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INDIA’S FUTURE Or prosperity will spread in India but happiness will not, until we fix governance

INDIA’S FUTURE Or prosperity will spread in India but happiness will not, until we fix governance by Gurcharan Das. WIPRO Marbella. November 12, 2009. Where are we coming from? Where are we today? Where are we going in the future?.

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INDIA’S FUTURE Or prosperity will spread in India but happiness will not, until we fix governance

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  1. INDIA’S FUTURE Or prosperity will spread in India but happiness will not, until we fix governance by Gurcharan Das WIPRO Marbella November 12, 2009

  2. Where are we coming from? • Where are we today? • Where are we going in the future?

  3. Even though the world hasjust discovered it, the Indiagrowth story is not new It has been going on for 25 years

  4. What is the India story?

  5. 28 years of high growth Average annual GDP growth (%) 10 8.9 8 6.0 6 3.5 4 1.0 2 0 1900-1950 1950-1980 1980-2002 2002-2007

  6. 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)

  7. Literacy is rising (%) 100 80 80 65 52 60 40 17 20 0 1950 1990 2000 2010 (proj) Source: Census of India (2001)

  8. When middle class is 50% then the politics will also change (m) 0 32% 22% 8% 400 368 300 200 220 100 65 1980 2000 2010 Source: The Consuming Class, National Council of Applied Economic Research, 2002

  9. Poverty is declining (%) 50 1% of the people have been crossing poverty line each year for 25 years Equals ~ 200m 46 40 30 26 20 16 10 0 1980 2000 2010

  10. Per capita income gains 1,178 1980 2005 3,051 US$ ppp Source: World Bank

  11. India is now the 4th largest economy It will overtake Japan between 2012 and 2014 to become the 3rd largest

  12. The India model is unique

  13. Drivers of growth East and S.E. Asia Exports India Domestic

  14. Drivers of growth India Domestic Services East and S.E. Asia Exports Manufacturing

  15. Drivers of growth India Domestic Services Consumption East and S.E. Asia Exports Manufacturing Investment

  16. 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

  17. Implications of India model ‘Domestically led’ means: Insulation from global downturns Less volatility We will come out of the global crisis faster

  18. Implication of India model ‘Services led’ raises uncomfortable questions: • Have we skipped the industrial revolution? • How do we take people from farms to cities? • Will SEZ’s be our tipping point?

  19. Implication of India model – Consumption led 33% 42% 59% 64% India India China China 41% Europe U.S. 58% 45% Brazil People Friendly:Consumption as % of GDP People Friendly, Less inequality: Gini Index Will India become the next big consuming economy after the U.S.?

  20. Reasons for success India’s success is market-led whereas China’s is state induced The entrepreneur is at thecentre of the Indian model

  21. Rise of globally competitive Indian companies

  22. India has a vibrant private space • 100 Indian Companies have market cap of US$ 1bn

  23. India has a vibrant private space • 100 Indian Companies have market cap of US$ 1bn • 1,000 Indian Companies have received foreign institutional investment

  24. 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

  25. 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

  26. 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)

  27. 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)

  28. Public space is a problem We have • Dynamic democracy with honest elections • Free, lively media and press But we also have Poor governance!

  29. Governance Failures • Not the minister caught with a bribe • 1 out of 4 school teachers absent in government schools • 2 out of 5 doctors absent in primary health centers • Delhi’s water • Land titles • Etc

  30. Ironically, we used to have world class institutions from 1950-1980, but our problem was growth.Now we have growth, but our institutions are failing Bureaucracy Judiciary Police

  31. The economy grows at night when the government is asleep

  32. Key reforms Opened economy to trade and investment Dismantled controls Lowered tariffs Dropped tax rates Broke public sector monopolies

  33. Understanding India’s economic success • 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 law

  34. “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

  35. 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

  36. Where are we today? • Growth fell to 6.7% in 08-09; 7% in 09-10 • Pain has been less than in China • Competitive companies have recovered faster. • Risk of protectionism has receded • Recovery has been ahead of the world

  37. 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

  38. Per capita income On a ppp basis ($000) 40 30 20 10 0 2000 2005 2020 2040 2066 37,000 16,800 5,800 3,050 2,100

  39. 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

  40. India will gradually turn middle-class West of theKanpur-Chennai line East of theKanpur-Chennai line 50% 50% Kanpur- 32% 22% Chennai 8% 1980 2000 2010 2020 2040

  41. What could stop the show? • Infrastructure - Improving via public-private parterships • Fiscal Deficit • Governance None of these stopped the show in the past 25 years - Nuclear War?

  42. Education System Is reasonably good for the top 20% But it is abysmal for the rest 1 in 4 teachers is absent in government primary schools Hence, 54% of children in urban India are in private schools Solution: Education Vouchers

  43. Caste system Origin of India’s caste system Classical four castes vs 3000 jatis Hostage to competitive politics Source of competitive advantage Affirmative action

  44. 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 Nasadiya Temper 1% 2% 12% 85% Hindu Muslim Sikh Christian Role of Religion

  45. Elephant and not Tiger • India got democracy before capitalism and this has made all the difference • It is slower than China but its path is surer • 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

  46. The Wise Elephant

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