Transcript Managing India to take Dreams to Reality

Managing India to take
Dreams to Reality
S L Rao
February 24 2010
Outline




1. India’s Potential-Slides 1-6
2. Recent economic developmentsSlides 7-11
3. Risks to Growth- Slides 12-19
4. Issues in Making Dreams into
Reality-Slide 20
India’s Potential

1. World’s Largest Pool of Trained
Manpower:










200 million college graduates (~16%)
500 million trained, skilled workforce (~40%)
Universal Literacy
2. World’s Leaders in Industry and Commerce
30 of Fortune 100 from India
3. India Accounts for 10 % of World Trade
A broad scope of products and services
4. India as a Source of Global Innovations
New Businesses, New Forms of Organization,
New Technologies
India’s Potential

5. Source of Innovations for the World






Leaders in Health, Education, Energy, Recycling,
Transportation, Sustainable Development for
all)
Markets-rural, small town
6. A Flowering of Art, Literature, Films and
Science
10 Nobel Prize Winners from India
7. 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
•
India’s Potential
– By 2010 medical tourism will earn $10 bn
– Rs 53982 crores raised by mutual funds in
January-November 2008; steep fall now
– Rs 61000 crores 10 year National Maritime
Development Programme thru public
private partnership to boost major ports
– New international airports in Bombay.
Delhi, Bangalore, Hyderabad; Slowed
expansion
– Road toll collections fall 6% Feb 08 to 09
– Rail container traffic falls
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
– 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

over the next 15-20 years. By 2020, India will
have 270mn people (more than today’s total US
population) between the ages of 15 and 35.
Savings rates and productive potential will be at
their highest.
Demographic
Dividednd
 India’s Population(million):
Above 60 = 65 (6.3%) (2001); 113
(8.9%)(2016)
Age 15-59 = 598 (2001); 811 (2016)
Urbanization:
27.8% (2001); 50%? (2030)
Issues:
Livelihoods, health, education, housing,
water, roads, sanitation, social security, law
and order
The Past Ten Years And Now
–
–
–
–
–
–
–
–
–
GDP growth: From 1998-99-6.5, 6.1, 4.4, 5.8, 4.0, 8.5, 7.5, 9.5, 9.7, 9.0; 2008-09
- 6.7%; 2009-10 ; 7.2% ?; 2010-8%?
Industrial production negative growth Dec 08, Jan 09.and now growing
High and Rising Savings rate
Rise in Capital formation Esp. Private Sector
Deepening Export
Inflation at single digit for a decade; 7.5% 2008-09, 4.2 in Dec 2005; despite fuel,
power, light & lubricants at 7.5; Declining from 2004-05; in 2008 negative and Nov
2009; -0.9%; now rising;
Export growth trends; 01-02 onwards: 2.7, 22.1, 15.0, 27.9, 21.6 , 25.3, 14.7 & in
2008-09 - 16.9 and now + 15%
Rapid growth of I.T. and B.P.O. Exports of software services increased from 79.40
thousand crore in 2004-05 to 215.88 Thousand crore in 2008-09
Resilience: Survived face-off with USA and sanctions after nuclear explosions
Signs of Improvement




Modest signs of Growth in global
economy
Developed Economies in Jan 2009
grew at 0.5% and Oct 2010 at 3.1
Emerging and Developing Economies
grew from 3.3. to 5.1%
India from 5.1 to 6.4 %






India-Recent economic
developments
Growth: Sectoral Contributions Reverting to
“Normal” (Q1- 07-08 Industry and Agriculture
wwere 29% of GDP, fell in Q3 of 98-09 to <
2%, now at 29%)
Growth: Govt. Expenditure dominates (8 to 25
% in 15 mths), but slight pickup in private
spending ((10 to 5 now 7%)
Industrial Production: Driven by Durables;
growth only in some
Inflation: Food-driven but signs of spread
Credit Growth: Recovering, but slowly
Liquidity: Comfortable, at an aggregate level
and interest rates sticky
Drivers of Recovery: Fiscal
Policy








%to GDP
Item
2008-09
Tax reductions
0.2
Investment
0.8
Pay Commission Impact 0.5
Other Expenditure
0.9
Total
2.4
Debt waiver 0.3 -
2009-10
0.4
0.1
0.3
1.0
1.8
Drivers for 2010





