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INDIA as a Superpower? 1. Indian Polity and Economy 2. Energy & Climate Change 3. Reforms Needed S L R AO AT U N I V E RS I T Y O F W I S CO N S I N, MADISON SEPTEMBER 2010 First Lecture Indian Polity and Economy Indian Polity: Features Democracy-15 Lok Sabha Elections since 1952; Electorate rose:670 mn in 2004;714 mn in 2009; using 1 mn electronic voting machines; Declared expenditure over $ 300 mn Many peaceful changes of governments at Centre and states Obedience to judiciary Military under civil authority Built on inherited British civil services Diversity-Multi ethnic/linguistic/cultural Vast variation in size of States Right to Information Vibrant free Media Indian Polity- Threats Neighbors-China (1 War+Live Disputed Border) Nuclear Pakistan as surrogate of China Afghanistan could give China a South Asian arc of influence Nepal, Sri Lanka, Burma, Bangladesh Significant Cross-border Terrorism Caste and Community disharmonies; pressure for affirmative action; also for women Demand for smaller states: 2001-U.P.166 mn; Goa >1 mn Tribals-8.2%=.84 mn; worst off economically; most resource rich lands; neglect and exploitation; violent “maoist” movement led by urban educated, controls “Red Corridor”-40% of land area, 92000 sq km, Militant trade unionism not a threat since 1980’s Overview-Economy Patchy growth till 1980’s, since then good, but setbacks every 3-4 years. Fundamentals-Inflation a frequent worry; More FII than FDI though FDI has picked up; volatile foreign funds High interest rates; Real’ economy growing slower than services; Poor infrastructure, Subsidies, Poor social security; Administrative incapability to spend efficiently on programmes, Red tape, High deficits Overview-Economy Resilient economy despite sanctions of 1990’s & global meltdown of 2008. because : Vast domestic market, Rising consumption gives buoyancy; Huge potential market of the Poor, Young and ambitious population, Technological and managerial capability Energy-Large part of population not served by commercial energy; Major fuel is and will be Coal; running short and needs for imports India’s exemplary energy efficiency and emissions record Economy: Features 1999 00 01 02 03 04 05 06 07 08 09 2010 GDP growth: 6.5 6.1, 4.4, 5.8, 4.0: 8.5, 7.5, 9.5, 9.7; 7.2% 7.4% 8.5%? Industrial production negative growth in 2009, now in double digits. High and Rising Savings rate (almost 40%) but high government deficits Rise in Capital formation Public sector, also Private Sector Deepening Export, growing again; China replacing USA as largest trading partner Inflation at single digit for a decade; 7.7% last year, 4.2 in Dec 2005; despite fuel, power, light & lubricants at 7.1; from 03-04-8.1, 03-04-9.8); Rising in 2007-08, Nov 2008- 7.8%; 2009-10 and now food products at around 20%, extended to manufactures; Will lead to tighter liquidity and higher interest rates; Can affect growth Not an Export driven Economy; export growth; 01-02-22.1, 02-03-15.0, 03-04-21.4, 04-05-27.6, 08-09 and 09-10 drop of 20%; now double digit growth Foreign Exchange reserves over $280 billion; NRIs, ECBs, FIIs, less FDI, trade deficits Rapid growth of I.T. and B.P.O. 200708 $52 billion (growth of 28%), $40.4 b from exports, $11.6 domestic. Of exports, IT grew by 28% to 23.1 b and BPO exports went up by 30% to $10.9 b; 2008-09 (est): $62-64 billion; 2010 (est) : 110 billion; shifting to high value added Resilience: Survived face-off with USA and sanctions after