Could India

1
Could India overtake China?
2
Is India catching up to China?

• Not in terms of international finance its
  foreign exchange reserves are still less than
  130 bn, versus Chinas 700 bn, HKs 122 bn,
  Koreas 200 bn, Singapores 115 bn, Taiwans
  250 bn, Russias 150 bn, and Japans 1000 bn
  .

3
Is India catching up to China? Look again

• In 2005 Indias GDP growth rate was almost 8 and
  rising, versus 9.5 and falling in China.
• In 2005 Indias stock market rose 15 in dollar
  terms, versus a fall of -12 in China.
• Indias growth has been more in services, versus
  Chinas in manufacturing.

4
Indias strengths

• Indias population growth is faster than Chinas,
  and its population is much younger.
• Indians speak English. Their universities have
  become among the best in the world, esp. in
  engineering, IT and bio-technology.
• Their banking sector is much healthier than
  Chinas, and the return on capital is much higher.

5
Indias weaknesses?

• Indian democracy is fractious and has thus far
  blocked infrastructure development. But now a
  massive autobahn is being built connecting
  Mumbai to Delhi and Calcutta.
• BUT Indias democracy also fosters creativity,
  and provides an outlet for discontent that China
  lacks.

6
World Bank Report on India

• Carl Dahlman and Anuja Utz,
• India and the Knowledge Economy
• World Bank Institute Development Studies,
• June 26, 2005, 178 pages.

7

• Macro-stability
• Since the 1991 crisis, when energy imports
  exhausted reserves, Indias GDP growth is up
  (averaging 5 7), volatility is down, inflation
  is down and all three trends have been resilient.
  The debt burden has been stable and FX reserves
  have increased to safe levels.

8
Indias youthful labor force

• Indias demographic peak (when its ratio of
  income-earners to dependents peaks) is, unlike
  Chinas, yet to come.

9
Democracy and a free market

• India has the worlds largest population under
  democracy and the worlds fastest growing free
  market. Good or bad for growth? More later.

10
Outsourcing human capital

• India has mastered 21st century Information
  Technology, leap-frogging the need for
  transportation infrastructure. Its youthful
  population embraces this technology. Vocational
  training is at last taking off, after decades of
  strictly academic education.
• Outsourcing to Hyderabad and Bangalore is now
  legendary, documented anecdotally in Thomas
  Friedmans The Earth is Flat. Young Indians
  can sell services to rich countries without
  leaving India, and H. and B. are now attracting
  engineers and investment bankers from all over
  the world.

11
Domestic vs Foreign DemandRetail Banking

• Indias growth is driven by domestic demand
  Chinas by foreign demand
• The 1991 reforms sparked consumer lending, as
  Indias (govt) banks were opened to pvt
  competition, and subjected to BIS regulations.
  Indias retail banking is now growing at 30 per
  year, although retail loans are still only 5 of
  GDP (versus 40 in Taiwan). Electronic banking is
  much more advanced than China. Indias NPLs are
  only 2.3 of assets.

12
21st Century Farming

• 65 of Indias population is rural, and the govt
  recognizes that rapid movement from farms could
  be disastrous (also, democracy and private
  property rights constrain such a plan).
• Instead, India espouses 21st Century Farming
  eg, rural village kiosks (e-chaupals) where
  world prices are quoted and small sellers can
  trade.

13
The Indian Touch

• Indias concentration on manufacturing for
  domestic rather than export demand encourages the
  Indian touch easy-to-repair cars and trucks, a
  smart health card, a cell phone for truckers
  (with a flashlight!), Maggi Sauce becomes Maggi
  Pickle.

14
Design versus Mass Production

• India doesnt mass produce as effectively as
  China, but it does win quality and design awards
  eg TAPS got the GM supplier of the year award
  last year.
• Some of Indias traditional non-tradeables are
  becoming globalized eg, the 3 Fs
• Food, Fashion, and Film.

15
Recycling

• A scarcity economy and shortage of capital have
  made Indians inventive about improvising on
  inputs and reducing costs.
• For example, 60 of Indias plastic waste is
  recycled, compared to 10 in China and 12 in
  Japan.(Pavan K. Varma, Being Indian p. 74.

16
Small Scale Industries

• India provides financial and fiscal incentives to
  SSIs also Indian banks extend small loans.
• Indias SSI sector employs 80 of factory
  workers, 50 of value added in manufacturing, and
  about one-third of export value.
• There are about 2.5 million small scale
  enterprises in India, and they pay about 1
  billion dollars a year in bribes.
• Only 3 of Indias work force is in the formal,
  organized sector private, corporate and public

17
Democracy vs Autocracy

• India is very diverse and decentralized, with 15
  states the size of typical European countries,
  but more populous. It is remarkable that it has
  proved democratically governable since
  independence. Some eg, Pranab Bardhan) fear that
  India is paralyzed by fragmented political
  parties. Democracy has pros and cons for growth
  (eg Indias income dist is, surprisingly, more
  equal than Chinas, and the potential for serious
  unrest and political crisis may be lower but
  its ability to relocate people and install
  infrastructure is constrained eg, Mumbais
  putative superhighway). Since India is less
  coordinated from the top, its potential for
  large-scale error may be lower. But to be fair,
  Chinas CCP is increasingly sensitive to popular
  opinion.