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The New
Emerging India
by
Gurcharan Das
Melbourne
April 1st, 2008
Even though the world has
just discovered it, the India
growth story is not new
It has been going on for 25 years
What is the India story?
Rising GDP growth
Average annual GDP growth
(%)
10
8.0
8
6.0
6
3.5
4
2
1.0
0
1900-1950
1950-1980
1980-2002
2002-2006
Population growth is slowing
(%)
2.5
2.2
2.1
2.0
1.8
1.5
1.5
1.0
1.0
0.5
0
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
(%)
100
80
80
65
52
60
40
17
20
0
1950
Source: Census of India (2001)
1990
2000
2010 (proj)
Middle class is exploding
22%
(m)
32%
8%
400
368
300
200
220
100
0
65
1980
2000
Source: The Consuming Class, National Council of Applied Economic Research, 2002
2010 (proj)
Poverty is declining
(%)
50
40
1% of the people have
been crossing poverty
line each year for 25
years
46
30
26
20
16
10
0
Equals ~ 200m
1980
2000
2010 (proj)
Per capita income gains
US$ ppp
1,178
1980
3,051
Source: World Bank
2005
India is now the 4th largest economy
It will overtake Japan
between 2012 and 2014
to become the 3rd largest
The 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
■ Exports
■ Services
■ Manufacturing
Drivers of growth
India
East and S.E. Asia
■ Domestic
■ Exports
■ Services
■ Manufacturing
■ Consumption
■ Investment
Drivers of growth
India
East and S.E. Asia
■ Domestic
■ Exports
■ Services
■ Manufacturing
■ Consumption
■ Investment
■ High tech, capital
intensive industry
■ Low tech, labour
intensive industry
Implications of India model
Domestic led
■ Insulation from global downturns
■ Less volatility
Implication of India model
Services led
■ Have we skipped the
industrial revolution?
■ How do we take people
from farms to cities?
Implication of India model – Consumption led
Less inequality:
GINI index
42%
64%
People friendly:
Consumption as % of GDP
India
59%
China
58%
33%
India
41%
Europe
45%
China
U.S.
Brazil
The world needs another big consuming economy after the U.S.
Reasons for success
India’s success is market-led
whereas China’s is state induced
The entrepreneur is at the
centre 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
■ 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)
Public space is a problem
We have
■ Dynamic democracy with
honest elections
■ Free, lively media and press
■ Poor governance
Earlier we had world class institutions,
but they are now failing
■ Bureaucracy
■ Judiciary
■ Police
Economy grows
at night when
government is
asleep
What explains India’s economic success?
Even slow reforms add up
■ State getting out of the way
■ Every government has reformed since 1991
Key reforms
■ Opened economy to trade and investment
■ Dismantled controls
■ Lowered tariffs
■ Dropped tax rates
■ Broke public sector monopolies
What explains India’s economic success?
Even slow reforms add up
■ State getting out of the way
■ Young minds are liberated
Mental revolution
■ ‘I want to be Bilgay’
■ Raju’s secret of success
■ Banianisation of society
■ 100 cable channels for $3
■ Hinglish
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
Looking forward
■ 7%-8% economic growth
■ Democracy will not permit more than 8%
■ 1.5% population growth
Per capita income
On a ppp basis
($000)
37,000
40
30
20
16,800
5,800
10
2,100
3,050
0
2000
2005
2020
2040
2066
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
Why will growth continue?
Demographic dividend
India’s demographic advantage
means that its high growth will
continue longer term while
China will slow
India will gradually turn middle-class
West of the
KanpurChennai line
East of the
KanpurChennai line
50%
50%
Kanpur-
32%
22%
Chennai
8%
1980
2000
2010
2020
2040
“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 Crystal
Cambridge Encyclopedia of the English Language
What could stop the show?
Infrastructure
■ Public private partnerships
■ Bad governance
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
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
Role of Religion
India’s pluralism, diversity
and tolerance
2% 1%
Hinduism
■ Spiritual entrepreneurialism: Gurus
■ No hierarchy:
Every Brahmin thinks he is the Pope
12%
■ 300 million gods:
Lack of theological narcissism
85%
Hindu
Muslim
Sikh
Christian
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
The Wise Elephant