globalization & liberalization in india - gordon...
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Globalization & Liberalization in India: Achievements, Failures and
the Road Ahead September 21st 2010
Partha S Ghosh
Boston International &
Massachusetts Office of International Trade & Investment Copyright © 2010 Partha S Ghosh
Copyright © 2010 Partha S Ghosh Boston International 2
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
GD
P in
$U
S B
illio
ns
The World in 2050
Source: Goldman Sachs
Beyond the Hype?
Copyright © 2010 Partha S Ghosh Boston International 3
1. Putting India’s Socio-Economy Journey in perspective?
2. Addressing the Fundamentals: Several Crucial Challenges?
3. Call for a New Paradigm: India as an incubator not extender of 20th century models
Three key points
Copyright © 2010 Partha S Ghosh Boston International 4
1. Putting India’s Socio-Economy Journey in perspective?
2. Addressing the Fundamentals: Several Crucial Challenges?
3. Call for a New Paradigm: India as an incubator not extender of 20th century models
Three key points
Copyright © 2010 Partha S Ghosh Boston International 5
Independence of India 2010
Socio-economic experiments
1. Stabilized Democracy, secular system 2. Realization of Self, General sense of Confidence 3. Strengthened Balance Sheet 4. Growing Global Stature 5. Modernizing Industry
Freedom of Self Expression
Since independence, 60 + years of Experimentation
Copyright © 2010 Partha S Ghosh Boston International 6
Electrified Villages in India (1947-2012)1
Boston Analytics Research 1. Ministry of Power (http://powermin.nic.in)
Year
No.
of V
illag
es
Close to 500,000 Villages has been electrified
Copyright © 2010 Partha S Ghosh Boston International 7
30 times
Per Capita Power Consumption in India (1950-2012)1
Boston Analytics Research 1. Ministry of Power (http://powermin.nic.in)
Year
Per
cap
ita c
onsu
mpt
ion
of E
lect
ricity
(K
Wh
/ yea
r) Thirty Times increase in per capita power consumption
Copyright © 2010 Partha S Ghosh Boston International 8
Emerging Multinationals from India (not comprehensive) :
1. Bharat Forge
2. Bajaj
3. Infosys
4. Sulzon
5. Tata Motors
6. Tata Steel
7. TCS
8. WIPRO
9. Several Bio & Pharma Firms
Emerging Global Presence
Multinationals with major R & D Centers in India (not
comprehensive) :
1. CISCO
2. GE
3. GM
4. Intel
5. IBM
6. Levers
7. Microsoft
8. Pfizer
9. Siemens
Copyright © 2010 Partha S Ghosh Boston International 9
GDP / Capita (US$)
Ene
rgy
Con
sum
ptio
n (‘0
00 K
WH
r / C
apita
)
Energy Consumption per Capita vs. GDP per Capita (2004)1
Boston Analytics Research 1. Energy Information Administration - EIA (http://www.eia.doe.gov/)
Ukraine
Russia
US
Kazakhstan Czech Republic
Malaysia
Turkey Brazil
Romania Thailand
China Egypt Philippines Indonesia
India
Italy
France Germany
UK
Japan
Canada
80% of Global Population
India is still at a very early stage of Economic development
Copyright © 2010 Partha S Ghosh Boston International 10
Widening Gap?
“End of life” high cost Applications
Current Obstacles of Typical Socio-economic Pyramid
Single most significant
Challenge of the 21st Century
While gap between the top and base of the Pyramid is widening
Inertia of past consumption
habits
Copyright © 2010 Partha S Ghosh Boston International 11
11
Centrally Controlled
Struggle between two Fundamental Philosophies
Economic Philosophy
State is the Driver
Planning to allocate
resources
Market is the driver
Best govt. is the least government
Free Market Where is the Power?
Copyright © 2010 Partha S Ghosh Boston International 12
12
Centrally Controlled
Struggle between two Fundamental Philosophies
Economic Philosophy
State is the Driver
Planning to allocate
resources
Market is the driver
Best govt. is the least government
Free Market Where is the Power?
1950s 60s ~ 70s
Copyright © 2010 Partha S Ghosh Boston International 13
13
Centrally Controlled
Two Fundamental Philosophies
Economic Philosophy
State is the Driver
Planning to allocate
resources
Market is the driver
Best govt. is the least government
Free Market Where is the Power?
1950s 60s ~ 70s
mid 80s
Copyright © 2010 Partha S Ghosh Boston International 14
14
Centrally Controlled
Two Fundamental Philosophies
Economic Philosophy
State is the Driver
Planning to allocate
resources
Market is the driver
Best govt. is the least government
Free Market Where is the Power?
