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THE EVOLUTION OF THE INDIAN
ECONOMY
Economic Performance (1990-2005)
A Specific Pattern of Development
Is the Growth Model Sustainable? CurrentPolicy Issues
Long-Term Prospects- Potential Growth
Evolution of the Indian Economy, 23 February 2006
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Economic Performance (1990-2005):
The Other Giant Catching-up
One of the most dynamic economy in the
world
International trade: behind China in tradeof goods, but a major exporter of services
Still very poor: a slow convergence ofincome with industrialised economies
Evolution of the Indian Economy, 23 February 2006
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India: Economic Growth from 1985 to 2005(annual growth rate, in %)
-6
-1
4
9
14
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005*
GDP Agriculture Industry Services
-Still vunerable to
agricutural fluctuations
-Recent rise in trend
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Contribution to World GDP and to Global Growth
1995 to 2004 (in %)
31
11
9
4 4 3 3
27
5
16
54
7
2
0
5
10
15
20
25
30
35
Etats
-Unis
Chin
a
Japa
n
Fran
ce UK
German
y
India
Contribution to world GDP growth 1995-2004
Share in world GDP in 2004
India:
3% of World GDP growth (7th)
2% of World GDP (12th)
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India and C ina: Shar in Word Trade ofGoods
and Ser ices (in % ofword trade)
0,0
1,0
2,0
3,0
4,0
5,0
6,0
7,0
198
0
198
2
198
4
198
6
198
8
199
0
199
2
199
4
199
6
199
8
200
0
200
2
China's exports of goods
China's exports of services
ndia exports of services
ndia's exports of goods
6,1%
2,6%
1,3%
0,9%
-India lags behind
China in goods
exports- Strong
perfor ance in
ser ices exports
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Level of Income Compared to Rich Countries Rich countries=100
0
5
10
15
20
25
30
80
83
86
89
92
95
98
2001
Other developing economiesIndia
China
17%
10%
-India and China: among
the rare developing
countries which are
catching up.
-Indian per capita income
still far behind China
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Evolution of the Indian Economy, 23 February 2006
A Specific P ern of Development
A services-led economy
A narrow manufacturing sector
A slow opening-up to international trade
and investment
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India: Economic Growt from 1985 to 2005(annual growt rat in %)
-
-
GDP Agriculture Industry Services
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India A Se vices ed Ec nomy:Structure ofGDP (in %)
3122
10
10
16
17
4351
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1993 2002
Services
Manufacturingindustry
Mines,Construction,
Utilities
Agriculture
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Services: skill-intensive activities are the most dynamicAnnual growth rates in the 1990s (%)
4
5
5
6
7
7
7
7
8
8
9
13
14
20
0 2 4 6 8 10 12 14 16 18 20
Railways
Real estate
Peseonnal services
Public adlinisatration
Insurance
other transport
Other services
Trade
total
Community services
Hotels & restaurants
Banking
Communication
Business services
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Structure of Industrial Production, in 1993 and 2003
(in % of total)
3
4
6
10
12
18
21
17
10
0 5 10 15 20 25
Others
Wood and paper
Construction material
Metal and metal products
Textile & Clothing
Food
Mining, Power
Machinery & Transport equipment
Chemicals
2003
1993
Chemical and
Machinery
drive industrial
growth
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Openess to FDI
India Compa ed toSe ected sianEconomies, 2004
8
3
6
4 4
15
13
98
6
3
6
0
2
4
6
8
10
12
14
16
Chi
Tiw
Pki
t
th-Korea
Ban
glad
esh
India
F I Inflows in of GrossCapital Formation
F I stocksas of GDP
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Indiaand hina:Openess reign Trade
E pors in GDP, 1980-2003
0
5
10
15
20
25
30
35
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
hina
India
29%
11%
India uch less pen:
-Ti e lag?
-Narr anu ac uring
sec or
-Geographic
en ir n en
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India: Direction of Foreign Trade
Share of Major zones (%)
3529
36 38 37
48
1924
19 16 21
23
29 29 23
3433
22
17 18 21
12 107
0%
20%
40%
60%
80%
100%
1990 1995 2003 1990 1995 2003
NAFTA
EU-15
Asia
thers
Indian Exports Indian Imports
-Geography of trade isrelatively balanced
-India is not part of a
regional integration
process
-Trade with Europe is
slowing down
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Evolution of the Indian Economy, 23 February 2006
Is the Growth Model Sustainable ?
