Post on 18-Jul-2015
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A Short Conducted Tour of One of the World’s Most Complex & Fastest Growing Economies.
Mohan Guruswamy
Meet India!
Modern India now has over 2000 ethnic groups. Modern Indian languages have evolved from all the world’s four language families. Indo-European, Dravidian, Austro-Asiatic and Tibeto-Burman. India has 1652 individual mother tongues. 30 languages are spoken by over a million each, and 122 by over 10,000 each.
India has almost 1.2 billion people, and the Union of India consists of 32 States and Union Territories. The biggest of these is Uttar Pradesh with a population of 199.6 million or 16.49% of India’s. It is as big as Brazil. The smallest political unit is Lakshadweep which has just 64,000 (0.01%)
In late 2012 India became the world’s third largest economy in PPP terms and has grown at an average rate of over 7.4% during 2004-14 and GDP from about $750 bn to $2 trl. Between 2008-11 it grew at more than 9%. In consonance with global trends India’s growth also has tapered off these past two years.
Clearly it’s a country of great heterogeneity, complexity and promise. Its diversity makes it unsuitable for any other form of government but a very raucous DEMOCRACY.
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Meet India!
Source: http://www2.goldmansachs.com/insight/research/reports/99.pdf 1/19/15Mohan Guruswamy 6
The stuff our dreams are made off?
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China A& India, Age & Population structure 2000-35China A& India, Age & Population structure 2000-35
The Age of the Middle Class.
On conservative growth forecasts, Asia is predicted to add 2.5 billion people to the world’s middle classes in the next 20 years. The middle class in both China and India is growing at an extraordinary rate.
China’s middle class could swell to fifty percent of its population in just 12 years.
India’s middle class could rise even more rapidly because Indian households benefit more from Indian growth than do Chinese households, given the prevailing distribution of income’.
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China’s aging problem. It will get old before it gets rich.
Life expectancy has more than doubled from 35 in 1949 to 75 today, a miraculous achievement. Meanwhile, the fertility rate has plummeted to 1.5 or lower, far below the 2.1 needed to keep a population stable.
Cai Fang, a demographer at the Chinese Academy of Social Sciences, says the country will have moved from labour surplus to labour shortage at the fastest pace in history.
In 2011, its workforce shrank for the first time, years before anyone had predicted.
Japan reached a similar turning point in about 1990. Ominously for China, that was just before its economy sank into two stagnant decades. By then, its living standards were already at nearly 90 per cent of US levels. In purchasing power parity terms, China’s per capita income is still below 20 per cent.
“There’s now no doubt,” says Professor Cai. “China will be old before it is rich.”
What are India’s grim realities?
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Reality 1. 62% of agricultural land is rainfed. 53% of the population is linked to agriculture for livelihood either as cultivators or as agricultural laborers.
Reality 2. In 2010 21.9% of Indians lived below the poverty line, defined as having monthly household expenditures of Rs. 816 in rural areas and Rs.1000 in urban areas.
Reality 3. 76% of all households below median per capita of Rs.74,920 per annum. Income inequality –Gini increasing.
What are India’s grim realities? - 2
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Reality 4. Regional imbalances growing.Reality 5. 24.6% illiterate.Reality 6. Employment in organized sector stagnating
at around 31 mn for past 5 years. Government employs 19.3 mn or 69%, while PSU’s & Pvt. Sector employs only 10.65 mn.
Reality 7. Government capital expenditure for development now down to less than 15% of annual budget.
The four critical areas to focus on are fiscal belt-tightening, improving the business climate, complementing anti-inflation efforts and sustaining the improvement in the current account deficit.
The deficit is forecast to come in at around 4.6% in the 2013-2014 financial year ended in March 2014, down from 4.9% in 2012-2013 and 5.8% in 2011-2012.
India recorded a Current Account Deficit of 1.70% of GDP in 2013. The CAD/GDP ratio in India averaged -1.45% from 1980 until 2013, reaching an all time high of 1.50% in 2003 and a record low of -4.70% in 2012. .
If the government chooses to expedite capital spending to orchestrate a cyclical turn in the investment cycle and boost long-term growth, the short-term casualty will be the Debt/GDP ratio, Rightly, improving the business climate is the anchor of the new government's agenda.
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The Immediate Economic Priorities.
Political Economy Constraints.
• The Modi government is driven by its economic and development agenda.
• India is straining to expand its domestic Savings/GDP ratio, which has been declining in the past few years.
• It has evolved into a high subsidy regime in the past decade and it will be difficult to roll back on this, given the nature of mandate of the Modi government. But it will have to bite the bullet now.
• It will seek closer relationships with countries it can realize capital inflows. Only two countries are capable of meeting India’s needs with capital and technology. Japan and China. But Japan is not entirely a free agent.
• India’s traditional strategic autonomy considerations will condition it not to get into any strategic relationships.
• While the USA is an important player in geo-strategic terms, it is not capable of the volumes of investment India needs. The USA is habituated to being intrusive.
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Cost of Big Ticket Expansion & Modernization Plans till 2024.
India’s largest city is Mumbai, with a population of 12.5 million, closely followed by Delhi, with a population of 11 million. Overall, there are more than 50 urban areas in India with a population of more than one million people. Transit, water and sanitation modernization. $250 billion.
New cities program. $300 billion The National perspective plan envisions about 150 million acre feet (MAF) of
water storage along with building inter-links. These storages and the interlinks will add nearly 170 million acre feet of water for beneficial uses in India, enabling irrigation over an additional area of 35 million hectares, generation of 40,000 MW capacity hydro power, flood control and other benefits. Cost $120 billion.
4000 kms of high speed railway network. $ 160 billion. Capital expenditure on Defence. $150 billion. Expansion and modernization of highway and road network. $120 billion. Additional 150,000 MW of power generation capacity. $800 billion. TOTAL: Over $1.9 trillion
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Political options available to the BJP.
• It is capable of hard decisions, both because of the temperament of Narendra Modi, and because it is a right of center and market friendly government.
• It will be driven by its economic and development priorities, and hence most unlikely to compromise for these goals.
• It can reset India-China relations.• It will reset India-Japan relations.• It has reset India-USA relations.