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INDIA’S FUTURE INDIA’S FUTURE Or prosperity will spread in India but happiness will not, until we fix governance by Gurcharan Das Gurcharan Das November 12, 2009 WIPRO Marbella
INDIA’S FUTUREINDIA’S FUTUREOr prosperity will spread in India p p y p
but happiness will not, until we fix governance
byGurcharan DasGurcharan Das
November 12, 2009WIPROMarbella
h fWhere are we coming from?
Where are we today?
Where are we going in the
future?
E th h th ld hEven though the world hasjust discovered it, the India
growth story is not newIt h b i f 25It has been going on for 25 years
What is the India story?What is the India story?
28 years of high growth
Average annual GDP growth
10
(%)
6.08.9
6
8
10
1.0
3.5
2
4
6
0
2
1900-1950 1950-1980 1980-2002 2002-20071900-1950 1950-1980 1980-2002 2002-2007
Population growth is slowing
2.2 2.12.5
(%)
1 0
2.11.8
1.51.5
2.0
1.0
0.5
1.0
0
0.5
1901-1950 1951-1980 1981-1990 1991-2000 2001-2010
Sources: 1900-1990: Angus Maddison (1995), Monitoring the World Economy, 1990-2000:Census of India (2001)
Literacy is rising
80100
(%)
5265
80
60
80
1720
40
0
20
1950 1990 2000 2010 (proj)
Source: Census of India (2001)
When middle class is 50% then the politics will also change
8%22% 32%
400
(m)
368300
400
220
100
200
650
100
1980 2000 2010
Source: The Consuming Class, National Council of Applied Economic Research, 2002
1980 2000 2010
Poverty is declining
1% of the people have 50
(%)
46p p
been crossing poverty line each year for 25
years30
40
26
16
years
Equals ~ 200m20
30
16
0
10
1980 2000 20101980 2000 2010
Per capita income gains
US$ ppp
1 178
1980
1,178
20053,051
Source: World Bank
India is now the 4th largest economy
It will overtake Japan b t 2012 d 2014between 2012 and 2014
to become the 3rd largest
The India model is uniqueThe India model is unique
Drivers of growth
India East and S.E. Asia ■ Domestic ■ Exports
Drivers of growth
India East and S.E. Asia ■ Domestic
■ Services
■ Exports
■ Manufacturing
Drivers of growth
India East and S.E. Asia ■ Domestic
■ Services
■ Exports
■ Manufacturing
■ Consumption ■ Investment
Drivers of growth
India East and S.E. Asia ■ Domestic
■ Services
■ Exports
■ Manufacturing
■ Consumption
■ High tech, capital
■ Investment
■ Low tech, labour g pintensive industry intensive industry
Implications of India model
‘Domestically led’ means:■ Insulation from global downturns
■ Less volatility
■ We will come out of the global crisis
faster
Implication of India model
‘Services led’ raises f t bl tiuncomfortable questions:
■ Have we skipped the industrial revolution?revolution?
■ How do we take people from farms to cities?cities?
■ Will SEZ’s be our tipping point?
Implication of India model – Consumption led
People Friendly:Consumption as % of GDP
People Friendly, Less inequality: Gini Index
59%33%
42% 64%41%
59%
U.S.China
B il
India
58%
42% 64%
EuropeChinaIndia
45% Brazil%
Will India become the next big consuming economy after the U.S.?
