Concept of Indian Economy

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The Future of Indian

Economy: Opportunities andResponsibilities

Mukul G Asher

Professor of Public Policy,National University of Singapore

[email protected]

Presented at “Opportunities and challenges for Future Generations in Leadership” in Ahmedabad (26 -27 December 2008)

mailto:[email protected]

mailto:[email protected]



India: An Introduction• Population: 1.13 billion

(2007)• Federal State with 28

States and 7 UnionTerritories

• GDP USD1.2 trillion(2007)

• External Trade – USD528 billion (2007)

• Forex Reserves – USD247 billion (end Nov2008)

• Market capitalisation (asend Nov 2008): USD 560

billion (50% of GDP).



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India‟s Geography

• India has one-third the land mass of the United

States; and nearly four times its population.• India therefore must develop strategies for

sustainable growth and livelihood which suits itsrequirements, while continuing to integrate with the

world economy and moving towards a knowledge-based society

• Economic efficiency in the use of scarce resources,growth and social cohesion promoting institutions,socio-political norms are therefore imperatives.

Country Population Land mass

India 1.13 b 3.2 m sq km

USA 0.30 b 9.6 m sq km



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• India constitutes nearly 17 percent of the world‟s

population, but even in PPP terms its GDP share is only5 percent.

• In all “good” things (eg, agricultural production, GDP,

patents, tourists, FDI) India‟s share is at least one-sixthof the world‟s total.

India‟s Share in World GDP



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India‟s Share in World GDP

• Conversely, in “bad” things, India has a much smaller

share, India, can not feel a sense of accomplishment.There is therefore no room for complacency.

• India must continue to be outward oriented, and cultivatea mindset that absorbs ideas and good practices from allparts of the globe an apply them to meet India‟s

challenges.

• Yashend Huang (2008) has argues that “if India can

grow, then no other poor country must face a Faustianchoice between growth and democracy”



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25% 23% 24%16%

13%

9%

4%

3%



7

Evolution of Global and Per Capita GDP in the Last 2,000 Years

Source: Commission on Growth and Development (2008)



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Key Demographic Indicators in Asia

Sources: Population Division of the Department of Economic and Social Affairs of the United NationsSecretariat, World Population Prospects: The 2006 Revision , http://esa.un.org/unpp, 23 November 2007;

3:48:26 PM; UN Statistics Division, http://unstats.un.org/unsd/demographic , 28 November 2007; 6:29 PM.

Country Total

Population

(millions)

Average

annual rate

of change of population

Total

Fertility Rate

(TFR)

Median Age Life Expectancy

at Birth

Medium Variant

2007 2050 2005-

2010

2045-

2050

2005-

2010

2045-

2050

2005 2050 2005-2010 2045-2050

World 6671.2 9191.3 1.17 0.36 2.6 2.0 28.0 38.1 67.2 75.4

China 1328.6 1408.8 0.58 -0.32 1.7 1.8 32.5 45.0 73.0 79.3

India 1103.4 1592.7 1.55 0.30 3.0 1.8 24.3 38.7 63.1 75.9

Indonesia 231.6 296.9 1.16 0.10 2.2 1.8 26.5 41.1 70.7 78.6

Korea 48.2 42.3 0.33 -0.89 1.2 1.5 35.0 54.9 78.6 83.5

Malaysia 26.6 39.6 1.69 0.41 2.6 1.8 24.7 39.3 74.2 80.1

Philippines 87.9 140.5 1.90 0.50 3.2 1.8 21.8 36.3 71.7 78.7

Singapore 4.4 5.0 1.19 -0.38 1.2 1.6 37.5 53.7 80.0 84.6

Sri Lanka 19.7 18.7 0.47 -0.55 1.9 1.8 29.5 43.4 72.4 77.6

Thailand 63.9 67.4 0.66 -0.27 1.8 1.8 32.6 44.3 70.6 78.1

Vietnam 87.4 120.0 1.32 0.21 2.1 1.8 24.9 41.6 74.2 80.3

http://esa.un.org/unpp

http://unstats.un.org/unsd/demographic

http://unstats.un.org/unsd/demographic

http://esa.un.org/unpp



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Country Life Expectancy at

age 60, 2000-2005

Percentage of

total population

aged 60 and

above

Medium Variant

Population aged 60

and above (millions)

Medium Variant

Men Women 2005 2050 2005 2050

World N.A. N.A. 10.3 21.8 672.8 2005.7

China 20 17 11.0 31.1 144.0 437.9

India 16 18 8.0 21.0 89.9 329.6

Indonesia 18 16 8.3 24.8 18.9 73.6

Korea 23 18 13.7 42.2 6.6 17.8

Malaysia 19 17 6.7 22.2 1.7 8.8

Philippines 19 17 6.0 18.2 5.1 25.5

Singapore 23 20 12.3 39.8 0.5 2.0

Sri Lanka 17 21 9.7 29.0 1.9 5.4

Thailand 20 17 11.3 29.8 7.1 20.1

Vietnam 20 18 7.6 26.1 6.5 31.3

Key Demographic Indicators in Asia



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Demographic Trends

• Asia is set to experience rapid ageing in the 21stcentury. China, Indonesia, Korea, Malaysia, Philippines,Singapore and Thailand will have nearly as many elderlyby 2050 as in the world in 2005.

