INDIA’S FUTURE

Even though the world hasjust discovered it, the India

growth story is not new

It has been going on for 25 years

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

28 years of high growth28 years of high growth

1.0

3.5

6.0

8.9

Average annual GDP growth

0

2

4

6

8

10

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

(%)

Population growth is Population growth is slowing slowing

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

1.0

2.22.1

1.8

1.5

0

0.5

1.0

1.5

2.0

2.5

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

(%)

Literacy is risingLiteracy is rising

Source: Census of India (2001)

17

52

65

80

0

20

40

60

80

100

1950 1990 2000 2010 (proj)

(%)

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

changechange

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

65

220

368

8%

22% 32%

0

100

200

300

400

1980 2000 2010

(m)

Poverty is decliningPoverty is declining

46

26

16

1% of the people have been crossing poverty line each year for 25

years

Equals ~ 200m

0

10

20

30

40

50

1980 2000 2010

(%)

Per capita income gainsPer capita income gains

Source: World Bank

US$ ppp

200520053,0513,051

19801980

1,1781,178

India is now the 4th India is now the 4th largest economylargest economy

It will overtake Japan It will overtake Japan between 2012 and 2014 between 2012 and 2014

to become the 3rd to become the 3rd largestlargest

The India model is unique

Drivers of growthDrivers of growth

IndiaIndia DomesticDomestic

East and S.E. East and S.E. Asia Asia Exports Exports

Drivers of growthDrivers of growth

IndiaIndia DomesticDomestic ServicesServices

East and S.E. East and S.E. Asia Asia Exports Exports Manufacturing Manufacturing

Drivers of growthDrivers of growth

IndiaIndia DomesticDomestic ServicesServices ConsumptionConsumption

East and S.E. East and S.E. Asia Asia Exports Exports Manufacturing Manufacturing Investment Investment

Drivers of growthDrivers of growth

IndiaIndia DomesticDomestic ServicesServices ConsumptionConsumption High tech, High tech,

capital capital intensive intensive industryindustry

East and S.E. East and S.E. Asia Asia Exports Exports Manufacturing Manufacturing Investment Investment Low tech, labour Low tech, labour

intensive intensive industryindustry

Implications of India Implications of India model model

‘‘Domestically led’ means:Domestically led’ means: Insulation from global downturnsInsulation from global downturns Less volatilityLess volatility We will come out of the global crisis We will come out of the global crisis

fasterfaster

Implication of India Implication of India model model

‘Services led’ raises uncomfortable questions:

■ Have we skipped the industrial revolution?

■ How do we take people from farms to cities?

■ Will SEZ’s be our tipping point?

Implication of India Implication of India model – Consumption ledmodel – Consumption led

41%

45%45%

59%

U.S.

China

Brazil

India

33%

People Friendly:Consumption as % of GDP

People Friendly, Less inequality: Gini Index

58%

42%64%

Europe

China

India

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

Reasons for successReasons for success

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

The entrepreneur is at thecentre of the Indian model

Rise of globally Rise of globally competitive Indian competitive Indian

companiescompanies

India has a vibrant India has a vibrant private space private space

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

India has a vibrant India has a vibrant private space private space

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

1,000 Indian Companies have received 1,000 Indian Companies have received foreign foreign institutional investmentinstitutional investment

India has a vibrant India has a vibrant private space private space

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

1,000 Indian Companies have received 1,000 Indian Companies have received foreign foreign institutional investmentinstitutional investment

125 Fortune 500 companies have R&D 125 Fortune 500 companies have R&D bases in Indiabases in India

India has a vibrant India has a vibrant private space private space

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

1,000 Indian Companies have received 1,000 Indian Companies have received foreign foreign institutional investmentinstitutional investment

125 Fortune 500 companies have R&D 125 Fortune 500 companies have R&D bases in Indiabases in India

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

India has a vibrant India has a vibrant private space private space

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

1,000 Indian Companies have received foreign 1,000 Indian Companies have received foreign institutional investmentinstitutional investment

125 Fortune 500 companies have R&D bases in 125 Fortune 500 companies have R&D bases in IndiaIndia

390 Fortune 500 companies have outsourced 390 Fortune 500 companies have outsourced software 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)

India has a vibrant India has a vibrant private space private space

100 Indian Companies have market cap of US$ 1bn 100 Indian Companies have market cap of US$ 1bn 1,000 Indian Companies have received foreign 1,000 Indian Companies have received foreign

institutional investmentinstitutional investment 125 Fortune 500 companies have R&D bases in 125 Fortune 500 companies have R&D bases in

IndiaIndia 390 Fortune 500 companies have outsourced 390 Fortune 500 companies have outsourced

software 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)

Understanding India’s Understanding India’s economic successeconomic success

Remarkable --every government has Remarkable --every government has reformed (slowly) reformed (slowly)

since 1991since 1991 Even slow reforms add upEven slow reforms add up 65 countries have done the same reforms – 65 countries have done the same reforms –

why did Indiawhy did India

become the second fastest in the world? become the second fastest in the world? Unappreciated fact – rule of law Unappreciated fact – rule of law

“ “By 2010 India will have world’s largest By 2010 India will have world’s largest

number of English speakers”number of English speakers”

“When 300 million Indians speak a word in “When 300 million Indians speak a word in

a a

certain way, that will be the way to speak certain way, that will be the way to speak

it.”it.” Professor David CrystalCambridge Encyclopedia of the English Language

Where are we going?Where are we going? Base case post recovery is 7.5 % – 8.5 % Base case post recovery is 7.5 % – 8.5 %

GDP growth GDP growth Democracy will not permit more than 8% Democracy will not permit more than 8%

unless you have a Thatcherunless you have a Thatcher 1.5% population growth 1.5% population growth Demographic dividend – growth will Demographic dividend – growth will

continue beyond China’scontinue beyond China’s

Per capita incomePer capita income

2,1003,050

5,800

16,800

37,000

On a ppp basis

2000 2005 2020 2040 2066

0

10

20

30

40

($000)

50% 50%

India will gradually turn India will gradually turn middle-classmiddle-class

8%

22%

32%

1980 2000 2010 2020 2040

West of theKanpur-

Chennai line

East of theKanpur-

Chennai line

Chennai

Kanpur-

What could stop the What could stop the show?show?

- InfrastructureInfrastructure - Improving via public-private - Improving via public-private partnerships partnerships - Fiscal Deficit Fiscal Deficit - GovernanceGovernance

None of these stopped the show in the past None of these stopped the show in the past 25 years25 years

- Nuclear War?- Nuclear War?