Razeen Sally

Razeen Sally

European Centre for International Political Economy (ECIPE)

London School of Economics (LSE)

GLOBALISATION AND INDIA SHINING

India at 60

• From Gandhian mysticism, economic isolation and social backwardness to globalisation and India Shining


a) Snapshot

-- Macroeconomic conditions

-- Trade and foreign investment (FDI)

-- Financial markets

-- Domestic business climate

-- Politics and the state

-- Comparisons with China


b) Prospects-- Politics, economic policy, the business climate

-- Comparisons with China

c) Focus-- States and cities

-- Higher education


• History (1947-91)

-- From Fabian socialism to Soviet-style central planning and the ‘license raj’

-- Foreign policy: nationalism, non-alignment and the Soviet Union as First Friend

-- The economy: a ‘Hindu equilibrium’


• Market reforms, 1991-

-- Half measures in the 1980s

-- The 1991 crisis and ‘big-bang’ reforms (1991-93)

-- Gradual, stop-go reforms (1993 to present)

-- The state of play

Figure 1: Aggregate GDP

GDP in current USD India and China (1960-2005)

0

500

1000

1500

2000

2500

1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004

Billio

ns

GD

P in

cu

rren

t U

SD

China India

Source: World Bank, World Development Indicators (WDI)

Figure 2: Per-capita GDP


GDP per capita PPP India and China (1975-2005)

0

1000

2000

3000

4000

5000

6000

7000

8000

1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005

GD

P p

er c

apit

a P

PP

(cu

rren

t in

t. $

)

India China

Figure 3: Poverty as % of Population

Source: India 1950-1978 World Bank Poverty in India Dataset Poverty and Human Resources Division Policy, Research Department, The World Bank, Berk Özler, Gaurav Datt, Martin Ravallion. January 1996 (http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/0,,contentMDK:20699301~pagePK:64214825~piPK:64214943~theSitePK:469382,00.html); India and China 1981-2004 Chan and Ravillion "How have the world's poorest fared since the early 1980s?" The World Bank Research Observer, vol. 19, no. 2 (Fall 2004)

Poverty (US$ a day) % of pop. India and China (1950-2004)

0

10

20

30

40

50

60

70

1952 1958 1964 1970 1978 1984 1990 1996 2002

Po

vert

y (

US

$ a

day)

% o

f p

op

ula

tio

n

India China

Figure 4: Inequality India (GINI)Gini Index for India at National Level (1951-1991)

25262728293031323334353637383940

Aug51-Nov51

May53-Sep53

May55-Nov55

Mar57-Aug57

Jul59-Jun60

Feb63-Jan64

Jul66-Jun67

Jul69-Jun70

Oct73-Jun74

Jul86-Jun87

Jul89-Jun90

Jan92-Dec92

Gin

i In

dex

In

dia

Source: Ozler, Berk, Gaurav Datt and Martin Ravallion. 1996. "A Database on Poverty and Growth in India," mimeo, Policy Research Department, World Bank.

Figure 5: Savings/ GDPSavings / GDP India and China (1990-2005)

0

10

20

30

40

50

60

1990 1992 1994 1996 1998 2000 2002 2004

Gro

ss D

om

esti

c S

avin

gs/

GD

P

China India


Figure 6: Investment / GDP Gross Capital Formation / GDP India and China (1990-2005)

0

5

10

15

20

25

30

35

40

45

50

1990 1992 1994 1996 1998 2000 2002 2004

Gro

ss C

apit

al F

orm

atio

n (

% o

f G

DP

)

China IndiaSource: World Bank, World Development Indicators (WDI)

Figure 7: Foreign Exchange ReservesForeign Exchange Reserves India and China (1990-2005)

0

100

200

300

400

500

600

700

800

900

1990 1992 1994 1996 1998 2000 2002 2004

Bill

ion

s

Fo

reig

n E

xch

ang

e R

eser

ves

US

D

China India

Source: IMF International Financial Statistics (IFS)

Figure 8 (i): Share Agriculture in GDPShare of Agriculture in GDP India and China (1990-2005)

0

5

10

15

20

25

30

35

1990 1992 1994 1996 1998 2000 2002 2004

Ag

ricu

ltu

re v

alu

e ad

ded

(%

of

GD

P)

China India


Figure 8 (ii): Share of Manufacturing in GDP

Share of Manufacturing in GDP India and China (1990-2005)

0

5

10

15

20

25

30

35

40

1990 1992 1994 1996 1998 2000 2002 2004

Man

ufa

ctu

rin

g v

alu

e ad

ded

(%

of

GD

P)

China India


Figure 8 (iii): Share of Services in GDPShare of Services in GDP India and China (1990-2005)

0

10

20

30

40

50

60

1990 1992 1994 1996 1998 2000 2002 2004

Ser

vice

s va

lue

add

ed (

% o

f G

DP

)

China India


Figure 9: Total Trade (Goods & Services)Total Trade India and China (1980-2006)