• Asia in 2050 will account for nearly three-fifths of theworld‟s population.



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Demographic Trends

• The rapid ageing of Asia is a result of reduction in fertilityrates and increased life expectancy at birth and at age65. By 2045-50, the above countries will have TotalFertility Rate (TFR) below the replacement rate as

compared to only four in 2005-10.

• As is well known, increased longevity raises socialsecurity costs disproportionately. Uncertainty aboutlongevity trends (example, due to uncertain impact of

medical technology) is increasing the complexity ofdesigning pension programs.



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Demographic Trends

• The median age in Asia (with the exception ofPhilippines) will be well above average for the world in2050. In Korea and Singapore the median age will benearly 55 years.

• Sharply increasing median age and reduction in theworking-age population can be seen across Asia. As thetiming and pace of this reduction will vary among theAsian countries, there may be opportunities to leveragedemographic complementarities for greater economic

integration.



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Source: United Nations, 2002, „World Population Ageing 1950-2050‟ Sales No E02XIII.3,

Department of Economic and Social Affairs, Population Division, New York: United NationsPublications.

Population Aged 15-59 for Asia-Pacific Economies 1950-2050



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New jobs in thedeveloping world

In millions % of world increase

Developing Asia 315.5 67

China 65 13.8

India 142.4 30.2

Latin America 45 9.5

United States 12.5 2.6

EU 25 8.4 1.8

Total 471.3 100

New Jobs in the World Economy 2005-2020

Source: Economist Intelligence Unit



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The Four Phases

• Panagariya (2008) identifies four distinct phases inIndia‟s growth and economic reforms since

independence.

1. Phase I (1951-65): Takeoff under a liberal regime

2. Phase II (1965-81): Socialism Strikes with aVengeance

3. Phase III (1981-88): Liberalization by Stealth4. Phase IV (1988-06): Triumph of Liberalization



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The Four Phases

Phase Time Period Growth Rate

Phase I 1951-65 4.1 %

Phase II 1965-81 3.2 %

Phase III 1981-88 4.8%

Phase IV 1988-06 6.3%

India‟s real GDP grew at 6.9% pa during 2000-2007 (RBI Handbook 2008)



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Four Phases of Growth (percent)

0

1

2

3

4

5

6

7

1951-65 1965-81 1981-88 1988-06

A n n

u a l G D P G r o w t h R a t e ( % )



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India: Changing Composition ofGDP

YearAgriculture &

Allied Industry Manufacturing Service

1950-51 57 15 9 28

1964-65 49 21 14 31

1980-81 40 24 14 36

1987-88 33 26 16 41

2004-05 21 27 17 52



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Composition of GDP

2004-05

Agriculture

and Allied

Industry

Manufacturing

Service

1950-51

Agricultureand Allied

Industry

Manufacturing

Service

• Declining share of agriculture; increasing share ofindustry and services



Food grain production

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•The government‟s wheat

stocks on August 1 wereup 102% y-o-y, rice wasdown 6%

•Rice procurement is stillon and the governmentwill be able to buy about1.2 mt in the last twoquarters of 2008

•The government‟s rice

stocks have fallendespite higherprocurement, as severalstates have kept stocksfor their own use.



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Merchandise Exports and Importsas Proportion of GDP

Year Exports/GDP Imports/GDP

1965-66 2.9 5.1

1975-76 4.8 6.31985-86 3.9 7.1

2005-06 20.5 22.6



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Merchandise Exports and Importsas Proportions of GDP

Merchandise Exports and Imports as Proportions of

GDP

0

5

10

15

20

25

1965-66 1975-76 1985-86 2005-06

% o

f G D P

Exports/GDP

Imports/GDP



External Sector Data

• In 2007, India‟s total external trade in goods and

services was USD 528 billion (47.9% of GDP)

• This is one of the important indicators of India‟s rapidly

integration with the world economy.

• India plans to achieve a target of USD 1000 billionbefore 2015 in its external trade. This will be a hugechallenge in view of the current global crisis.

• The others are inward Foreign Direct Investment ( $32.3billion in 2007-08), and remittances (~$ 30 billion in2007)

• India‟s outward investment is also growing.

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Official Poverty Estimates



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Poverty Decline underLiberalization Reforms



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• Growth in

Per-CapitaNet StateDomesticProduct

• Widevariationamongstates



Major Challenges• Ensuring that good economics is good politics (this will

require a shift from ruling to governing mindset, andadministrative and civil service reforms).

• Environmental challenges.

• Energy and Food Security.

• Managing Urbanization.

• Accelerating physical and social infrastructureinvestments.

• Developing human capital for sustainable livelihoodsthrough application of knowledge economy .

• Coping with demographic challenges.

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Concept of Indian Economy