Managing India to take Dreams to Reality

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Managing India to take Dreams to Reality

• S L Rao
• February 24 2010

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Outline

• 1. Indias Potential-Slides 1-6
• 2. Recent economic developments-Slides 7-11
• 3. Risks to Growth- Slides 12-19
• 4. Issues in Making Dreams into Reality-Slide 20

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Indias Potential 

• 1. Worlds Largest Pool of Trained Manpower
•  200 million college graduates (16)
•  500 million trained, skilled workforce (40)
•  Universal Literacy
• 2. Worlds 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

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Indias 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

5
 Indias 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

6
Demographic Dividend 

• 2004-Population 1080 million of which
• Age between 15 and 64 672 million
• Below 15 and over 64, non-working or dependent
  population408 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 childrenmore women at work more saving
  greater growth
• over the next 15-20 years. By 2020, India will
  have 270mn people (more than todays total US
  population) between the ages of 15 and 35.
  Savings rates and productive potential will be
  at their highest.

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HDI indicators Demographic Dividednd

• Indias 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

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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

9
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

10
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 lt 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

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Drivers of Recovery Fiscal Policy

• to GDP
• Item 2008-09
  2009-10
• Tax reductions 0.2
  0.4
• Investment 0.8
  0.1
• Pay Commission Impact 0.5
  0.3
• Other Expenditure 0.9
  1.0
• Total 2.4
  1.8
• Debt waiver 0.3 -

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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

13
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

14
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

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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 _at_ 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

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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

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HDI Rank out of 174

• Sri Lanka 89 China 96 Indonesia 110 India
  124 Pakistan 148

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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

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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

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Poor Implementation-administrative 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

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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

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• THANK YOU