Evolution of the Indian Economy 2006 - Lemoine

8/8/2019 Evolution of the Indian Economy 2006 - Lemoine

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THE EVOLUTION OF THE INDIAN

ECONOMY

Economic Performance (1990-2005)

A Specific Pattern of Development

Is the Growth Model Sustainable? CurrentPolicy Issues

Long-Term Prospects- Potential Growth

Evolution of the Indian Economy, 23 February 2006


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Economic Performance (1990-2005):

The Other Giant Catching-up

One of the most dynamic economy in the

world

International trade: behind China in tradeof goods, but a major exporter of services

Still very poor: a slow convergence ofincome with industrialised economies



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India: Economic Growth from 1985 to 2005(annual growth rate, in %)

-6

-1

4

9

14

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005*

GDP Agriculture Industry Services

-Still vunerable to

agricutural fluctuations

-Recent rise in trend


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Contribution to World GDP and to Global Growth

1995 to 2004 (in %)

31

11

9

4 4 3 3

27

5

16

54

7

2

0

5

10

15

20

25

30

35

Etats

-Unis

Chin

a

Japa

n

Fran

ce UK

German

y

India

Contribution to world GDP growth 1995-2004

Share in world GDP in 2004

India:

3% of World GDP growth (7th)

2% of World GDP (12th)


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India and C ina: Shar in Word Trade ofGoods

and Ser ices (in % ofword trade)

0,0

1,0

2,0

3,0

4,0

5,0

6,0

7,0

198

0

198

2

198

4

198

6

198

8

199

0

199

2

199

4

199

6

199

8

200

0

200

2

China's exports of goods

China's exports of services

ndia exports of services

ndia's exports of goods

6,1%

2,6%

1,3%

0,9%

-India lags behind

China in goods

exports- Strong

perfor ance in

ser ices exports


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Level of Income Compared to Rich Countries Rich countries=100

0

5

10

15

20

25

30

80

83

86

89

92

95

98

2001

Other developing economiesIndia

China

17%

10%

-India and China: among

the rare developing

countries which are

catching up.

-Indian per capita income

still far behind China


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A Specific P ern of Development

A services-led economy

A narrow manufacturing sector

A slow opening-up to international trade

and investment


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India: Economic Growt from 1985 to 2005(annual growt rat in %)

-

-

GDP Agriculture Industry Services


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India A Se vices ed Ec nomy:Structure ofGDP (in %)

3122

10

10

16

17

4351

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1993 2002

Services

Manufacturingindustry

Mines,Construction,

Utilities

Agriculture


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Services: skill-intensive activities are the most dynamicAnnual growth rates in the 1990s (%)

4

5

5

6

7

7

7

7

8

8

9

13

14

20

0 2 4 6 8 10 12 14 16 18 20

Railways

Real estate

Peseonnal services

Public adlinisatration

Insurance

other transport

Other services

Trade

total

Community services

Hotels & restaurants

Banking

Communication

Business services


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Structure of Industrial Production, in 1993 and 2003

(in % of total)

3

4

6

10

12

18

21

17

10

0 5 10 15 20 25

Others

Wood and paper

Construction material

Metal and metal products

Textile & Clothing

Food

Mining, Power

Machinery & Transport equipment

Chemicals

2003

1993

Chemical and

Machinery

drive industrial

growth


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Openess to FDI

India Compa ed toSe ected sianEconomies, 2004

8

3

6

4 4

15

13

98

6

3

6

0

2

4

6

8

10

12

14

16

Chi

Tiw

Pki

t

th-Korea

Ban

glad

esh

India

F I Inflows in of GrossCapital Formation

F I stocksas of GDP


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Indiaand hina:Openess reign Trade

E pors in GDP, 1980-2003

0

5

10

15

20

25

30

35

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

hina

India

29%

11%

India uch less pen:

-Ti e lag?

-Narr anu ac uring

sec or

-Geographic

en ir n en


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India: Direction of Foreign Trade

Share of Major zones (%)

3529

36 38 37

48

1924

19 16 21

23

29 29 23

3433

22

17 18 21

12 107

0%

20%

40%

60%

80%

100%

1990 1995 2003 1990 1995 2003

NAFTA

EU-15

Asia

thers

Indian Exports Indian Imports

-Geography of trade isrelatively balanced

-India is not part of a

regional integration

process

-Trade with Europe is

slowing down


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Is the Growth Model Sustainable ?

