Meet India!

A SHORT CONDUCTED TOUR OF THE WORLD’S MOST COMPLEX AND ONE OF ITS FASTEST GROWING

ECONOMIES.

MOHAN GURUSWAMY

Meet India!

Mohan Guruswamy June 17, 2014

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Modern India now has over 2000 ethnic groups. Modern Indian languages have evolved from all the world’s four language families. Indo-European, Dravidian, Austro-Asiatic and Tibeto-Burman. India has 1652 individual mother tongues. The 2001 Census tells us that 30 languages are spoken by over a million each, and 122 by over 10,000 each.

India has almost 1.2 billion people, and the Union of India consists of 32 States and Union Territories. The biggest of these is Uttar Pradesh with a population of 199.6 million or 16.49% of India’s. It is as big as Brazil. The smallest political unit is Lakshadweep which has just 64,000 (0.01%). Quite clearly the omnibus term India, incidentally derived from the name of a river that hardly flows through it, masks a diversity of nations.

In late 2012 India became the world’s third largest economy in PPP terms and has grown at an average rate of over 7% since 2000. Between 2008-11 it grew at more than 9%. In consonance with global trends India’s growth also has tapered off these past two years.

Clearly it’s a country of great heterogeneity and complexity. Its diversity makes it unsuitable for any other form of government but DEMOCRACY.

Meet India!

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The once and future world?Major world economies from 0-2005.

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A history of World GDP’s (1990 $ PPP)


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The brave new world to come!

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The world at the end of the current decade.

-WORLD GDP over the past 12 months was about $65 trillion. In the year to September 2013, global output will be about $10 trillion bigger, according to the IMF's projections.*

-But where will that next $10 trillion be added? That depends on the size of a country's economy, its growth rate and the appreciation of its real exchange rate. Focusing on any one of those things, to the exclusion of the others, can be a misleading guide to a market's potential.

-For example, China's economy in 2013 will still be smaller than America's. But because it is growing so fast, it will add $1.65 trillion compared to America's $1.43 trillion. Japan—a slow-growing economy—will contribute $410 billion, less than Russia ($698 billion) or Brazil ($461 billion). But because Japan is so big, it will still contribute more than India ($392 billion).

Where will the next $10 trillion of GDP come from?

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Goldman Sachs predictions of GDP’s till 2050.


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Source: http://www2.goldmansachs.com/insight/research/reports/99.pdf

The stuff our dreams are made off?


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BRIC’s will be bigger than G-6 by 2050.(In 2003 US $ bns.)


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WGDP growth since 2004.

Whatever happened to Japan?


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The story of the pyramids.


Why everybody is excited about India?


India’s late surge!

India’s burgeoning middle-class.


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China’s aging problem. It will get old before it gets rich.

Life expectancy has more than doubled from 35 in 1949 to 75 today, a miraculous achievement. Meanwhile, the fertility rate has plummeted to 1.5 or lower, far below the 2.1 needed to keep a population stable.

Cai Fang, a demographer at the Chinese Academy of Social Sciences, says the country will have moved from labour surplus to labour shortage at the fastest pace in history.

In 2011, its workforce shrank for the first time, years before anyone had predicted.

Japan reached a similar turning point in about 1990. Ominously for China, that was just before its economy sank into two stagnant decades. By then, its living standards were already at nearly 90 per cent of US levels. In purchasing power parity terms, China’s per capita income is still below 20 per cent.

“There’s now no doubt,” says Professor Cai. “China will be old before it is rich.”

India’s growing workforce.


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Structure of the Economy

The Poverty Map of India.


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What are India’s grim realities?


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Reality 1. 62% of agricultural land is rainfed. 64.8% of the population is linked to agriculture for livelihood either as cultivators or as agricultural laborers. Rural workforce in 2001 about 250 mn.

Reality 2. In 2001, 260.3 mn or 26.1% below poverty line of 2400 calories per day or Rs. 328 per month (rural) and Rs.454 per month (urban).