nuclear explosions; 2008 recession and fall in exports Trend Growth: Economic Growth by Decades 1980s Agriculture, Forestry & Fishing 1. Agriculture investment to resume after decades of sparseness, could grow faster than the expected 3.4% 1990s Mining & Quarring 2000s 2010s Manufacturing Electricity, Gas & Water Supply 2. Manufacturing more improvement due rapidly growing domestic market, exports Constraint-energy and wage price inflation Construction Trade, Hotels & Restaurants Transport, Storage& Communication 3. Infrastructure investments major drivers-Power, Roads & Bridges, telecommunications, Ports, Airports. Financing, Insurance, Real Estate & Business Services Community, Social & Personal Services GDP at Factor Cost 0 2 4 6 8 10 12 14 16 18 The trends of the 2000s will continue – but growth will be much faster Sector-wise GDP Growth Rates Item 2004-05 2005-06 2006-07 (in %) 2007-08 (QE) 2008-09 (RE) 2009-10* (AE) 0.0 5.8 4.0 4.9 1.6 -0.2 2. Industry 10.3 10.2 11.0 8.1 3.9 8.2 8.2 8.7 7.9 16.1 4.9 9.1 5.1 16.2 8.8 11.8 5.3 11.8 3.3 8.2 5.3 10.1 3.6 2.4 3.4 7.2 8.7 8.9 8.2 6.5 9.1 10.6 11.2 10.6 9.7 8.7 10.7 8.7 6.8 12.1 11.4 7.1 12.8 13.8 5.1 12.4 11.7 6.8 9.0 7.8 13.1 8.3 9.9 8.2 7.5 9.5 9.7 9.0 6.7 7.2 1. Agriculture, Forestry & Fishing Mining & Quarrying Manufacturing Electricity, Gas & Water Supply Construction 3. Service GDP Trade, Hotels, Transport And Communication Financing, Insurance, Real Estate & Business Services Community, Social & Personal Services Note: 1) QE- Quick Estimates, RE – Revised estimates, AE – Advance Estimates 2) * Growth rates based on 2004-05 base year constant prices, rest are at 1999-00 base year constant prices Source: CSO Annual Growth Rate of Industrial Production Sectoral Weight 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10* Mining 10.5 4.38 1.01 5.35 5.13 2.58 2.76 Manufacturing 79.4 9.13 9.15 12.52 8.98 2.75 -0.59 Electricity 10.2 5.15 5.16 7.26 6.35 2.76 5.30 Basic Goods 35.6 5.52 6.70 10.27 6.96 2.61 2.46 Capital Goods 9.3 13.95 15.74 18.24 18.01 7.30 -21.27 Intermediate Goods 26.5 6.08 2.50 12.02 8.93 -1.92 8.34 Consumer Goods (a+b) 28.7 11.70 12.04 10.09 6.06 4.74 0.50 a) Consumer Durables 5.4 14.34 15.30 9.16 -1.05 4.51 7.97 b) Consumer Non-durables 23.3 10.82 10.94 10.43 8.54 4.79 -1.84 General 100 8.37 8.16 11.53 8.49 2.75 0.11 Use-Based Source: CSO & Handbook of Statistics on Indian Economy, RBI online 40.00 35.00 -5.00 1950-51 1951-52 1952-53 1953-54 1954-55 1955-56 1956-57 1957-58 1958-59 1959-60 1960-61 1961-62 1962-63 1963-64 1964-65 1965-66 1966-67 1967-68 1968-69 1969-70 1970-71 1971-72 1972-73 1973-74 1974-75 1975-76 1976-77 1977-78 1978-79 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 Sector-Wise Gross Domestic Savings Percentage Share of Gross Domestic Savings and its component to GDP of India : 1950-51 to 2007-08 Gross Capital Formation Household Sector Private Corporate Sector Public Sector 30.00 25.00 20.00 15.00 10.00 5.00 0.00 Source: Handbook of Statistics on Indian Economy, RBI 1950-51 1951-52 1952-53 1953-54 1954-55 1955-56 1956-57 1957-58 1958-59 1959-60 1960-61 1961-62 1962-63 1963-64 1964-65 1965-66 1966-67 1967-68 1968-69 1969-70 1970-71 1971-72 1972-73 1973-74 1974-75 1975-76 1976-77 1977-78 1978-79 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 Sector-wise Capital Formation 45.00 40.00 Percentage Share of Gross Capital Formation and its component to GDP of India : 1950-51 to 2007-08 Gross Capital Formation Household Sector 35.00 Private Corporate Sector