India's future - An overview

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India's future - An overview

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

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