credit goes to private sector (vs~0 in
China
But public space is a problem
Although we have a:
Dynamic democracy with
honest elections
Public space is a problem
Although we have a:
Dynamic democracy
Free, lively media and press
Dynamic democracy with
But there is:
- Poor governance
Dynamic democracy
- Poor governance
- High populist subsidies, which
results in a high Iiscal deIicit
Dynamic democracy
- Poor governance
- High subsidies High Iiscal deIicit
- No money Ior inIrastructure
Dynamic democracy
- Poor governance
- High subsidies High Iiscal deIicit
- Creaky inIrastructure
- IneIIicient government companies
Earlier we had world class
institutions, but they are now Iailing
Bureaucracy
Judiciary
Police
Contrast between public and private
space raises the question :
Is India rising despite the state ?
Economy grows at night when
government is asleep
hat explains India`s economic
success?
Even slow reIorms add up
- state getting out oI the way
- every government has reIormed
since 99
Key Reforms
Opened economy to trade and investment
Dismantled controls
Lowered tariIIs
Dropped tax rates
Broke public sector monopolies
success?
Even slow reIorms add up-state
getting out oI the way
2 Young minds are liberated
Mental Revolution
- I want to be Bilgay`
- Raju`s secret oI success
- Banianisation oI society
- 00 cable channels Ior $3
- Hinglish
success?
Even slow reIorms add up-state
getting out oI the way
2 Young minds are liberated
3 India has Iound its competitive
advantage in the knowledge economy
ooking Forward
7 - 8 economic growth
Democracy will not permit more than 8
.5 Population growth
($
2000 200
2005 3050
2020 5800
2040 6,800
2066 37,000
This means a per capita income
roughly oI (on a ppp basis:
hy will growth continue?
Demographic dividend
emographic trend points to sharp increases in input factors
54
46
25
yrs
0-25
yrs
emographic Split
420
800
0
200
400
600
800
1,000
1,200
1,400
1,600
2005 2025
1.5 bn
1.1 bn
Labor
Force
abor Force will double in the next 20 years
emographic trend points to sharp increases in input factors
Age ependency
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 G! growth
India`s demographic advantage
means that its high growth will
continue longer term while China
will slow
980 8
2000 22
200 32
2020 50 est oI the
Kanpur-Chennai line
2040 50 East oI the
Kanpur-Chennai line
INDIA ILL GRADUALLY TURN
MIDDLE CLASS
By 200 India will have world`s
largest number oI English speakers
hen 300 million Indians speak a
word in a certain way, that will be
the way to speak it.
-ProI. David Crystal, Cambridge Encyclopedia oI the English Language
hat could stop the show?
Fiscal deIicit
InIrastructure
Bad governance
Nuclear war
REFORM SCHOOL
Labour
REFORM SCHOOL
Labour
Agriculture
Second Green Revolution
technologically led, based on
GM seeds
labor intensive
needs reIorms
REFORM SCHOOL
Labour
Agriculture
Power
REFORM SCHOOL
Labour
Agriculture
Power
Red tape
REFORM SCHOOL
Labor
Agriculture
Power
Red tape
Governance
Corporate Governance
- High in India
- Low in China
ottom ine
Indian prosperity is on auto pilot
Can`t do without government. But governance
reIorm will take time, till middle class is
dominant.
Human capital will continue to Ilower based on
private initiative, and drive the nation
India has law, China has order
-India got democracy beIore
capitalism and this has made all the
diIIerence
-It will be slower than China but its
path will be surer
-India more likely to preserve its
way oI liIe
The ise Elephant

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INDIA`S

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