Public Sector 30.00 25.00 20.00 15.00 10.00 5.00 0.00 Source: Handbook of Statistics on Indian Economy, RBI Source: RBI Online 2008-09 2007-08 2006-07 2005-06 2004-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99 1997-98 1996-97 1995-96 1994-95 1993-94 1992-93 Exports 1991-92 1990-91 1989-90 1988-89 1987-88 1986-87 1985-86 Trade Intensity 1984-85 1983-84 1982-83 1981-82 1980-81 1979-80 1978-79 1977-78 1976-77 40.00 1975-76 1974-75 1973-74 1972-73 45.00 1971-72 1970-71 Deepening of External Sector Trade Intensity and Percentage Share of Total Exports and Total Imports to GDP of India : 1970-71 to 2008-09 Imports 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 Overall Performance of Indian Economy Annual Growth Rate of Real GDP (At 1999-00 Prices) and Inflation in India From 1990-91 to 2008-09 Annual Growth Rate of Real GDP 16.0 Rate of Inflation 13.9 9.3 8.0 6.0 5.4 5.3 7.3 5.7 6.9 6.4 9.5 8.6 8.0 6.7 9.7 8.5 9.0 7.5 6.4 5.8 4.4 4.3 5.9 7.5 6.7 4.5 5.4 5.3 2007-08 10.0 10.6 11.2 2006-07 Percentage 12.0 2005-06 14.0 3.8 4.0 4.1 3.7 1.4 2.0 Source: CSO 2008-09 2004-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99 1997-98 1996-97 1995-96 1994-95 1993-94 1992-93 1991-92 1990-91 0.0 Annual and month-wise rate of Inflation for major heads in India Major Heads 200506 200607 200708 200809 April May 09 09 June 09 July 09 August Sept. 09 09 All Commodities Primary Articles Food Articles Non-Food Articles Fuel Power Lights & Lubricants Manufactured Products 4.4 2.9 4.8 -4.5 9.5 3.1 5.4 7.8 7.8 5.1 5.6 4.4 4.6 7.5 5.5 12.6 1.0 4.9 7.5 10.2 8.0 11.3 7.5 8.1 1.3 6.6 8.6 1.9 -5.7 1.8 1.4 6.3 8.4 3.0 -6.1 2.2 -1.0 -0.5 6.5 7.6 10.9 14.2 0.1 -3.3 -12.5 -10.4 0.6 0.1 -0.2 8.0 14.1 -3.0 -9.3 0.1 0.5 8.4 14.2 -3.6 -8.2 0.5 1.3 8.7 13.3 -0.8 -6.6 1.4 4.8 11.8 16.7 1.9 -0.9 4.0 Food Articles Food Grains (Cereals + Pulses) Cereals Pulses Fruits & Vegetables Milk Eggs, Meat & Fish Condiments & Spices 4.8 7.8 5.5 8.0 8.6 8.4 10.9 14.2 14.1 14.2 13.3 16.7 5.4 10.2 4.6 8.6 11.9 14.1 14.4 13.9 14.2 16.1 13.3 16.5 4.4 11.8 7.2 0.4 12.1 -6.1 7.3 30.4 4.2 6.3 4.4 29.2 6.2 -4.4 3.5 8.4 5.2 5.0 8.9 6.9 8.2 7.5 4.7 11.7 11.6 13.7 10.5 5.8 2.3 12.0 13.7 17.0 7.7 6.3 -0.5 8.9 13.8 18.1 13.5 7.4 5.9 8.8 12.5 23.0 16.9 9.5 20.5 8.3 13.1 21.1 12.0 9.6 26.9 8.0 15.3 20.9 10.8 9.7 24.2 14.2 11.8 22.8 11.1 10.0 23.1 14.9 13.6 35.2 13.7 11.5 29.7 22.1 Source: Computed from data available at Office of Economic Advisor, Ministry of Commerce and Industry, Government of India. Oct. 09 Nov. 09 Rapid growth of I.T. and B.P.O. (% to GDP) Exports Year / Item A.1) Merchandise A.2) Invisibles a) Services i) Travel ii)Transportation iii) Insurance Iv) G.n.i.e. v) Miscellaneous Software Services Business Services Financial Services Communication Services b) Transfers i) Official Transfers Ii) Private Transfers c) Income i) Investment Income ii) Compensation of Employees Current Account B.1) Foreign Investment B.2) Loans B.3) Banking Capital B.4) Rupee Debt Service B.5) Other Capital Capital Account Overall Balance (BOP) Imports 2004-05 2005-06 2006-07 2007-08 2008-09 2004-05 2005-06 2006-07 2007-08 2008-09 12.12 12.99 14.12 14.14 15.01 16.94 19.39 20.90 21.94 25.20 9.89 11.09 12.52 12.64 14.02 5.46 5.90 6.82 6.29 6.32 6.15 7.13 8.07 7.66 8.75 3.97 4.27 4.84 4.46 4.45 0.95 0.97 1.00 0.96 0.94 0.75 0.82 0.73 0.79 0.81 0.67 0.78 0.87 0.85 0.96 0.65 1.03 0.88 0.98 1.10 0.12 0.13 0.13 0.14 0.12 0.10 0.14 0.07 0.09 0.10 0.06 0.04 0.03 0.03 0.03 0.06 0.07 0.04 0.03 0.07 4.35 5.20 6.04 5.68 