India after May 2014 Economics, Politics and Society Omkar Goswami CERG Advisory Chicago, February 2015 1
UPA-2: Seemed like a golden dawn… Lok Sabha Seats, 2009 • Congress won 206 Congress seats (+61). With its 93 UPA allies and ‘outside’ Allies 206 support, UPA-2 got 291 Support 43 to UPA seats out of 543 BJP • The Communists lost 116 NDA 35 seats Allies 56 29 Others 2
10% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% Apr-Jun 2009 Jul-Sep 2009 8.6% Oct-Dec 2009 Jan-Mar 2010 9.4% Apr-Jun 2010 …That gave way to a disastrous five years Jul-Sep 2010 Oct-Dec 2010 Real GDP growth Jan-Mar 2011 9.2% Apr-Jun 2011 Jul-Sep 2011 6.7% Oct-Dec 2011 6.1% Jan-Mar 2011 5.3% Apr-Jun 2012 4.5% Jul-Sep 2012 4.6% Oct-Dec 2012 4.4% Jan-Mar 2013 4.4% Apr-Jun 2013 4.7% Jul-Sep 2013 5.2% Oct-Dec 2013 4.6% Jan-Mar 2014 4.6% Apr-Jun 2014 5.7% • Gross capital formation -7% -6% -5% -4% -3% -2% -1% 0% 30% fell from 37% of GDP to Fiscal deficit as % of GDP -6.0% FY2009 -6.4% FY2010 -4.9% FY2011 -5.7% FY2012 -4.8% FY2013 -4.6% FY2014 3 -4.1% FY2015
Government was paralyzed by scandals • Commonwealth Games scam in 2010 • 2G spectrum scam • ‘Coalgate’ scam • The Supreme Court became the ultimate defender of virtues • The executive soon became the butt end of cruel jokes 4
May 2014: The change Lok Sabha Seats 2014 149 BJP NDA Allies Congress 282 16 UPA Allies 44 Others 54 The BJP chose to fight for good governance with BJP alone won 52% of the seats Narendra Modi The last time a party won majority in The results exceeded all the Lok Sabha was December 1984 opinion poll forecasts Congress got decimated… 44 seats 5
State Seats BJP+Allies Gujarat 26 26 Rajasthan 25 25 Madhya 29 27 Pradesh Maharashtra 48 42 Uttar Pradesh 80 73 Bihar 40 31 Chhattisgarh 11 10 Jharkhand 14 12 Karnataka 28 17 Delhi 7 7 6
A sense of Modi þ ý Runs a ‘presidential’ form He is not a Delhi man… of government. Most not a Lutyens ‘insider’ ministers unsure of their Wants to be there for at administrative turf least two terms… and will Starting too many highly do what it takes to rule and publicized programs deliver without the bandwidth to Works with bureaucrats and roll these out across India key ministers. Excellent Too many ‘religious’ administrator and quick distractions by a decision taker significant fringe that is Has a vision for India’s embarrassing for a person progress and its place in wanting to be seen as the sun pursuing development 7
Dependence on some Arun Jaitley to bring Piyush Goyal to get in the Goods and the coal blocks Services Tax, FDI in properly re-auctioned, insurance, better tax help restart stalled administration, investments in the select privatization power sector and and cut in subsidies reform distribution Suresh Prabhu to Amit Shah bring much needed to ensure railway reforms: that BJP rationalizing fare, wins better rolling stock, enough more safety, higher state Manohar Parrikar margins, releasing elections to spur major unused land to control investments in the Rajya defense Sabha 8
Some hubris… and a reversal Then came his famous suit during President Obama’s visit After May 2014, the two thought all elections were going to be cake-walks 3 Then came Arvind Kejriwal of the Aam Aadmi Party and the Delhi elections on 7 February 2015 67 9
So, in Facebook… 10
Challenge 1: Economic headwinds International Domestic • Slow rate of growth in 2015 • Still no signs of a sustainable investment cycle • Advanced economies: 2.3% • Euro zone: 1.1% • Interest rates remain too high • World economy: 3.8% • Manufacturing growth muted • Russia in deep trouble • No pick-up in infrastructure • Growth in 2015: (-)3.5% • Critical bottlenecks remain: • Uncertain global capital and coal, spectrum for wireless, currency markets land for highways • Growing terrorism spreading • Business climate needs huge from the Middle East improvement • Terrorist incursions from Pakistan 11
