india : seizing the opportunities of the 21 st century by gurcharan das march 28, 2008 the india...
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India : Seizing the Opportunities of the
21st Centuryby
Gurcharan Das
March 28, 2008The India Club
Singapore
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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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Rising GDP 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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Middle class is exploding
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 (proj)
(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 (proj)
(%)
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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
Domestic led
■ Insulation from global downturns
■ Less volatility
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Implication of India model
Services led
■ Have we skipped the industrial revolution?
■ How do we take people from farms to cities?
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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
Less inequality: Gini Index
The world needs another big consuming economy after the U.S.
58%
42%64%
Europe
China
India
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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
■ 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
■ Poor governance
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Earlier we had world class institutions, but they are now failing
■ Bureaucracy
■ Judiciary
■ Police
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Economy grows at night when government is asleep
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What explains India’s economic success?
Even slow reforms add up
■ State getting out of the way
■ Every government has reformed since 1991
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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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What explains India’s economic success?
Even slow reforms add up
■ State getting out of the way
■ Young minds are liberated
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Mental revolution
■ ‘I want to be Bilgay’
■ Raju’s secret of success
■ Banianisation of society
■ 100 cable channels for $3
■ Hinglish
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What explains India’s economic success?
Even slow reforms add up
■ State getting out of the way
■ Young minds are liberated
■ India has found its competitive advantage in the knowledge economy
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Looking forward
■ 8% economic growth
■ Democracy will not permit more than 8% unless you have a Thatcher
■ 1.5% population growth
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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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Why will growth continue?
Demographic dividend
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India’s demographic advantage means that its high growth will
continue longer term whileChina will slow
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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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“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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What could stop the show?
Infrastructure
■ Public private partnerships
■ Bad governance
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Education System
Is reasonably good for the top 20%
■ Highly competitive business and engineering institutions
Is abysmal for the rest
■ 1 in 4 teachers is absent in government primary schools
■ 54% of children in urban India in private school
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Caste system
■ Origin of India’s caste system
■ Classical four castes
■ Today it is alive in the villages but dying in the cities
■ Source of competitive advantage
■ Affirmative action in public sector, but not in the private sector
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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
85%
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 will be slower than China but its path will be surer
■ Elephant at 8% is formidable
■ India more likely to preserve its way of life
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The Wise Elephant