6.70 2.41 2.21 3.11 2.58 2.37 2.52 2.92 3.42 3.43 4.05 0.11 0.17 0.25 0.26 0.24 0.73 1.15 1.59 1.43 1.40 1.04 0.96 1.73 1.42 1.33 0.07 0.15 0.34 0.27 0.34 0.12 0.12 0.33 0.27 0.26 0.20 0.20 0.25 0.21 0.19 0.10 0.04 0.09 0.07 0.09 3.09 3.17 3.44 3.76 4.04 0.13 0.12 0.15 0.20 0.24 0.09 0.08 0.07 0.06 0.06 0.05 0.06 0.04 0.04 0.04 3.00 3.08 3.37 3.70 3.98 0.08 0.06 0.11 0.15 0.20 0.66 0.79 1.02 1.21 1.23 1.37 1.52 1.82 1.63 1.63 0.59 0.77 0.98 1.17 1.16 1.17 1.43 1.72 1.54 1.51 0.07 0.02 0.04 0.04 0.07 0.19 0.10 0.10 0.09 0.11 22.01 6.67 4.31 2.07 0.00 0.97 14.02 36.13 24.07 9.56 4.87 2.68 0.00 0.74 17.84 41.91 26.64 14.55 5.97 4.06 0.00 0.89 25.47 52.22 26.78 23.14 7.11 4.74 0.00 1.77 36.76 63.64 29.03 13.97 5.20 5.53 0.00 1.11 25.81 54.90 22.40 4.83 2.77 1.53 0.06 0.86 10.04 32.44 25.29 7.64 3.91 2.51 0.07 0.58 14.72 40.08 27.71 12.94 3.30 3.85 0.02 0.44 20.54 48.25 28.23 19.31 3.54 3.74 0.01 0.97 27.57 55.81 31.52 13.75 4.84 5.91 0.01 0.70 25.20 56.72 Source: Handbook of Statistics on Indian Economy, RBI online Billion US $ -20.00 -40.00 -60.00 -80.00 -100.00 -120.00 -140.00 Source: Handbook of Statistics on Indian Economy, RBI (http://www.rbi.org.in) 2008-09 2007-08 2006-07 2005-06 2004-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99 1997-98 1996-97 1995-96 1994-95 1993-94 1992-93 1991-92 1990-91 1989-90 1988-89 1987-88 1986-87 1985-86 1984-85 1983-84 1982-83 1981-82 1980-81 India’s Trade Scenario Trade Deficits of India : 1980-81 to 2008-09 0.00 -1 -2 -3 -4 Source: RBI Online 2008-09 2007-08 2006-07 2005-06 2004-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99 1997-98 1996-97 1995-96 1994-95 1993-94 1992-93 1991-92 1990-91 1989-90 1988-89 1987-88 1986-87 1985-86 1984-85 1983-84 1982-83 1981-82 1980-81 1979-80 1978-79 1977-78 1976-77 1975-76 3 1974-75 1973-74 1972-73 1971-72 1970-71 Indian Trade Scenario (Goods & Services) India's Current Account Deficit/Surplus as Percentage to GDP : 1970-70 to 2008-09 2 1 0 Expectations GDP growth forecasts; 2009-10- 7.4%; 8.5% in 2010 and 8.5 thereafter BOP current a/c deficit widening again; also Trade deficit doubled despite fall in crude prices; 2009 due Oil imports bills, now export & foreign investment on rise Labour Force : 381.94 (1993); 406.05 (1999); 469.05(2004) Employed: 302.75 397 457.82 & 529.87 (2009), of which - in 2004 and 2009 in mnsAgriculture, forestry & fishing 267.57 to 296.62; Mining & quarrying 2.74 and 3.19; Construction 25.61 & 38.35; Manufacturing 53.5 & 61.9; hotels & restaurant, Tpt, storage & comm 64.49 & 79.56; Expectations Elect. Gas & water supply 1.37 &1.5; Community, social & personal services 35.67 &38.81 Trade, Financing, insurance, real estate & business services 6.86 & 9.94; Corporate performance under pressure but margins ok: FY 99 4.08%; Rising from FY 03 5.32, then 7.48, 9,24, 8,73, 9.84, 10.01 (FY 08), 8.54; Rising crude and gas costs hurt economy; but falling prices coincided with recession; India with large gas discoveries Energy Inputs: Emphasis on local and cheaper: local coal, local gas, hydro, nuclear, renewables, Climate Change and New Coal Technologies, ownership and investment issues Squeeze on India-imperative of economic growth imperative despite rising energy costs and pressure to reduce emissions which will reduce growth OPPORTUNITY: Expected Investments in Infrastructure 1/3 private (Rs billion) Sector / Year Power Roads & Bridges Telecommunications Railways Irrigation Water & Sanitation Ports Airports Storage Oil & Gas Pipelines Total 2002-07 340.2 