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  • 1. INDIA’S FUTURE<br />Or prosperity will spread in India <br />but happiness will not, until we fix governance<br />by<br />Gurcharan Das<br />November 12, 2009<br />WIPRO<br />Marbella<br />
  • 2. <ul><li>Where are we coming from?
  • 3. Where are we today?
  • 4. Where are we going in the </li></ul> future?<br />
  • 5. Even though the world hasjust discovered it, the Indiagrowth story is not new<br />It has been going on for 25 years<br />
  • 6. What is the India story? <br />
  • 7. 28 years of high growth<br />Average annual GDP growth<br />(%)<br />10<br />8.9<br />8<br />6.0<br />6<br />3.5<br />4<br />1.0<br />2<br />0<br />1900-1950<br />1950-1980<br />1980-2002<br />2002-2007<br />
  • 8. Population growth is slowing <br />(%)<br />2.5<br />2.2<br />2.1<br />2.0<br />1.8<br />1.5<br />1.5<br />1.0<br />1.0<br />0.5<br />0<br />1901-1950<br />1951-1980<br />1981-1990<br />1991-2000<br />2001-2010<br />Sources: 1900-1990: Angus Maddison (1995), Monitoring the World Economy, 1990-2000:Census of India (2001) <br />
  • 9. Literacy is rising<br />(%)<br />100<br />80<br />80<br />65<br />52<br />60<br />40<br />17<br />20<br />0<br />1950<br />1990<br />2000<br />2010 (proj)<br />Source: Census of India (2001)<br />
  • 10. When middle class is 50% then the politics will also change<br />(m)<br />0<br />32%<br />22%<br />8%<br />400<br />368<br />300<br />200<br />220<br />100<br />65<br />1980<br />2000<br />2010 <br />Source: The Consuming Class, National Council of Applied Economic Research, 2002 <br />
  • 11. Poverty is declining<br />(%)<br />50<br />1% of the people have been crossing poverty line each year for 25 years <br />Equals ~ 200m<br />46<br />40<br />30<br />26<br />20<br />16<br />10<br />0<br />1980<br />2000<br />2010 <br />
  • 12. Per capita income gains<br />1,178<br />1980<br />2005<br />3,051<br />US$ ppp<br />Source: World Bank<br />
  • 13. India is now the 4th largest economy<br />It will overtake Japan between 2012 and 2014 to become the 3rd largest<br />
  • 14. The India model is unique <br />
  • 15. Drivers of growth<br />India<br />Domestic<br />East and S.E. Asia <br />Exports <br />
  • 16. Drivers of growth<br />India<br />Domestic<br />Services<br />East and S.E. Asia <br />Exports <br />Manufacturing <br />
  • 17. Drivers of growth<br />India<br />Domestic<br />Services<br />Consumption<br />East and S.E. Asia <br />Exports <br />Manufacturing <br />Investment <br />
  • 18. Drivers of growth<br />India<br />Domestic<br />Services<br />Consumption<br />High tech, capital intensive industry<br />East and S.E. Asia <br />Exports <br />Manufacturing <br />Investment <br />Low tech, labour intensive industry<br />
  • 19. Implications of India model <br />‘Domestically led’ means:<br />Insulation from global downturns<br />Less volatility<br />We will come out of the global crisis <br /> faster<br />
  • 20. Implication of India model <br />‘Services led’ raises uncomfortable questions:<br /><ul><li>Have we skipped the industrial revolution?
  • 21. How do we take people from farms to cities?
  • 22. Will SEZ’s be our tipping point?</li></li></ul><li>Implication of India model – Consumption led<br />33%<br />59%<br />42%<br />64%<br />India<br />India<br />China<br />China<br />41%<br />U.S.<br />Europe<br />58%<br />45%<br />Brazil<br />People Friendly:Consumption as % of GDP<br />People Friendly, Less inequality: Gini Index<br />Will India become the next big consuming economy after the U.S.?<br />
  • 23. Reasons for success<br />India’s success is market-led whereas China’s is state induced<br />The entrepreneur is at thecentre of the Indian model<br />
  • 24. Rise of globally competitive Indian companies<br />
  • 25. India has a vibrant private space <br />100 Indian Companies have market cap of US$ 1bn <br />
  • 26. India has a vibrant private space <br />100 Indian Companies have market cap of US$ 1bn <br />1,000 Indian Companies have received foreign institutional investment<br />
  • 27. India has a vibrant private space <br />100 Indian Companies have market cap of US$ 1bn <br />1,000 Indian Companies have received foreign institutional investment<br />125 Fortune 500 companies have R&D bases in India<br />
  • 28. India has a vibrant private space <br />100 Indian Companies have market cap of US$ 1bn <br />1,000 Indian Companies have received foreign institutional investment<br />125 Fortune 500 companies have R&D bases in India<br />390 Fortune 500 companies have outsourced software development to India<br />
  • 29. India has a vibrant private space <br />100 Indian Companies have market cap of US$ 1bn <br />1,000 Indian Companies have received foreign institutional investment<br />125 Fortune 500 companies have R&D bases in India<br />390 Fortune 500 companies have outsourced software development to India<br />2% bad loans in Indian banks (v~20% in China)<br />
  • 30. India has a vibrant private space <br />100 Indian Companies have market cap of US$ 1bn <br />1,000 Indian Companies have received foreign institutional investment<br />125 Fortune 500 companies have R&D bases in India<br />390 Fortune 500 companies have outsourced software development to India<br />2% bad loans in Indian banks (v~20% in China)<br />80% credit goes to private sector (v~10% in China)<br />
  • 31. Public space is a problem<br />We have<br />Dynamic democracy with honest elections<br />Free, lively media and press<br />But we also have<br />Poor governance!<br />
  • 32. Governance Failures<br /><ul><li>Not the minister caught with a bribe
  • 33. 1 out of 4 school teachers absent in </li></ul> government schools<br /><ul><li> 2 out of 5 doctors absent in primary health</li></ul> centers<br /><ul><li> Delhi’s water
  • 34. Land titles
  • 35. Etc</li></li></ul><li>Ironically, we used to have world class institutions from 1950-1980, but our problem was growth.Now we have growth, but our institutions are failing <br />Bureaucracy<br />Judiciary <br />Police<br />
  • 36. The economy grows at night when the government is asleep<br />
  • 37.