1950s 60s ~ 70s
mid 80s
90s ~ 2000s
Copyright © 2010 Partha S Ghosh Boston International 15
Degree of Openness
Low
M
ediu
m
H
igh
Libe
raliz
atio
n
Globalization
Low Medium High
“Globalized Free market
Closed & Controlled
India’s Globalization & Liberalization moves Partha S Ghosh & Associates Model
15�
Degree of market Orientation
1950s
60s ~ 70s
mid 80s
90s ~ 2000s
Copyright © 2010 Partha S Ghosh Boston International 16
1. Putting India’s Socio-Economy Journey in perspective?
2. Addressing the Fundamentals: Several Crucial Challenges?
3. Call for a New Paradigm: India as an incubator not extender of 20th century models
Three key points
Copyright © 2010 Partha S Ghosh Boston International 17
• Income is 5 times higher in richest states than in the poorest states
• 40% of villages lack access to roads • 400 M rural dwellers have no
electricity
Source: World Bank
Challenge 1: Economic Disparity
Copyright © 2010 Partha S Ghosh Boston International 18
Net Trade Balance of India (1980-2006)(1)
Trad
e B
alan
ce ($
B)
Boston Analytics Research 1. Statistics Database, World Trade Organization.
-50.9
-8.9
-22.0
-7.3 -3.8 -12.7
-5.8
Challenge 2: Continuing Negative Trade Balance
Copyright © 2010 Partha S Ghosh Boston International 19
Percentage Trade Balance/GDP vs. Net Energy Balance of Selected Countries (2003)1,2,3
Boston Analytics Research 1. International Energy Agency (http://www.iea.org) 2. International trade statistics, 2004, world trade organization 3. Energy Information Administration (http://www.eia.doe.gov)
Net Export of Energy (US$ B)
Net Import of Energy (US$ B)
% Deficit/GDP % Surplus/GDP
India Italy
Japan
Germany
Indonesia
Saudi Arabia
Nigeria Malaysia
Algeria Venezuela Canada
Brazil China
Korea France
- 200 US
Red Zone
Challenge 3: India is most vulnerable to the Uncertain Geo Political Energy Dynamics
Copyright © 2010 Partha S Ghosh Boston International 20
Electricity Consumption of India (2004)1
Boston Analytics Research 1. Energy Information Administration - EIA (http://www.eia.doe.gov/)
632
Challenge 4: At 20% of UK’s per capita use India will need as much new capacity as its installed base?
Copyright © 2010 Partha S Ghosh Boston International 21
Inevitable and acceptable loss
Total Power Available
Unutilized Capacity
Total Available Capacity
Power theft Poor infrastructure maintenance
Total Power Available if
working at 80% efficiency
4,972 MW 3,108 MW
15,538 MW
50,963 MW
99,442 MW 48,479 MW less capacity addition required
Savings of Rs
2,424 B
124,302 MW 49,721 MW
Utilization of Power in India in MW (2006)1
Boston Analytics Research 1. “Power”, Motilal Oswal, 2005 2. “6 police stations to track power theft in Maharashtra”, (http://www.thehindubusinessline.com) 3. “A State of concern”, (http://www.thehindubusinessline.com)
Challenge 5: Efficiency of existing Infrastructure - India can save almost $50 B
Copyright © 2010 Partha S Ghosh Boston International 22
Japan
US
UK
Canada
Germany France
Italy
Mexico
Malaysia
Brazil
China
India Indonesia
Pakistan
Nigeria
Bangladesh
Population Density v/s Primary Crop Yield per Ha (2003)1,2
Population Density in Persons/ sq. km of Land Area
Prim
ary
Cro
p Yi
eld
(100
0 M
t/Ha)
Boston Analytics Research 1. Food and Agriculture Organization of the United Nations (http://www.fao.org/) 2. CIA World Factbook, 2003
Unhealthy Equation: High population density but low productivity of land
3 Times
Challenge 6: Land is dear but productivity (yield/ Ha) still remains low, in recent years declining
Copyright © 2010 Partha S Ghosh Boston International 23
Per
cent
age
of L
abor
For
ce in
A
gric
ultu
re
GDP* per Capita ($)
Japan US UK
Canada Germany France
Italy
Mexico Malaysia
Brazil South Africa
China India
Indonesia
Pakistan
Nigeria
Bangladesh
Boston Analytics Research 1. Energy Information Administration (http://www.eia.doe.gov) 2. Food and Agriculture Organization of the United Nations (http://www.fao.org/) 3. “World Bank list of economies, April 2006”, World Bank (http://www.worldbank.org)
Percentage of Labor Force in Agriculture Across Various Countries v/s GDP per Capita (2003)1,2,3
Note : * Real GDP with base year 2000
India cannot afford low productivity in the Agro sector
Seventy Percent of India has to improve its productivity
Copyright © 2010 Partha S Ghosh Boston International 24
Cum
ulat
ive
Tota
l For
eign
Inve
stm
ent
(199
6–20
06) (
$ B
)
Boston Analytics Research 1. Reserve Bank of India. 2. People’s Bank of China. 3. Statistical Database, Shanghai Stock Exchange.