127.1 101.9 102.1 106.7 60.1 23.0 6.9 5.6 32.4 906.1 2007-12 658.6 278.7 345.1 200.8 246.2 111.7 40.6 36.3 9.0 127.3 2054.2 Plus - Internal Security (primarily Equipments) Total Infrastructure Investment as % GDP Per year 2009-10 2010-11 2011-12 15-20 Billion 7.94% 8.37% 9.00% Household Consumption - Growth Growth Rate 2000s 2010s Private Final Consumption Exp. In Domestic Market 6 Multiple/Expected Growth Factor Between 2009-10 & 2019-2020 8 Private Final Consumption Exp. In Domestic Market 11.6 12.3 Mis. Goods & Services Recreation, Education & Cultural Services 11.2 12.4 Transport & Communication 7.7 Medical Care & Health Services 8.7 9.5 4.1 Food, Beverages & Tobacco 0 Recreation, Education & Cultural Services 3.2 2.3 10.5 2.4 Furniture, Furnishings, Appliances & Services 2.7 Gross Rent, Fuel & Power 4.7 Clothing & Footwear 3.2 Medical Care & Health Services 3.2 3.3 Gross Rent, Fuel & Power Mis. Goods & Services Transport & Communication 8.8 8.9 Furniture, Furnishings, Appliances & Services 2.2 5 6 6.4 10 1.4 Clothing & Footwear 1.8 Food, Beverages & Tobacco 1.8 15 0 Source: Expenditure Spectrum of India, 2009-10, Indicus Analytics 1 2 3 4 Household Consumption- Diversification 2000-01 4% 8% 2009-10 Food, Beverages & Tobacco 2019-20 Clothing & Footwear Gross Rent, Fuel & Power 14% 49% Furniture, Furnishings, Appliances & Services 5% Medical Care & Health Services 3% Transport & Communication 11% 6% 5% Recreation, Education & Cultural Services 13% 41% 19% 35% 8% 17% 17% 4% 6% 6% 4% 9% 5% 5% Mis. Goods & Services 1. Overall household budget-about 2 times higher than now in real terms. 2. Share of food and related products falls from 40% to 34% (absolute amounts about x1.8 times). 3. Transport, Education, Health and Recreation among most rapidly growing consumer spending Per capita income growth 8% pa – households will earn about double that they do now 6% Agriculture, Infrastructure Agriculture investment will finally resume after many decades of relative sparseness, but this sector could well grow much faster than the expected 3.4% Manufacturing opportunities would improve on account of rapidly growing domestic market as well as international markets – however energy and wage price inflation will play a role. Investments in Power, Roads & Bridges, communications will be the driving force of growth in the country in the 2010s – Investments A large road network is going to be operational, ports are rapidly improving, air transport infrastructure is being overhauled, and a strong ecosystem has been created for the telecom sector The Indian Consumer: What will Indians eat in 10 years? Growth Rates 4.1 Food, Beverages & Tobacco Multiple/Expected growth factor Between 2009-10 and 2019-20 6.4 Coffee, Tea, Beverages, Packaged Food, Spices, Intoxicants, etc 6.6 11.6 Hotel & Restaurants 2.8 Potato & Other Tubers Oils & Oilseeds 2.5 -1.4 -2 3.4 1.6 Milk & Milk Products 1.5 Potato & Other Tubers 1.5 5.4 3.7 Fruits & Vegetables 2000s 1.7 Oils & Oilseeds 2010s 1.1 Pulses 1.6 1.8 2 1.3 Suger & Gur 3.3 3.2 0 1.4 Cereals & Bread 4 2.8 Meat, Egg & Fish 1 Pulses Cereals & Bread Coffee, Tea, Beverages, Packaged Food, Spices,… 4.5 3.9 Fruits & Vegetables 1.8 Hotel & Restaurants 3.8 3.9 Milk & Milk Products -4 13 4.6 5 Meat, Egg & Fish Suger & Gur Food, Beverages & Tobacco 11 6 8 10 12 1.2 14 0 Source: Expenditure Spectrum of India, 2009-10, Indicus Analytics 2 4 The Indian Consumer: What will Indians eat in 10 years? Cereals & Bread 2009-10 2000-01 2019-20 Pulses 2% 