Indias Future[571]

8/8/2019 Indias Future[571]

1/48

Spreading fragrance of lifeSpreading fragrance of life

Spreading fragrance of lifeSpreading fragrance of life

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INDIAS FUTUREOr prosperity will spread in India

but happiness will not, until we fix governance

by

Gurcharan Das

WIPRO

Marbella


3/48

Where are we coming from?

Where are we today?

Where are we going in the

future?


4/48

Even though the world has

just discovered it, the Indiagrowth story is not new

It has been going on for 25 years


5/48

What is the Indiastory?


6/48

28 years of high growth

1.0

3.5

6.0

8.9

Average annual GDP growth

0

2

4

68

10

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

(%)


7/48

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

1.8

1.5

0

0.5

1.0

1.5

2.0

2.5

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

(%)


8/48

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)


10/48

Poverty is declining

46

26

16

1% of the people havebeen crossing poverty

line each year for 25years

Equals ~ 200m

0

10

20

30

40

50

1980 2000 2010

(%)


11/48

Per capita income gains

Source: World Bank

US$ ppp

20053,051

1980

1,178


12/48

India is now the 4th largest economy

It will overtake Japanbetween 2012 and 2014

to become the 3rd largest


13/48

The India model isunique


14/48

Drivers of growth

India

Domestic

East and S.E. Asia

Exports


15/48

Drivers of growth

India

Domestic

Services

East and S.E. Asia

Exports

Manufacturing


16/48

Drivers of growth

India

Domestic

Services

Consumption

East and S.E. Asia

Exports

Manufacturing

Investment


17/48

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


18/48

Implications of India model

Domestically led means:

Insulation from global downturns

Less volatility

We will come out of the global crisis

faster


19/48

Implication of India model

Services led raisesuncomfortable questions:

Have we skipped the industrialrevolution?

How do we take people from farms to

cities?

Will

SEZs be our tipping point?


20/48

Implication of India model Consumption led

41%

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.?


21/48

Reasons for success

Indias success is market-led

whereas Chinas is state induced

The entrepreneur is at thecentre of the Indian model


22/48

Rise of globally competitive Indian companies


23/48

India has a vibrant private space

100 Indian Companies have market cap of US$ 1bn


24/48



1,000 Indian Companies have received foreign

institutional investment


25/48




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


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390 Fortune 500 companies have outsourced software

development to India


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


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

80% credit goes to private sector (v~10% in China)


29/48

Public space is a problem

We have

Dynamic democracy with

honest elections Free, lively media and press

But we also have

Poor governance!


30/48

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

Delhis water

Land titles

Etc


31/48

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


32/48

The economygrows at nightwhen thegovernment isasleep


33/48


34/48

Key reforms

Opened economy to trade and investment

Dismantled controls

Lowered tariffs

Dropped tax rates

Broke public sector monopolies


35/48

Understanding Indias 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


36/48

By 2010 India will have worlds largest

number ofEnglish 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


37/48

Understanding Indias economic success

Mental revolution among the young

I want to be Bilgay

Rajus secret of success

Banianisation of society

180 TV channels; 65 news channels

The rise ofHinglish


38/48

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


39/48

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 Chinas


40/48

Per capita income

2,1003,050

5,800

16,800

37,000On a ppp basis

2000 2005 2020 2040 2066

0

10

20

30

40

($000)


41/48

Convergence in the 21st century

Why convergence is intuitive?

Convergence didnt 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


42/48

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-


43/48

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?


44/48

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


45/48

Caste system

Origin of Indias caste system

Classical four castes vs 3000 jatis

Hostage to competitive politics

Source of competitive advantage

Affirmative action


46/48

Role ofReligion

Indias pluralism, diversityand 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


47/48

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


48/48

The Wise Elephant

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