Could India overtake China - PowerPoint PPT Presentation

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Could India overtake China

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Not in terms of international finance: its foreign exchange reserves are still ... In 2005 India's GDP growth rate was almost 8% and ... Democracy vs Autocracy ... – PowerPoint PPT presentation

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Title: Could India overtake China


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.
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