14% Suger & Gur Oils & Oilseeds 23% 4% 3% 7% Meat, Egg & Fish 3% 4% 3% Fruits & Vegetables 6% 15% Milk & Milk Products 2% 28% 8% Potato & Other Tubers 14% 21% 19% 5% 20% 17% 4% 9% 13% 18% 14% 8% 12% 1% 2% 1% Hotel & Restaurants Coffee, Tea, Beverages, Packaged Food, Spices, Intoxicants, etc Lifestyle changes will show up in a major way in our eating habits. That is the next tipping point – cooking at home will continue, and we will not do away with kitchens as in Thailand Processed foods & eating out will be a rapidly growing component of household budgets How will they spend on services? Source: Expenditure Spectrum of India, 2009-10, Indicus Analytics Recreation and communication will drive household expenditures the most. The Indian household will move more and more towards lifestyle enhancing expenditures - and another tipping point will be reached in terms of the expenditures on tertiary education and health Health care expenditures will grow rapidly, and so will those for education Poverty 60 54.4 1200 53.1 50 Population 45.6 1000 39.1 40 40.8 30 37.3 38.2 32.4 Rural 28.3 25.7 Urban 20 600 400 Rural + Urban 10 200 0 0 1974 1978 1983 1988 1994 890 800 In Million Percent 49 45.2 1097 Poor 2005 789 726 641 585 321 1974 329 1978 323 1983 307 1988 320 1994 302 2005 Estimates using the India Labour Report 2008 300 million people are estimated to be living under extreme poverty (< $ 1 per day). And this figure has been more or less stagnant over the last 4 decades. If the current trends continue as many as 260 million persons would remain under extreme poverty even by the end of the decade. Expect that social safety nets would remain critical for India Urbanization Urban Population (in Million) Share of Urban Population (%) 469 500 450 31.8 30 350 286 300 20 160 200 150 62 25.7 23.3 25 218 250 100 35.4 35 374 400 40 17.3 18 1951 1961 27.8 15 10 79 5 50 0 0 1951 1961 1981 1991 2001 2009 2019 1981 1991 2001 2009 Source: Indicus estimates using Registrar General of India data 1. About 32% of India’s 1176.7 million people reside in Indian cities currently. This 2. Will increase to about 35.4% of the population of 1326.2 million by 2019. 2. 3. Most of this new urban population will comprise of recent migrants 3. 4. Impact: Urban services, sanitation, water, transport, housing An additional 100 million will move into cities 2019 Demographic Dividend 2004-Population =1080 million of which Age between 15 and 64=672 million Below 15 and over 64, non-working or dependent population=408 million Plus 60 population in millions-2001-6.3%=65 mn; 2016-8.9%=113 mn Dependency ratio of 0.6; 2030-0.4 2020 Average Age: India-29; China-37; Japan-48: youngest working age population in world Less children=more women at work; more saving; greater growth Demographic Dividend-Implications The transition to low fertility leads to a period during which the population of working age increases faster than the consuming population. This “first demographic dividend” boosts per capita income. Transitory because, the population of working age ceases to increase. To realize it, need for investments in skills and education. Also, income per consumer drops, a cause of concern. Lower mortality produces longer lives. As people live longer, they need to accumulate more wealth to defray consumption in old age. The higher the proportion of older persons, the higher wealth per capita. With more wealth per worker, productivity and asset income increase, leading to a long-lasting “second demographic dividend. To realize the second dividend, wealth must be accumulated as savings or assets. To the extent that older persons depend on family transfers or public pensions, the second dividend is reduced. India’s Potential 1. 