Reality 3. 83.5% of all households (176.5 mn) below median per capita of Rs.17,736 per annum. Income inequality –Gini increasing.

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Reality 4. Regional imbalances growing.Reality 5. 34.6% illiterate.Reality 6. Employment in organized sector

stagnating at around 31 mn for past 5 years. Government employs 19.3 mn or 69%, while PSU’s & Pvt. Sector employs only 10.65 mn.

Reality 7. Government capital expenditure for development now down to less than 15% of budget.

Not a bad performance at all!


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Improving CAD.

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A banking crisis ahead?


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The high cost of populism.


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A snapshot of the economic crisis.


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India’s International Trade.


The growing importance of Asia to India.


The nature of India’s International Trade.


India’s energy scenario.


A Petroleum Products Exporter!


BJP’s Main Economic Drivers.

Urbanization as an Economic Driver.


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Railways as an Economic Driver.


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The four critical areas to focus on are fiscal belt-tightening, improving the business climate, complementing anti-inflation efforts and sustaining the improvement in the current account deficit.

The deficit is forecast to come in at around 4.6% in the 2013-2014 financial year ended in March 2014, down from 4.9% in 2012-2013 and 5.8% in 2011-2012.

India recorded a Current Account Deficit of 1.70% of GDP in 2013. The CAD/GDP ratio in India averaged -1.45% from 1980 until 2013, reaching an all time high of 1.50% in 2003 and a record low of -4.70% in 2012. .

If the government chooses to expedite capital spending to orchestrate a cyclical turn in the investment cycle and boost long-term growth, the short-term casualty will be the Debt/GDP ratio, Improving the business climate should be the anchor of the new government's agenda.


The Immediate Economic Priorities.

Political Economy Constraints.• The Modi government will be driven by its economic and

development agenda.• India is straining to expand its domestic Savings/GDP ratio,

which has been declining in the past few years.• It has evolved into a high subsidy regime in the past decade

and it will be difficult to roll back on this, given the nature of mandate of the Modi government. But it will have to bite the bullet now.

• It will seek closer relationships with countries it can realize capital inflows. Only two countries are capable of meeting India’s needs with capital and technology. Japan and China. But Japan is not entirely a free agent.

• India’s traditional strategic autonomy considerations will condition it not to get into any strategic relationships.

• While the USA is an important player in geo-strategic terms, it is not capable of the volumes of investment India needs. The USA is habituated to being intrusive.


Key Economic Ratio’s & Long-term Trends.


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Balance of Payments & External Situation.


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Cost of Big Ticket Expansion & Modernization Plans till 2024.

India’s largest city is Mumbai, with a population of 12.5 million, closely followed by Delhi, with a population of 11 million. Overall, there are more than 50 urban areas in India with a population of more than one million people. Water and sanitation modernization. $50 billion.

New cities program. $300 billion The National perspective plan envisions about 150 million acre feet

(MAF) of water storage along with building inter-links. These storages and the interlinks will add nearly 170 million acre feet of water for beneficial uses in India, enabling irrigation over an additional area of 35 million hectares, generation of 40,000 MW capacity hydro power, flood control and other benefits. Cost $60 billion.

4000 kms of high speed railway network. $ 120 billion. Capital expenditure on Defence. $150 billion. Expansion and modernization of highway and road network. $120

billion. Additional 150,000 MW of power generation capacity. $800 billion. TOTAL: Over $1.6 trillion

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Increasing urbanization. An economic growth challenge & opportunity

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Where will India’s growth come from?

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Oil & Gas infrastructure expansion.

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The implications of India’s urbanization.


Political options available to the NDA government.

• It is capable of hard decisions, both because of the temperament of Modi, but because it is a right of center and market friendly government.

• It will be driven by its economic and development priorities, and hence most likely to compromise for these goals.

• It can reset India-China relations.• It will reset India-Japan relations.


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Thank you!


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Meet India!

Economy & Finance

Transcript of Meet India!