Total Foreign Investment ($ B)
$ 597 B $ 597 B
$ 96 B
$ 96 B
% o
f FD
I and
FII
in C
umul
ativ
e To
tal
Fore
ign
Inve
stm
ent (
1996
–200
6)
% of FDI and Portfolio Investment (PI) in TFI ($ B)
100% =
Challenge 7: Investments from overseas is relatively more Speculative
Copyright © 2010 Partha S Ghosh Boston International 25
Boston Analytics Research
India
Challenge 8: India ranks poorly along all of the essential vectors that drive HDI
Copyright © 2010 Partha S Ghosh Boston International 26
Brazil
China
Scenario in Brazil, China and India
Boston Analytics Research
Copyright © 2010 Partha S Ghosh Boston International 27
Demographics: Labor Force – 467 Million 9.35% of Population - Age 20-24 8.52% of Population - Age 25-29 370 Million – Under Age 15 (2010)
Unemployment: High
Labor Participation Rate: 2007 – 58.6% Decreasing 0.12% per year
Education: Literacy Rate – 60% Secondary Enroll. – 54.6% (107th) Tertiary Enroll. – 11.8% (100th)
India will have large population of young workers.
Challenge 9: Employment creation
Copyright © 2010 Partha S Ghosh Boston International 28
1. Energy Information Administration - EIA (http://www.eia.doe.gov/) 2. UN Nations Population Division (http://www.un.org/english/) 3. World trade Organization (http://stat.wto.org/)
India’s trade deficit per capita has to be corrected
Trade Balance per Capita (US$/Capita)
Aver
age
Gro
wth
(C
AG
R%
: 199
8-20
08)
Japan US
Germany Italy
UK Canada Australia
France
Greece Czech Bangladesh
Egypt
South Africa
India
Malaysia
Turkey
Brazil
Portugal
Ukraine Romania
Russia
China
Indonesia Nigeria
Korea
Switzerland
Spain
Average Growth Rate (1998-2008) vs. Trade Balance($) per Capita (2008)1,2,3
Copyright © 2010 Partha S Ghosh Boston International 29
1. Putting India’s Socio-Economy Journey in perspective?
2. Addressing the Fundamentals: Several Crucial Challenges?
3. Call for a New Paradigm: India as an incubator not extender of 20th century models
Three key points
Copyright © 2010 Partha S Ghosh Boston International 30
First 25 Years of Economic Take
30�
Japan 1960-1984
Brazil 1980-2004 China 1984-2008
India 1984-2008
Korea 1966-1990
Singapore 1966-1990
Malaysia 1984-2008 Thailand 1984-2008
0
2000
4000
6000
8000
10000
12000
14000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Japan 1960-1984 Brazil 1980-2004
China 1984-2008
India 1984-2008
korea 1966-1990
Singapore 1966-1990 Malaysia 1984-2008 Thailand 1984-2008
Upper Bunch
Annual G
DP per capita
Strategically Guided
Lower Bunch
Time Line
Copyright © 2010 Partha S Ghosh Boston International 31
Stage 4: “Integration”
A B One Economy
Development of Country B Relative to Country A
Stage 3: Globalization
Stage 2: Industrialization
Stage 1: Infrastructure Development
A
B Capital Goods
Balance –
Balance –
A
B $
Products and Services
+
Balance ?
A
B
Balance of Trust
31�
Copyright © 2010 Partha S Ghosh Boston International 32
32
Centrally Controlled
Beyond the Two Fundamental Philosophies
Economic Philosophy
State is the Driver
Market is the driver
Strategically
Guided
Free Market Where is the Power?
Copyright © 2010 Partha S Ghosh Boston International 33
33
Centrally Controlled
India has to make a strategic shift
Economic Philosophy
State is the Driver
Market is the driver
Strategically
Guided
Free Market Where is the Power? Mixed Economy Socialism
Japan South Korea
ASEAN Economies
USSR EE
China
North Korea
USA UK
Western Europe India
Copyright © 2010 Partha S Ghosh Boston International 34
Socio Economic Experiments
Democracy, Secularism Sense of Confidence Strengthened “balance sheet” ? Self realization?/Confidence Modernizing Industry
1947 2050 2007
1. Global Credibility 2. Cautious Optimism 3. Widened Gaps &
Enhanced Risks
Becoming Enterprising?