Challenge 2: Education Education Entire pop Ages 20-44 90% 100% % literate 90% % of population that is literate 78% 86% 90% 74% 80% 82% 82% 79% 70% 70% 74% 80% 66% 70% 63% 68% 65% 58% 70% 56% 60% 56% 50% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% All-India Rural Urban All-India Rural Urban Persons Males Females Persons Males Females 12
Challenge 3: Demography… 1,100 75% Millions Ratio of dependents to earners 70% 1,000 65% 900 60% 800 55% 50% 700 45% 600 40% 500 35% 400 30% 1990 1995 2000 2005 2010 2015 2020 2025 2030 1990 1995 2000 2005 2010 2015 2020 2025 2030 15-64, China 15-64, India Total dep rato, China Total dep rato, India The dependency ratios The potential working population 13
…Which is a challenge in practice Population in millions 120 Taking care of the old 1,400 102 85 70 Re-skilling the older 1,200 315 61 284 256 workforce 230 199 1,000 Creating and sustaining 436 453 414 800 384 employment 352 600 High school education, 229 234 239 239 237 college, skills training 400 Health, nutrition & 200 364 364 360 358 351 primary / secondary education 0 2010 2015 2020 2025 2030 0-14 15-24 25-44 45-64 65+ 14
Challenge 4: Creating jobs Extra jobs needed in each five-year period (millions) 50 40 44 44 43 41 39 30 30 20 10 0 2015 2020 2025 2030 2035 2040 15
Challenge 5: Peculiar structure of GDP India’s structure of 75% Services as % of GDP the economy is like 70% SAF Latin America and BRA 65% ARG South Africa, which CHL RUS 60% have much greater KOR per capita income INDIA 55% BNG Totally different 50% MAL from the rest of SE CHI 45% and East Asia THA VIE INDO 40% It has to do with Industry as % of GDP 35% how India hindered 20% 25% 30% 35% 40% 45% 50% manufacturing 16
Challenge 6: The sky, land and under Urgent need to free spectrum and design economically efficient ways of If freed up, allocating this to capable bidders these three sectors can contribute to Urgent need to ease up constraints an uptick of 1% imposed on land use to help growth of in GDP growth manufacturing and highways over the next decade Urgent need to open up coal blocks, allow for mining of ores and improve the bidding process for hydrocarbons 17
Challenge 7: Economic disparities Census of India, 2011 Top 150 districts 151 to 300 301 to 450 450 to 593 18
Challenge 8: Inequalities 100% % of pop. USA India China S. Africa % of income or consumption Top 20% 46.0% 42.8% 47.1% 69.9% 80% Second 20% 10.4% 12.1% 9.7% 4.3% Third 20% 15.8% 15.7% 15.3% 7.7% 60% Fourth 20% 23.1% 20.9% 23.2% 15.7% Bottom 20% 4.7% 8.5% 4.7% 2.4% 40% In terms of inequalities, India is 20% better than China, the USA and % of the population much better than South Africa 0% Bottom 40% 60% 80% 100% However, it is a nation with a 20% strong voice… which needs the USA India China South Africa problem to be addressed 19
Challenge 9: Eastern geopolitics Riparian rights Arunachal Thatta Myanmar Hambantota 20
And yet: The only two shows in town There are two shows in town: GDP in PPP, nominal, USD billions 20,933 China and India 20,000 No emerging 15,000 market comes close to them in 10,000 8,550 size and GDP 5,000 No nation of any heft comes 0 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 close in terms of growth Brazil Indonesia Russia South Africa Turkey China India 21
With the highest growth rates 16 China’s growth is 14 trending down 12 10 India’s is slowly 8 trending up 6 4 Both nations will 2 settle at 7% to 0 7.5% growth... -2 which can be -4 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 sustained over the next decade China India Advanced economies Emerging markets 22
So… • India is a large, outspoken democracy • Often disorganized and unwieldy • It can go forward with great zeal, then stall and move sideways… to go forward yet again • Investments need patience… but usually yield decent returns • And, as Japan and South Korea have understood, other than China, it is the only big show on earth India frustrates. Yet, only the myopic will ignore India 23
Questions 24
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