  • 38. Key reforms<br />Opened economy to trade and investment<br />Dismantled controls <br />Lowered tariffs<br />Dropped tax rates<br />Broke public sector monopolies <br />
  • 39. Understanding India’s economic success<br /><ul><li>Remarkable --every government has reformed (slowly) </li></ul> since 1991<br /><ul><li>Even slow reforms add up
  • 40. 65 countries have done the same reforms – why did India</li></ul> become the second fastest in the world? <br /><ul><li>Unappreciated fact – rule of law </li></li></ul><li> “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.”<br />Professor David CrystalCambridge Encyclopedia of the English Language<br />
  • 41. Understanding India’s economic success<br />Mental revolution among the young<br />‘I want to be Bilgay’ <br />Raju’s secret of success<br />Banianisation of society<br />180 TV channels; 65 news channels<br />The rise of Hinglish<br />
  • 42. Where are we today?<br /><ul><li>Growth fell to 6.7% in 08-09; 7% in 09-10
  • 43. Pain has been less than in China
  • 44. Competitive companies have recovered faster.
  • 45. Risk of protectionism has receded
  • 46. Recovery has been ahead of the world</li></li></ul><li>Where are we going?<br />Base case post recovery is 7.5 % – 8.5 % GDP growth <br />Democracy will not permit more than 8% unless you have a Thatcher<br />1.5% population growth <br />Demographic dividend – growth will continue beyond China’s<br />
  • 47. Per capita income<br />On a ppp basis<br /> ($000)<br />40<br />30<br />20<br />10<br />0<br />2000<br />2005<br />2020<br />2040<br />2066<br />37,000<br />16,800<br />5,800<br />3,050<br />2,100<br />
  • 48. Convergence in the 21st century<br />Why convergence is intuitive?<br />Convergence didn’t happen in the 20th century because the world was closed<br />Returning to a world of equality prior to 1750<br />When China and India accounted for 45% of world GDP<br />
  • 49. 50%<br />50%<br />India will gradually turn middle-class<br />West of theKanpur-Chennai line<br />East of theKanpur-Chennai line<br />Kanpur-<br />32%<br />22%<br />Chennai<br />8%<br />1980<br />2000<br />2010<br />2020<br />2040<br />
  • 50. What could stop the show?<br /><ul><li> Infrastructure</li></ul>- Improving via public-private parterships<br /><ul><li>Fiscal Deficit
  • 51. Governance</li></ul>None of these stopped the show in the past 25 years<br />- Nuclear War?<br />
  • 52. Education System<br />Is reasonably good for the top 20%<br />But it is abysmal for the rest<br />1 in 4 teachers is absent in government primary schools<br />Hence, 54% of children in urban India are in <br /> private schools<br />Solution: Education Vouchers<br />
  • 53. Caste system<br />Origin of India’s caste system<br />Classical four castes vs 3000 jatis<br />Hostage to competitive politics <br />Source of competitive advantage<br />Affirmative action <br />
  • 54. Role of Religion<br />India’s pluralism, diversity and tolerance<br />1%<br />2%<br />12%<br />85%<br />Hindu<br />Muslim<br />Sikh<br />Christian<br />Hinduism<br />Spiritual entrepreneurialism: Gurus<br />No hierarchy: Every Brahmin thinks he is the Pope<br />300 million gods: Lack of theological narcissism<br />Nasadiya Temper<br />
  • 55. Elephant and not Tiger<br /><ul><li>India got democracy before capitalism and this has made all the difference
  • 56. It is slower than China but its path is surer
  • 57. However, an elephant at 8% growth is a formidable beast
  • 58. We have waited 3000 years for this moment
  • 59. India is more likely to preserve its way of life </li></li></ul><li>The Wise Elephant<br />

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