Improve social equity Strengthen “income statement” Nurture a sustainable economic
Model
Freedom from Old Constructs & Thinking Habits
The timing is right for a fresh look at developing an Enterprising India
Copyright © 2010 Partha S Ghosh Boston International 35
Socio-Economic Impact
Competitive Advantage
Low
M
ediu
m
H
igh
Opportunistic Employment & capital
generation ability
Impact on Social development
Impact on Industrial/ Eco Environment
Impact on the State’s Global Power
Competitiveness of input factors
Stage of development and uniqueness
Domestic Environment
Global Links
Low Medium High
Development Sector
Promotional Sector
Locomotive Sector
“Free market”
Sector
Build Competitiveness through special
incentives
Develop Aggressively through infra-structure
supports and policy incentives
Leave to Market Forces
Promote / Create Scale through
innovative marketing
A Strategic framework that group industries into different roles requiring different policy and infrastructure supports
Partha S Ghosh & Associates Model
35�
Copyright © 2010 Partha S Ghosh Boston International 36
Japan growth curve and position of other countries
Rui's Analysis� 36�
China
France Germany
India
Italy
Russia
UK US
Korea
Indonesia Malaysia
Singapore
Norway
Switzerland
Sweden
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
100000
1950 1960 1970 1980 1990 2000 2010 2020
Brazil
China
France
Germany
India
Italy
Russia
UK
US
Korea
Indonesia
Malaysia
Singapore
Norway
Switzerland
Sweden Brazil
Super Advanced Area
Advanced Area
Annual G
DP per capita
Copyright © 2010 Partha S Ghosh Boston International 37
Point Solution
Perspective? Holistic/Integrative
Solution
Conservation driven
Consumption driven
Positioning Science & Engineering with
a strategic perspective?
Balance? B
alan
ce o
f Eco
logy
Thesis of Economic Advance
The Two Strategic Vectors: Scope of the Future Industry?
Copyright © 2010 Partha S Ghosh Boston International 38
Income Curve Relative earning $/
capita/Year
* Relative to the lowest cost producer
2
Bottom of the base
Threshold zone Σ Population (billion)
$100,000
4 6.5 5
1. Cultural distance 2. Emotional distance
3. Income distance
$500
750 million with excess of $25k/
capita
1250 million with excess of $10k/capita
Mega differentials
Critical Challenge: Mega differentials > Down-scaling technologies
Copyright © 2010 Partha S Ghosh Boston International 39
Trickle down of Upgraded Solutions
Inertia of past consumption habits
Widening Gap?
“End of life” high cost Applications
Current Obstacles of Typical Socio-economic Pyramid
Experiments at the top of the Inverted Pyramid
Incubators & Innovation Labs at the bottom of the pyramid
Proven Applications to break old habits
Base of the Pyramid as platform of Incubator of new value propositions
Copyright © 2010 Partha S Ghosh Boston International 40
Top of the Base Unserved(s) X
Champion within the Local
Kanban/High Yield culture
Problem solving Process
Output Supporter(s) (as buyers)
Output
J-Soft Technologies
Create Surplus
An approach to Multinationals
Copyright © 2010 Partha S Ghosh Boston International 41
Domestic Demand 1990
Income Curve Relative earning $/capita/Year
2
Bottom of the base Natural Momentum
Option Surplus
Threshold zone
Σ Population (billion)
$100,000
4 6.5 5
1. Cultural distance 2. Emotional distance 3. Income distance
$500
Balancing application of “Option surplus” and direction of “Natural momentum”
* Relative to the lowest cost producer
Copyright © 2010 Partha S Ghosh Boston International 42
Point Solution
Industry’s Future (?): Two Strategic Vectors
Perspective?
Conservation
Consumption
The Future Engineer
Balance?
Today
Bal
ance
of E
colo
gy
Thesis of Economic Advance
Systems Approach to Energy & Transportation Management
New Chemistry for the Car
Full recovery of Waste
Agro based Chemical Industry
Carbon Free Energy System
Lighter Products
Process Intensification
Recycling
Improved functionalities
Energy Efficient consumption
Next generation Knowledge Intensive Solutions: “Small is beautiful”
Create New Game Energy/Materials
Holistic/Integrative Solution
Expanded Field = Multiple High Value Added Opportunities
Copyright © 2010 Partha S Ghosh Boston International 43
Incubation of 21st century economic & business
models
Application of ready made
solutions
Eco
nom
ic s
tatu
re
National Resources
The Road Ahead?