Strengths:

yGro tho s ill-intensi e ti ities (bothdomestic

andinternational):-IT ser ices-Pharmacy & biothechnology

yHumancapital:tertiaryeducation


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India: a world leader in exports of IT services(Share in world exports, in percent)

20

16

11

9

8

5

0

5

10

15

20

25

Ireland India UK Germany USA Isral

2000 2001 2002 2003


17/30

Product Composition of High-Tech Exports

Other HT

8%

inery

Radio, TV,

telecom.eq.

10%

Precisioninstruments

8%

Chemicals

68%

HT goods account for

4% of Indian exports,

Concentated in

chemicals

(pharmaceutical )


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Is the Growth Model Sustainable ?

Can Indias ipthestageo industrialisation ?Thelimitso specialisationins ill-intensi eacti ities:

yCannot betheengineo theeconomy

yHaveasmalldirectimpactonemployment

y

Tendstoincreasesdivergence betweenStates

yMayhaveadversee ectsonothersectors


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Current licy issues:

y mployment: jo less growth since the 1990s

y

In rastructure is a major ottleneck

yPo er ty and inequality

yPu lic de icit and de t:limited undsto inancesocial e penses and in rastructure


20/30

Employment by sectors, 1990-2005,

in %

67

52

13

19

2128

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1990 2005

Services

Industry &bat.

Agriculture

Share of

services in

employment

(28%) smaller

than in GDP

(51%)


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Urban E p o n n he Organ e Sec rhas S agnate

since 1990s

3431

6669

0

10

20

30

40

50

60

70

80

90

100

1994 2000

Unorganise

sector %

Organise sector

%


22/30

Number ofhouseholds in

2001

HouseholdIncome US$per year, in

2001

ExpectedDistribution

in 2010% %

Deprived 71.9 21 000 2

All 100.0 100

Distribution of income in 2001


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Evolutionofthe IndianEconomy, 23 February2006

y emographictrends: a window o opportunity

- trong increase o the working age population

- ependency ratio alling

y ctual growth will depend on the le el o

in estment and sa ings

Long-term Prospects: Growth Potential


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Ind nd Ch n P oj on o Popu on

- hou nd

0

200 000

400 000

600 000

800 000

1 000 000

1 200 000

1 400 000

1 600 000

1 800 000

2000

2005

2010

2015

2020

2025

2030

2035

2040

2045

2050

China

India

&

India's population

overtakes China's

around 2035


25/30

India and China: Working Age Population,

2000-2050 (15-64) (in millions)

-50

-30

-10

10

30

50

70

90

2000-052005-10 2010-152015-202020-25 2025-302030-352035-40 2040-452045-50

0

200

400

600

800

1 000

1 200

change in size India (left scale) China sizeat beginning ofperiod, India China


26/30

Indiaand hina

Pro ectionso Dependenc Ratio, 2000 2050

Population 65/population >15and


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EvolutionofInvest entrate, 1981- 004

Gross Capital For ation/G ,

2121

19 1920

2120

21

2222

25

21

2221

25

25

2424

23

24

22

25

27

29

10

12

14

16

18

20

22

24

26

28

30

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

200

1

200

3


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Long-term Prospects- Growth Potential

Scenarios:

Recentstudieshave raisedpotentialgrowthto7-8

basedonhigherinvestmentandstronginstitutions.

Potentialmaynot be realised: a returntoalower

growthpath

Evolutionofthe IndianEconomy, 23 February2006


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A atc ing up Scena i f India and hina

2000-2050 (GDP in nUSD

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

2000 2010 2020 2030 2040 2050

US

C i

J

I i

India c uld vertake

Japan ar und 2035

S r : G l S


30/30

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

2000 2010 2020 2030 2040 2050

US Japan China India

Inco e ap ill Re ain La ge( e Capita incu ent olla s)

Evolution of the Indian Economy 2006 - Lemoine

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