0

200

400

600

800

1000

1200

1400

1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003

Bill

ion

s

Years

To

tal T

rad

e (M

erch

and

ise

and

Ser

vice

)

India Total Trade China Total Trade

Source: WTO, International Trade Statistics

Figure 10: Trade/ GDP


Trade as % of GDP (India and China) 1980-2005

0

10

20

30

40

50

60

70

80

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

Tra

de/

GD

P

China India

Figure 11: Current Account BalanceCurrent Account Balance cur't USD India and China (1995-2005)

-20

0

20

40

60

80

100

120

140

160

180

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Bill

ion

s

BO

P C

urr

ent

US

D

China India


Figure 12: Current Account Balance (% of GDP)

Current Account Balance % of GDP India and China (1995-2005)

-3

-2

-1

0

1

2

3

4

5

6

7

8

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Cu

rren

t A

cco

un

t B

alan

ce %

of

GD

P

China India


Pie 1 (i): Share of Global Trade (Goods)

Indian Share and Rank of Global Merchandise Trade (2005)

Rest of the World 37%

India16th1%

Korea7th3%

Hong-Kong6th4%

EU1st18%

US2nd17%

China3rd9%

Japan4th7%

Canada5th4%


Pie 1 (ii): Share of Global Trade (Service)Indian Share and Rank of Global Services Trade (2005)

Rest of the World36%

Korea7th3%

India6th3%

Canada5th3%

China4th4%

Japan3rd7%

US2nd18%

EU1st26%


Figure 13: Exports of Goods and ServiceManufacturing and Services Exports India (1995-2006)

0

10

20

30

40

50

60

70

80

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Bill

ion

s

Val

ue

US

D o

f E

xpo

rts

(Man

ufa

ctu

rin

g a

nd

Ser

vice

s)

Manufacturing exports Services exports


Figure 14: Growth in IT Services/ GDPTelecommunications Revenue in % of GDP India (1990-2005)

0

0.5

1

1.5

2

2.5

1990 1992 1994 1996 1998 2000 2002 2004

Tel

eco

mm

un

icat

ion

s re

ven

ue

(% G

DP

)


Figure 15: Inward FDI Flows

Inward FDI Flows India and China (1980-2005)

0

10000

20000

30000

40000

50000

60000

70000

80000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

Inw

ard

FD

I Flo

ws

(mln

US

D)

Inward FDI Flows India Inward FDI Flows China

Source: UNCTAD, FDI Key Data

Pie 2: Share of Global Inward FDI Stock

Indian share of Global Inward FDI Stock (2005)

Hong Kong5%

Japan1%

China3%

US16%

EU45%

India0.45%

Rest of the World30%


Figure 16: Outward FDI FlowsOutward FDI Flows India (2000-2005)

0

500

1000

1500

2000

2500

2000 2001 2002 2003 2004 2005

Ou

twar

d F

DI F

low

s m

ln U

SD

Outward FDI Flows India


Figure 17: Stock Market CapitalisationStock Market Capitalisation India and China (1990-2005)

0

500

1000

1500

2000

2500

3000

1990 1992 1994 1996 1998 2000 2002 2004

Mar

ket

Cap

of

liste

d c

om

pan

ies

(bill

ion

cu

rren

t U

SD

)

China India


Figure 18: Inward Portfolio Capital FlowInward Portfolio Capital Flow India and China (1990-2005)

-5

0

5

10

15

20

25

1990 1992 1994 1996 1998 2000 2002 2004

Bill

ion

s

Po

rto

folio

inve

stm

ent,

eq

uit

y (D

RS

, cu

rren

t U

SD

)

China India



• Reform results

-- Massive changes: opening to the world, transformed business landscape, IT powerhouse, emerging world-class firms

-- But lopsided growth: benefits urban middle classes but not the vast majority of the poor – unlike China


• Reform gaps

-- Unreformed agriculture

-- Lack of labour-intensive manufacturing and throttled labour markets

-- Overregulated, underperforming services sectors

-- Remaining trade and FDI barriers

-- Remaining capital controls

-- The unreformed Indian state

Table 1: Ease of Doing BusinessTable 1: World ranking in ease of doing business 2006*

Country/ Economy

Ease of Doing Busine

ss

Starting a

Business

Dealing with

Licenses

Employing

Workers

Registering

Property

Getting

Credit

Protecting

Investors

Paying

Taxes

Trading Across Borders

Enforcing Contracts

Closing a Business

Singapore 1 11 8 3 12 7 2 8 4 23 2

Hong Kong 5 5 64 16 60 2 3 5 1 10 14

Japan 11 18 2 36 39 13 12 98 19 5 1

Thailand 18 28 3 46 18 33 33 57 103 44 38

Korea 23 116 28 110 67 21 60 48 28 17 11

Malaysia 25 71 137 38 66 3 4 49 46 81 51

Taiwan 47 94 148 154 24 48 60 78 42 62 4

Pakistan 74 54 89 126 68 65 19 140 98 163 46

Bangladesh 88 68 67 75 167 48 15 72 134 174 93

Sri Lanka 89 44 71 98 125 101 60 157 99 90 59

China 93 128 153 78 21 101 83 168 38 63 75

Vietnam 104 97 25 104 34 83 170 120 75 94 116

Philippines 126 108 113 118 98 101 151 106 63 59 147

India 134 88 155 112 110 65 33 158 139 173 133

Indonesia 135 161 131 140 120 83 60 133 60 145 136

*The numbers correspond to each country’s aggregate ranking on the ease of doing business and on each of the ten topics that comprise the overall ranking.