2. 3. 4. 5. 6. 7. Fast growing market for all types of goods and services Fast growing economy English \s a third language India Accounts for 10 % of World Trade India as a Source of Global Innovations New Businesses, New Forms of Organization, New Technologies. Well-developed software of industry: market research, advertising, design, etc Entrepreneurial society India’s Potential 8. Bottom of the Pyramid as a Source of Product Innovations for the World Potential for leadership in low cost Health care, Education, renewable Energy, energy conservation, Transportation, Sustainable Development for all) New Markets 9. A Flowering of Art, Literature, Films and Science (10 Nobel Prize Winners of Indian origin, apart from Booker, Pullitzer, etc) 10. A New Moral Voice for People Around the World India as a country where Universality and Inclusiveness is widely practiced. India becomes the most Benchmarked country for its capacity to accept and benefit from its diversity Education-Investment Opportunity India has 3rd rd largest education system globally Spends over $ 13 bn overseas on education Network of over 1 mn schools and 18000 higher education institutions Variety of institutions Plan to grow this by 3 to 5 times Spends are at 3.7% of GDP Not even 1% of the $30 bn that government spends on education is on capex Sample studies show that 44% of students also enrolled in private schools $ 80 bn investment opportunity. Laws are changing. India- A Fast Growing Economy with Greater Potential Mobile Users - 56.89 million (March 2005), 362.2 million (Jan 2009); 101.1 Million new mobile users in last 10 months; growth continues Internet connectivity in 2010 -200 million; still growing 5.25 mn broadband connections (Dec 2008); growing 5.4 million PC’s sold in 2006; slowing down Cars: expected rise was from1 million to 2 million by 2010; Now waiting lists for cars and 2 wheelers despite rise in production; NANO and other cheap cars will add to volume 2010-over 94 mn cable & satellite households Advertising industry at Rs4000 crores=$800 million Presently, Retailing slow down; Special Economic Zones, even Media 2006-220 malls; 2010-over 600 were expected Indian Economy; Need for Reform 1. Rising deficits-Growth enables rising expenditures; Need for more efficient spending; improve tax revenues 2. Balancing Growth with inflation control; need for liquidity and lower interest rates; reduce volatile foreign fund inflows; production, productivity, efficiency, will allow both growth and inflation control 3. Relative decline in “Rich” economies makes India an attractive investment target; India can tighten rules to reduce volatile Foreign Exchange Flows and add to Reserves 4. Participatory Notes and round-tripping of Indian funds - Exemption from short-term capital gains tax; Mauritius as largest foreign investor; Very volatile FII funds-stock market like yo-yo as funds ebbed and flowed Indian Economy; Need for Reform 5. 6. 7. Faster growth of commercial energy to combat power shortages; 500 million not connected; limitations on domestic fuel resources; need to acquire overseas; requires more security expenditures Need for Blue Water Navy, credible deterrents against predatory neighbors NOT AN ECONOMIC SUPERPOWER BUT A VERY IMPORTANT ECONOMY 8. Thank you