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1、INDIAS FUTURE,29 January 2007,R B Roy Choudhury Memorial lecture Mumbai,Even though the world has just discovered it,the India growth story is not new.It has been going on for 25 years old,What is the India story?,1)Rising GDP growth,%average annual GDP growth 1900 1950 1.0 1950 1980 3.5 1980 2002 6
2、.0 2002 2006 8.0Sources:1900-1990:Angus Maddison(1995),Monitoring the World Economy,1990-2000:Census of India(2001),2000-2005 Finance Ministry,India Story,2)Population growth is slowing,%average annual growth 1901 1950 1.0 1951 1980 2.2 1981 1990 2.1 1991 2000 1.8 2001 2010 1.5Sources:1900-1990:Angu
3、s Maddison(1995),Monitoring the World Economy,1990-2000:Census of India(2001),India Story,%1950 17 1990 52 2000 65 2010(proj)80 Source:Census of India(2001),3.Literacy is rising,India Story,%Million People1980 8 652000 22 2202010(proj)32 368 Source:The Consuming Class,National Council of Applied Eco
4、nomic Research,2002,4.Middle class is exploding,India Story,1980 46%2000 26%2010(proj)16%1%of the people have been crossing poverty line each year for 20 years.Equals 200 million.,5.Poverty is declining,India Story,6.Productivity is rising,India Story,30%to 40%of GDP growth is due to rising producti
5、vity,(US$ppp)1980 1178 2000 3051Source:World Bank,7.Per capita income gains,India Story,8.India is now the 4th largest economy,India Story,And it will cross 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,DRIV
6、ERS 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,ca
7、pital Low tech,labour intensive industry intensive industry,IMPLICATIONS OF INDIA MODEL,Domestic ledInsulation from global downturnsLess volatility,IMPLICATION OF INDIA MODEL,Services ledHave we skipped the industrial revolution?How do we take people from farms to cities?,IMPLICATION OF INDIA MODEL,
8、Consumption ledPeople friendly:Consumption as%of GDP India 64 Europe 58 China 42 Less inequality GINI INDEX India 33 U.S 41 China 45 Brazil 59 The world needs another big consuming economy after the U.S.,Reasons for Success Indias success is market led whereas Chinas is state induced.The entrepreneu
9、r is at centre of the Indian model,Rise of globally competitiveIndian companies:Reliance,Jet Airways,Infosys,Wipro,Ranbaxy,Bharat Forge,Tata Motors,TCS,Bharati,ICICI and HDFC Banks,India has a vibrant private space,100 Indian Companies have market cap of US$1 billion,India has a vibrant private spac
10、e,100 Indian Companies have market cap of US$1 billion 1000 Indian Companies have received foreign institutional investment,India has a vibrant private space,100 Indian Companies have market cap of US$1 billion 1000 Indian Companies have received foreign institutional investment 125 Fortune 500 comp
11、anies have R&D bases in India,India has a vibrant private space,100 Indian Companies have market cap of US$1 billion 1000 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 t
12、o India.,India has a vibrant private space,100 Indian Companies have market cap of US$1 billion 1000 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 i
13、n Indian banks(vs 20%in China),India has a vibrant private space,100 Indian Companies have market cap of US$1 billion 1000 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
14、to India.80%credit goes to private sector(vs10%in China),But public space is a problem,Although we have a:+Dynamic democracy with honest elections,Public space is a problem,Although we have a:+Dynamic democracy+Free,lively media and press,Public space is a problem,+Dynamic democracy with+Free,lively
15、 media and pressBut there is:-Poor governance,Public space is a problem,+Dynamic democracy+Free,lively media and press-Poor governance-High populist subsidies,which results in a high fiscal deficit,Public space is a problem,+Dynamic democracy+Free,lively media and press-Poor governance-High subsidie
16、s High fiscal deficit-No money for infrastructure,Public space is a problem,+Dynamic democracy+Free,lively media and press-Poor governance-High subsidies High fiscal deficit-Creaky infrastructure-Inefficient government companies,Earlier we had world class institutions,but they are now failing,Bureau
17、cracyJudiciary Police,Contrast between public and private space raises the question:,Is India rising despite the state?,Economy grows at night when government is asleep,What explains Indias economic success?,Even slow reforms add up-state getting out of the way-every government has reformed since 19
18、91,Key Reforms,Opened economy to trade and investmentDismantled controls Lowered tariffsDropped tax ratesBroke public sector monopolies,What explains Indias economic success?,Even slow reforms add up-state getting out of the way 2)Young minds are liberated,Mental Revolution-I want to be Bilgay-Rajus
19、 secret of success-Banianisation of society-100 cable channels for$3-Hinglish,What explains Indias economic success?,Even slow reforms add up-state getting out of the way Young minds are liberated 3)India has found its competitive advantage in the knowledge economy,Looking Forward,7%-8%economic grow
20、th Democracy will not permit more than 8%1.5%Population growth,($)2000 2100 2005 3050 2020 5800 2040 16,800 2066 37,000,This means a per capita income roughly of(on a ppp basis):,Why will growth continue?Demographic dividend,Demographic trend points to sharp increases in input factors,25+yrs,0-25 yr
21、s,Demographic Split,1.5 bn,1.1 bn,Labor Force,Labor Force will double in the next 20 years,Demographic trend points to sharp increases in input factors,Age Dependency,Savings Rate,Higher savings and investment rate will translate into higher GDP growth,Indias demographic advantage means that its hig
22、h growth will continue longer term while China will slow,%1980 8 2000 22 2010 32 2020 50 West of the Kanpur-Chennai line 2040 50 East of the Kanpur-Chennai line,INDIA WILL GRADUALLY TURN MIDDLE CLASS,“By 2010 India will have worlds largest number of English speakers”“When 300 million Indians speak a
23、 word in a certain way,that will be the way to speak it.”-Prof.David Crystal,Cambridge Encyclopedia of the English Language,What could stop the show?,Fiscal deficit Infrastructure Bad governance Nuclear war,REFORM SCHOOL,Labour,REFORM SCHOOL,Labour Agriculture,Second Green Revolutiontechnologically
24、led,based on GM seedslabor intensive needs reforms,REFORM SCHOOL,Labour Agriculture Power,REFORM SCHOOL,Labour Agriculture Power Red tape,REFORM SCHOOL,Labor Agriculture Power Red tape Governance,Corporate Governance-High in India-Low in China,Bottom Line,Indian prosperity is on auto pilotCant do wi
25、thout government.But governance reform will take time,till middle class is dominant.Human capital will continue to flower based on private initiative,and drive the nation,India has law,China has order-India got democracy before capitalism and this has made all the difference-It will be slower than China but its path will be surer-India more likely to preserve its way of life,The Wise Elephant,