Source: The World Bank Doing Business Database

Table 2: Trading Across the BorderIndicators for Trading Across Borders (2006)*

Country/ Economy

Ease of Trading Across Borders (World

Rankings)

Documents for export (number)

Time for export (days)

Cost to export (US$ per

container)

Documents for import (number)

Time for import (days)

Cost to import (US$ per

container)

Hong Kong 1 2 5 425 2 5 425

Singapore 4 5 6 382 6 3 333

Japan 19 5 11 789 7 11 847

Korea 28 5 12 780 8 12 1.04

China 38 6 18 335 12 22 375

Taiwan 42 8 14 747 8 14 747

Malaysia 46 6 20 481 12 22 428

Indonesia 60 7 25 546 10 30 675

Philippines 63 6 18 1.336 7 20 1.336

Vietnam 75 6 35 701 9 36 887

Pakistan 98 8 24 996 12 19 1.005

Sri Lanka 99 8 25 797 13 27 789

Thailand 103 9 24 848 12 22 1.042

Bangladesh 134 7 35 902 16 57 1.287

India 139 10 27 864 15 41 1.244


Table 3: Governance Indicators

Percentile world rank of governance indictors for Asian countries 2005*

Voice and Accountability

Political Stability/ No Violence

GovernmentEffectiveness

RegulatoryQuality

Rule ofLaw

Control ofCorruption

Singapore 38.2 84.0 99.5 99.5 95.7 99.0

Hong Kong 52.2 89.6 92.8 100.0 91.3 92.1

Japan 74.9 80.2 84.7 85.6 89.4 85.2

Malaysia 34.3 62.3 80.4 66.8 66.2 64.5

Taiwan 69.1 64.2 83.7 79.7 78.7 70.9

Korea 68.1 60.8 78.9 71.8 72.5 69

India 55.6 22.2 51.7 41.1 56 46.8

Thailand 49.3 29.2 66 63.9 56.5 51.2

China 6.3 75.9 52.2 44.6 40.6 30.5

Vietnam 7.7 59 45 25.7 42 26.6

Indonesia 40.6 9 37.3 36.6 20.3 21.2

Sri Lanka 39.6 10.8 40.7 50 54.1 47.3

Philippines 47.8 17.5 55.5 52 38.6 37.4

Bangladesh 31.4 6.6 21.1 14.9 19.8 7.9

Pakistan 12.6 5.7 34 27.7 24.2 15.8



• Politics

-- The most difficult country to govern: vast, hugely diverse, split so many different ways

-- Messy democratic politics: multi-party coalitions at the centre; kaleidoscope of musical-chair politics in the states

-- But advantages (compared with China): unity and stability; checks and balances; British-endowed liberal institutions; the English language; political and civic freedoms


• Focus (1)

-- The states in a federal system-- Growth engines in the south and west (with outliers)-- Policy reforms and business transformation: e.g. Tamil

Nadu, Karnataka, Andhra Pradesh, Maharashtra, Gujarat, Punjab, Haryana

-- Key sectors, NRIs and FDI-- Transformation of India: a bottom-up, not a top-down

story


• Focus (2)

-- India’s expanding demand for higher (and lower) education: insufficient, low-quality supply; foreign investment prospects; reform hurdles


• Prospects

-- The big picture: the new Asian Drama

-- Asia’s transformation of the world economy: much more competition; gains for the West and the Rest; but more difficult adaptation required; wider inequalities; the middle-class squeeze; the middle-income trap

-- Role of India in the new Asian Drama

Figure 19: Share of Global GDP (i)Asia: Share of global GDP

0

10

20

30

40

50

60

70

80

90

1820 1870 1913 1950 1973 1998 2001 2030

Year

Perc

en

t

Asia Rest of the world

Source: Agnus Maddison

Figure 19: Share of Global GDP (ii)

Japan, China, India: Share of global GDP

0

5

10

15

20

25

30

35

1820 1870 1913 1950 1973 1998 2001 2030

Year

Per

cen

t

Japan China India Other Asia

Source: Agnus Maddison


• Prospects (cont.)

-- Lou Dobbs is wrong: stupid economics; bad business logic; noxious politics

-- Lessons for policy: contain protectionism; constructive economic engagement; strategic foreign-policy partnership

Razeen Sally

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