Reasons for success
India’s success is market ledIndia s success is market-led whereas China’s is state induced
The entrepreneur is at thecentre of the Indian model
Rise of globally competitive Indian companies
India has a vibrant private space
■ 100 Indian Companies have market cap of US$ 1bn
India has a vibrant private space
■ 100 Indian Companies have market cap of US$ 1bn
■ 1,000 Indian Companies have received foreign institutional investment
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 F t 500 i h R&D b i I di■ 125 Fortune 500 companies have R&D bases in India
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 F t 500 i h R&D b i I di■ 125 Fortune 500 companies have R&D bases in India
■ 390 Fortune 500 companies have outsourced software development to Indiadevelopment to India
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 F t 500 i h R&D b i I di■ 125 Fortune 500 companies have R&D bases in India
■ 390 Fortune 500 companies have outsourced software development to Indiadevelopment to India
■ 2% bad loans in Indian banks (v~20% in China)
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 F t 500 i h R&D b i I di■ 125 Fortune 500 companies have R&D bases in India
■ 390 Fortune 500 companies have outsourced software development to Indiadevelopment to India
■ 2% bad loans in Indian banks (v~20% in China)
■ 80% credit goes to private sector (v~10% in China)■ 80% credit goes to private sector (v~10% in China)
Public space is a problem
We have■ Dynamic democracy with
honest elections
■ Free, lively media and press
But we also havePoor governance!
Governance Failures
Not the minister caught with a bribe1 out of 4 school teachers absent in government schools2 out of 5 doctors absent in primary health2 out of 5 doctors absent in primary healthcentersDelhi’s waterLand titles Etc
Ironically, we used to have world class institutions from 1950-1980, but our problem was growth.N h th b t i tit ti f iliNow we have growth, but our institutions are failing
■ Bureaucracy
■ Judiciary y
■ Police
The economy grows at night when thewhen the government is asleepasleep
Key reforms
■ Opened economy to trade and investment
■ Dismantled controls
■ Lowered tariffs
■ Dropped tax rates
■ Broke public sector monopolies
Understanding India’s economic successg
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 lawUnappreciated fact rule of law
“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
Understanding India’s economic success
■ Mental revolution among the young
■ ‘I want to be Bilgay’
■ Raju’s secret of success
■ Banianisation of society
■ 180 TV channels; 65 news channels
■ The rise of Hinglish
Where are we today?
Growth fell to 6.7% in 08-09; 7% in 09-10P i h b l th i ChiPain has been less than in ChinaCompetitive companies have recovered faster. Risk of protectionism has recededRisk of protectionism has recededRecovery has been ahead of the world
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 China’s
Per capita income
37,000On a ppp basis
40($000)
30
16,80020
2,100 3,0505,800
0
10
2000 2005 2020 2040 20660
Convergence in the 21st century
■ Why convergence is intuitive?
■ Convergence didn’t happen in the 20th century because the world was closed
R t i t ld f lit i t 1750■ Returning to a world of equality prior to 1750
■ When China and India accounted for 45% of world GDP
India will gradually turn middle-class
West of theKanpur-
Chennai line
East of theKanpur-
Chennai line
50% 50%Chennai line Chennai line
Kanpur-
22%
32%
8%
Chennai
1980 2000 2010 2020 2040
What could stop the show?
- InfrastructureImproving via public private parterships- Improving via public-private parterships
- Fiscal Deficit - Governance
None of these stopped the show in the past 25 years
- Nuclear War?
Education System
Is reasonably good for the top 20%
But it is abysmal for the rest1 i 4 t h i b t i t■ 1 in 4 teachers is absent in government primary schools
■ Hence, 54% of children in urban India are in■ Hence, 54% of children in urban India are in
private schools
Solution: Education VouchersSolution: Education Vouchers
Caste system
■ Origin of India’s caste system
■ Classical four castes vs 3000 jatis
■ Hostage to competitive politics
■ Source of competitive advantage
■ Affirmative action
Role of Religion
India’s pluralism, diversity and tolerance
Hinduismand tolerance ■ Spiritual entrepreneurialism: Gurus
■ No hierarchy: Every Brahmin thinks he is the Pope
2% 1%
Every Brahmin thinks he is the Pope
■ 300 million gods: Lack of theological narcissism
12%
■ Nasadiya Temper85%
Hindu Muslim Sikh Christian
Elephant and not Tiger
■ India got democracy before capitalism and this has made all the differenceall the difference
■ It is slower than China but its path is surer
% f■ 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
The Wise Elephant