Strengths:
yGro tho s ill-intensi e ti ities (bothdomestic
andinternational):-IT ser ices-Pharmacy & biothechnology
yHumancapital:tertiaryeducation
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India: a world leader in exports of IT services(Share in world exports, in percent)
20
16
11
9
8
5
0
5
10
15
20
25
Ireland India UK Germany USA Isral
2000 2001 2002 2003
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Product Composition of High-Tech Exports
Other HT
8%
inery
Radio, TV,
telecom.eq.
10%
Precisioninstruments
8%
Chemicals
68%
HT goods account for
4% of Indian exports,
Concentated in
chemicals
(pharmaceutical )
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Evolution of the Indian Economy, 23 February 2006
Is the Growth Model Sustainable ?
Can Indias ipthestageo industrialisation ?Thelimitso specialisationins ill-intensi eacti ities:
yCannot betheengineo theeconomy
yHaveasmalldirectimpactonemployment
y
Tendstoincreasesdivergence betweenStates
yMayhaveadversee ectsonothersectors
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Evolution of the Indian Economy, 23 February 2006
Current licy issues:
y mployment: jo less growth since the 1990s
y
In rastructure is a major ottleneck
yPo er ty and inequality
yPu lic de icit and de t:limited undsto inancesocial e penses and in rastructure
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Employment by sectors, 1990-2005,
in %
67
52
13
19
2128
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1990 2005
Services
Industry &bat.
Agriculture
Share of
services in
employment
(28%) smaller
than in GDP
(51%)
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Urban E p o n n he Organ e Sec rhas S agnate
since 1990s
3431
6669
0
10
20
30
40
50
60
70
80
90
100
1994 2000
Unorganise
sector %
Organise sector
%
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Number ofhouseholds in
2001
HouseholdIncome US$per year, in
2001
ExpectedDistribution
in 2010% %
Deprived 71.9 21 000 2
All 100.0 100
Distribution of income in 2001
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Evolutionofthe IndianEconomy, 23 February2006
y emographictrends: a window o opportunity
- trong increase o the working age population
- ependency ratio alling
y ctual growth will depend on the le el o
in estment and sa ings
Long-term Prospects: Growth Potential
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Ind nd Ch n P oj on o Popu on
- hou nd
0
200 000
400 000
600 000
800 000
1 000 000
1 200 000
1 400 000
1 600 000
1 800 000
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
China
India
&
India's population
overtakes China's
around 2035
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India and China: Working Age Population,
2000-2050 (15-64) (in millions)
-50
-30
-10
10
30
50
70
90
2000-052005-10 2010-152015-202020-25 2025-302030-352035-40 2040-452045-50
0
200
400
600
800
1 000
1 200
change in size India (left scale) China sizeat beginning ofperiod, India China
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Indiaand hina
Pro ectionso Dependenc Ratio, 2000 2050
Population 65/population >15and
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EvolutionofInvest entrate, 1981- 004
Gross Capital For ation/G ,
2121
19 1920
2120
21
2222
25
21
2221
25
25
2424
23
24
22
25
27
29
10
12
14
16
18
20
22
24
26
28
30
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
200
1
200
3
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Long-term Prospects- Growth Potential
Scenarios:
Recentstudieshave raisedpotentialgrowthto7-8
basedonhigherinvestmentandstronginstitutions.
Potentialmaynot be realised: a returntoalower
growthpath
Evolutionofthe IndianEconomy, 23 February2006
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A atc ing up Scena i f India and hina
2000-2050 (GDP in nUSD
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
2000 2010 2020 2030 2040 2050
US
C i
J
I i
India c uld vertake
Japan ar und 2035
S r : G l S
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0
10000
20000
30000
40000
50000
60000
70000
80000
90000
2000 2010 2020 2030 2040 2050
US Japan China India
Inco e ap ill Re ain La ge( e Capita incu ent olla s)