Global economy showing signs of modest
recovery in 2010
Domestic recovery appears to be gaining
momentum
Contribution of manufacturing sector increasing
Govt. borrowing requirements not likely to
exceed estimates

Ample liquidity in the system despite 2nd quarter
 surge in growth

Current account deficit likely to remain
 moderate

Risks

Growth pattern is skewed

Recovery still driven by a few sectors
Public spending contributing significantly

Food inflation racing ahead



As capacity constraints emerge, dangers of an
expectations-induced spiral

High interest rates – restraining credit flows?
Potential surge in capital inflows

Global liquidity and domestic recovery

Weak part is Agriculture-1

Supports 60% of population
– Agriculture was 32% of GDP in 92-93; 17% in 2008-09
(AE)
– Agriculture growth or decline has direct effect on GDP; 97
GDP + 7.8% Agriculture +8.8; 04- 8.5 & A-9,3
– Erratic rice & wheat production:
–
08 07 06 05 00 91 81 (mn t)
– R 96 93 92 83 85 74 54
– W 78 76 69 69 70 55 36
– Land availability limited: Since 1980 crop area for food
grains static at around 124mn hectares
– Total Investment falling in 1990s as % to GDP from 1.92
in 90-91; 1.83 in 99-00; 2006-07- 2.3 %
Weak Agriculture
Fall is in public investment; private keeps rising; funds
for public investment diverted to poorly targeted
subsidies(water, power, fertilizer)
– Productivity levels are low: Yield @ 100kg/HA; India and
China in 2006: paddy 31.24 & 62.65; wheat 26.19 &
44.55; cotton 6.0 & 33.3; g.nut 8.6 & 31.2, s.cane 669.4
&825.25
– Poor policies encouraging unsuitable crops: free electricity;
minimum support and procurement prices same; annual
price increases; no ground water policy; free power to
agriculture60% population lives on agriculture
– In downturn, companies turning to rural markets, with
new Marketing methods
– Huge potential as diversification progresses
Weak Infrastructure

Non-implementation of integrated energy policy; no
coordination between electricity, coal and gas
– Government ownership of Electricity distribution,
coal Government implementation poor on Roads
– Infrastructure regulation/implementation
awaiting overhaul
– State ownership- high inefficiency in infrastructure
– Slow decision-making under government ownership;
corruption
– Federal Constitution; states at loggerheads with Centre
HDI Rank out of 174:

Sri Lanka 89;
China 96;
Indonesia 110;
India 124;
Pakistan 148
Erratic growth performance

Economy-4 to 6 year cycles
– Weak “real” economy, especially agriculture;
manufacturing low share; services high!
– Poor HDI; High poverty & rising inequalities
– High unemployment and “disguised”
unemployment
– Pressure of population on Agriculture
– High deficits;
– Weak infrastructure
Context of weak
fundamentals
– Rising deficits-not shown by Centre in Budgets-Oil
Bonds, FCI bonds, Fertilizer bonds, Farmer Loan
write-offs, etc
– Putting Growth over inflation control
– Desperation to add to Foreign Exchange Reserves
– 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
– Participatory Notes and round-tripping of Indian
funds
Poor Implementationadministrative reform

Government has been very inefficient in its expenditures;
more subsidies than asset building
– Similarly Public Distribution System-e.g. food grains, sugar, edible
oils, cheap kerosene;
– Other subsidies poorly targeted, physical handling and
inefficiencies-fertilizers, free or cheap power to agriculture;
– Social Programmes- NHRM, SSA-not efficient in spending
honestly. NREG should have added to purchasing power but with
estimates ranging from 40 % to 60% wasted and leakage, its
effect has been reduced.
– Unspent funds in most programmes
– Infrastructure spending is also slow, eg., NHAI.
– Many projects delayed due too many Ministries, lack of
coordination, non-accountability of bureaucracy
Issues to be dealt with if
spending is to be efficient













Administrative Reforms-specialization, performance orientation,
accountability, Poor coordination between Ministries
Labour Laws
Administrative Reform
Reduce Red Tape
State Owned Enterprises:
Distance government from management
Enterprise vs. administrative culture
Management autonomy
Foreign investment-insurance, retail, other areas
Private Sector: Improve Corporate Governance
Expenditures: Target subsidies; efficient delivery; eliminate
undeserving
Agriculture: Correct decades of Neglect
Social programmes & infrastructure: Targeting; Decentralize to
Local Authorities

THANK YOU