Indias Future

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INDIA’S FUTURE Or prosperity will spread in India but happiness will not, until we fix governance by Gurcharan Das November 12, 2009 WIPRO Marbella

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All about India's future.........

Transcript of Indias Future

Page 1: Indias Future

INDIA’S FUTUREOr prosperity will spread in India

but happiness will not, until we fix governance

byGurcharan Das

November 12, 2009WIPROMarbella

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Where are we coming from?

Where are we today?

Where are we going in the future?

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Even though the world hasjust discovered it, the India

growth story is not new

It has been going on for 25 years

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What is the India story?

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28 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

(%)

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Population growth is slowing

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

1.0

2.22.1

1.81.5

0

0.5

1.0

1.5

2.0

2.5

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

(%)

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Literacy is rising

Source: Census of India (2001)

17

52

65

80

0

20

40

60

80

100

1950 1990 2000 2010 (proj)

(%)

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

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)

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Poverty 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

(%)

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Per capita income gains

Source: World Bank

US$ ppp

200520053,0513,051

19801980

1,1781,178

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India is now the 4th largest economy

It will overtake Japan between 2012 and 2014

to become the 3rd largest

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The India model is unique

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Drivers of growth

India

■ Domestic

East and S.E. Asia

■ Exports

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Drivers of growth

India

■ Domestic

■ Services

East and S.E. Asia

■ Exports

■ Manufacturing

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Drivers of growth

India

■ Domestic

■ Services

■ Consumption

East and S.E. Asia

■ Exports

■ Manufacturing

■ Investment

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Drivers of growth

India

■ Domestic

■ Services

■ Consumption

■ High tech, capital intensive industry

East and S.E. Asia

■ Exports

■ Manufacturing

■ Investment

■ Low tech, labour intensive industry

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Implications of India model

‘Domestically led’ means:

■ Insulation from global downturns

■ Less volatility

■ We will come out of the global crisis

faster

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Implication of India 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?

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Implication of India model – 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.?

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Reasons for success

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

The entrepreneur is at thecentre of the Indian model

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Rise of globally competitive Indian companies

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India has a vibrant private space

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

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India has a vibrant private space

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

■ 1,000 Indian Companies have received foreign institutional investment

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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 Fortune 500 companies have R&D bases in India

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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 Fortune 500 companies have R&D bases in India

■ 390 Fortune 500 companies have outsourced software development to India

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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 Fortune 500 companies have R&D bases in India

■ 390 Fortune 500 companies have outsourced software development to India

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

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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 Fortune 500 companies have R&D bases 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)

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Public space is a problem

We have

■ Dynamic democracy with honest elections

■ Free, lively media and press

But we also have

Poor governance!

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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

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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

■ Bureaucracy

■ Judiciary

■ Police

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The economy grows at night when the government is asleep

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Key reforms

■ Opened economy to trade and investment

■ Dismantled controls

■ Lowered tariffs

■ Dropped tax rates

■ Broke public sector monopolies

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Understanding India’s economic success

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

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“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

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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

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Where are we today?

Growth fell to 6.7% in 08-09; 7% in 09-10 Pain has been less than in China Competitive companies have recovered faster. Risk of protectionism has receded Recovery has been ahead of the world

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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

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Per capita income

2,100 3,050

5,800

16,800

37,000On a ppp basis

2000 2005 2020 2040 2066

0

10

20

30

40

($000)

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Convergence in the 21st century

■ Why convergence is intuitive?

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

■ Returning to a world of equality prior to 1750

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

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50% 50%

India will gradually turn middle-class

8%

22%

32%

1980 2000 2010 2020 2040

West of theKanpur-

Chennai line

East of theKanpur-

Chennai line

Chennai

Kanpur-

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What could stop the show?

- Infrastructure - Improving via public-private parterships - Fiscal Deficit - Governance

None of these stopped the show in the past 25 years

- Nuclear War?

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Education System

Is reasonably good for the top 20%

But it is abysmal for the rest

■ 1 in 4 teachers is absent in government primary schools

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

private schools

Solution: Education Vouchers

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Caste system

■ Origin of India’s caste system

■ Classical four castes vs 3000 jatis

■ Hostage to competitive politics

■ Source of competitive advantage

■ Affirmative action

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Role of Religion

India’s pluralism, diversity and tolerance

Hinduism

■ Spiritual entrepreneurialism: Gurus

■ No hierarchy: Every Brahmin thinks he is the Pope

■ 300 million gods: Lack of theological narcissism

■ Nasadiya Temper85%

Hindu

12%

Muslim

2%

Sikh

1%

Christian

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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 formidable beast

■ We have waited 3000 years for this moment

■ India is more likely to preserve its way of life

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The Wise Elephant