India's Future - An analysis

INDIA’S FUTUREINDIA’S FUTUREOr prosperity will spread in India p p y p

but happiness will not, until we fix governance

byGurcharan DasGurcharan Das

November 12, 2009WIPROMarbella

h fWhere are we coming from?

Where are we today?

Where are we going in the

future?

E th h th ld hEven though the world hasjust discovered it, the India

growth story is not newIt h b i f 25It has been going on for 25 years

What is the India story?What is the India story?

28 years of high growth

Average annual GDP growth

10

(%)

6.08.9

6

8

10

1.0

3.5

2

4

6

0

2

1900-1950 1950-1980 1980-2002 2002-20071900-1950 1950-1980 1980-2002 2002-2007

Population growth is slowing

2.2 2.12.5

(%)

1 0

2.11.8

1.51.5

2.0

1.0

0.5

1.0

0

0.5

1901-1950 1951-1980 1981-1990 1991-2000 2001-2010

Sources: 1900-1990: Angus Maddison (1995), Monitoring the World Economy, 1990-2000:Census of India (2001)

Literacy is rising

80100

(%)

5265

80

60

80

1720

40

0

20

1950 1990 2000 2010 (proj)

Source: Census of India (2001)

When middle class is 50% then the politics will also change

8%22% 32%

400

(m)

368300

400

220

100

200

650

100

1980 2000 2010

Source: The Consuming Class, National Council of Applied Economic Research, 2002

1980 2000 2010

Poverty is declining

1% of the people have 50

(%)

46p p

been crossing poverty line each year for 25

years30

40

26

16

years

Equals ~ 200m20

30

16

0

10

1980 2000 20101980 2000 2010

Per capita income gains

US$ ppp

1 178

1980

1,178

20053,051

Source: World Bank

India is now the 4th largest economy

It will overtake Japan b t 2012 d 2014between 2012 and 2014

to become the 3rd largest

The India model is uniqueThe India model is unique

Drivers of growth

India East and S.E. Asia ■ Domestic ■ Exports

Drivers of growth

India East and S.E. Asia ■ Domestic

■ Services

■ Exports

■ Manufacturing

Drivers of growth


■ Services

■ Exports

■ Manufacturing

■ Consumption ■ Investment

Drivers of growth


■ Services

■ Exports

■ Manufacturing

■ Consumption

■ High tech, capital

■ Investment

■ Low tech, labour g pintensive industry intensive industry

Implications of India model

‘Domestically led’ means:■ Insulation from global downturns

■ Less volatility

■ We will come out of the global crisis

faster

Implication of India model

‘Services led’ raises f t bl tiuncomfortable questions:

■ Have we skipped the industrial revolution?revolution?

■ How do we take people from farms to cities?cities?

■ Will SEZ’s be our tipping point?

Implication of India model – Consumption led

People Friendly:Consumption as % of GDP

People Friendly, Less inequality: Gini Index

59%33%

42% 64%41%

59%

U.S.China

B il

India

58%

42% 64%

EuropeChinaIndia

45% Brazil%

Will India become the next big consuming economy after the U.S.?

Reasons for success

India’s success is market ledIndia s success is market-led whereas China’s is state induced

The entrepreneur is at thecentre of the Indian model

Rise of globally competitive Indian companies

India has a vibrant private space

■ 100 Indian Companies have market cap of US$ 1bn



■ 1,000 Indian Companies have received foreign institutional investment




125 F t 500 i h R&D b i I di■ 125 Fortune 500 companies have R&D bases in India





■ 390 Fortune 500 companies have outsourced software development to Indiadevelopment to India






■ 2% bad loans in Indian banks (v~20% in China)






■ 2% bad loans in Indian banks (v~20% in China)

■ 80% credit goes to private sector (v~10% in China)■ 80% credit goes to private sector (v~10% in China)

Public space is a problem

We have■ Dynamic democracy with

honest elections

■ Free, lively media and press

But we also havePoor governance!

Governance Failures

Not the minister caught with a bribe1 out of 4 school teachers absent in government schools2 out of 5 doctors absent in primary health2 out of 5 doctors absent in primary healthcentersDelhi’s waterLand titles Etc

Ironically, we used to have world class institutions from 1950-1980, but our problem was growth.N h th b t i tit ti f iliNow we have growth, but our institutions are failing

■ Bureaucracy

■ Judiciary y

■ Police

The economy grows at night when thewhen the government is asleepasleep

Key reforms

■ Opened economy to trade and investment

■ Dismantled controls

■ Lowered tariffs

■ Dropped tax rates

■ Broke public sector monopolies

Understanding India’s economic successg

Remarkable --every government has reformed (slowly)

since 1991

Even slow reforms add up

65 countries have done the same reforms – why did India

become the second fastest in the world?

Unappreciated fact – rule of lawUnappreciated fact rule of law

“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.”

Professor David CrystalCambridge Encyclopedia of the English Language

Understanding India’s economic success

■ Mental revolution among the young

■ ‘I want to be Bilgay’

■ Raju’s secret of success

■ Banianisation of society

■ 180 TV channels; 65 news channels

■ The rise of Hinglish

Where are we today?

Growth fell to 6.7% in 08-09; 7% in 09-10P i h b l th i ChiPain has been less than in ChinaCompetitive companies have recovered faster. Risk of protectionism has recededRisk of protectionism has recededRecovery has been ahead of the world

Where are we going?

■ Base case post recovery is 7.5 % – 8.5 % GDP growth

■ Democracy will not permit more than 8% unless you have a Thatcher

■ 1.5% population growth

■ Demographic dividend – growth will continue beyond China’s

Per capita income

37,000On a ppp basis

40($000)

30

16,80020

2,100 3,0505,800

0

10

2000 2005 2020 2040 20660

Convergence in the 21st century

■ Why convergence is intuitive?

■ Convergence didn’t happen in the 20th century because the world was closed

R t i t ld f lit i t 1750■ Returning to a world of equality prior to 1750

■ When China and India accounted for 45% of world GDP

India will gradually turn middle-class

West of theKanpur-

Chennai line

East of theKanpur-

Chennai line

50% 50%Chennai line Chennai line

Kanpur-

22%

32%

8%

Chennai

1980 2000 2010 2020 2040

What could stop the show?

- InfrastructureImproving via public private parterships- Improving via public-private parterships

- Fiscal Deficit - Governance

None of these stopped the show in the past 25 years

- Nuclear War?

Education System

Is reasonably good for the top 20%

But it is abysmal for the rest1 i 4 t h i b t i t■ 1 in 4 teachers is absent in government primary schools

■ Hence, 54% of children in urban India are in■ Hence, 54% of children in urban India are in

private schools

Solution: Education VouchersSolution: Education Vouchers

Caste system

■ Origin of India’s caste system

■ Classical four castes vs 3000 jatis

■ Hostage to competitive politics

■ Source of competitive advantage

■ Affirmative action

Role of Religion

India’s pluralism, diversity and tolerance

Hinduismand tolerance ■ Spiritual entrepreneurialism: Gurus

■ No hierarchy: Every Brahmin thinks he is the Pope

2% 1%

Every Brahmin thinks he is the Pope

■ 300 million gods: Lack of theological narcissism

12%

■ Nasadiya Temper85%

Hindu Muslim Sikh Christian

Elephant and not Tiger

■ India got democracy before capitalism and this has made all the differenceall the difference

■ It is slower than China but its path is surer

% f■ However, an elephant at 8% growth is a formidable beast

■ We have waited 3000 years for this moment

■ India is more likely to preserve its way of life

The Wise Elephant

India's Future - An analysis

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