1/19/15Mohan Guruswamy 1

A Short Conducted Tour of One of the World’s Most Complex & Fastest Growing Economies.

Mohan Guruswamy

Meet India!

Modern India now has over 2000 ethnic groups. Modern Indian languages have evolved from all the world’s four language families. Indo-European, Dravidian, Austro-Asiatic and Tibeto-Burman. India has 1652 individual mother tongues. 30 languages are spoken by over a million each, and 122 by over 10,000 each.

India has almost 1.2 billion people, and the Union of India consists of 32 States and Union Territories. The biggest of these is Uttar Pradesh with a population of 199.6 million or 16.49% of India’s. It is as big as Brazil. The smallest political unit is Lakshadweep which has just 64,000 (0.01%)

In late 2012 India became the world’s third largest economy in PPP terms and has grown at an average rate of over 7.4% during 2004-14 and GDP from about $750 bn to $2 trl. Between 2008-11 it grew at more than 9%. In consonance with global trends India’s growth also has tapered off these past two years.

Clearly it’s a country of great heterogeneity, complexity and promise. Its diversity makes it unsuitable for any other form of government but a very raucous DEMOCRACY.

1/19/15Mohan Guruswamy 2

Meet India!

The once and future world?Major world economies from 0-2005.

1/19/15Mohan Guruswamy

3

1/19/15Mohan Guruswamy 4

A history of World GDP’s (1990 $ PPP)

1/19/15Mohan Guruswamy 5

Goldman Sachs predictions of GDP’s till 2050.

Source: http://www2.goldmansachs.com/insight/research/reports/99.pdf 1/19/15Mohan Guruswamy 6

The stuff our dreams are made off?

1/19/15Mohan Guruswamy 7

The brave new world to come!

1/19/15Mohan Guruswamy 8

The world at the end of the current decade.

Top 10 GDP’s (PPP).

1/19/15Mohan Guruswamy

9

India’s GDP 2004-2014.

1/19/15Mohan Guruswamy

10

1/19/15Mohan Guruswamy 11

India’s GDP growth. Not a bad decade at all!

1/19/15Mohan Guruswamy 12

WGDP growth since 2004.

1/19/15Mohan Guruswamy 13

Who contributes how much to world growth 2010-19.

BRIC’s will be bigger than G-6 by 2050.(In 2003 US $ bns.)

1/19/15Mohan Guruswamy

14

1/19/15Mohan Guruswamy 15

1/19/15Mohan Guruswamy 16

Whatever happened to Japan?

1/19/15Mohan Guruswamy 17

China A& India, Age & Population structure 2000-35China A& India, Age & Population structure 2000-35

Dependency Ratios in China 2005- 2050.

1/19/15

18

Mohan Guruswamy

Dependency Ratios in India 2005-2050.

1/19/15

19

Mohan Guruswamy

1/19/15Mohan Guruswamy 20

Why everybody is excited about India?

1/19/15Mohan Guruswamy 21

India’s late surge!

1/19/15Mohan Guruswamy 22

India’s burgeoning middle-class.

The Age of the Middle Class.

On conservative growth forecasts, Asia is predicted to add 2.5 billion people to the world’s middle classes in the next 20 years. The middle class in both China and India is growing at an extraordinary rate.

China’s middle class could swell to fifty percent of its population in just 12 years.

India’s middle class could rise even more rapidly because Indian households benefit more from Indian growth than do Chinese households, given the prevailing distribution of income’.

1/19/15Mohan Guruswamy

23

1/19/15Mohan Guruswamy 24

In just 15 years from now!

1/19/15Mohan Guruswamy 25

China’s aging problem. It will get old before it gets rich.

Life expectancy has more than doubled from 35 in 1949 to 75 today, a miraculous achievement. Meanwhile, the fertility rate has plummeted to 1.5 or lower, far below the 2.1 needed to keep a population stable.

Cai Fang, a demographer at the Chinese Academy of Social Sciences, says the country will have moved from labour surplus to labour shortage at the fastest pace in history.

In 2011, its workforce shrank for the first time, years before anyone had predicted.

Japan reached a similar turning point in about 1990. Ominously for China, that was just before its economy sank into two stagnant decades. By then, its living standards were already at nearly 90 per cent of US levels. In purchasing power parity terms, China’s per capita income is still below 20 per cent.

“There’s now no doubt,” says Professor Cai. “China will be old before it is rich.”

India’s growing workforce.

1/19/15Mohan Guruswamy

26

1/19/15Mohan Guruswamy 27

Changing structure of India’s economy

The Poverty Map of India.

1/19/15Mohan Guruswamy

28

What are India’s grim realities?

1/19/15Mohan Guruswamy

29

Reality 1. 62% of agricultural land is rainfed. 53% of the population is linked to agriculture for livelihood either as cultivators or as agricultural laborers.

Reality 2. In 2010 21.9% of Indians lived below the poverty line, defined as having monthly household expenditures of Rs. 816 in rural areas and Rs.1000 in urban areas.

Reality 3. 76% of all households below median per capita of Rs.74,920 per annum. Income inequality –Gini increasing.

What are India’s grim realities? - 2

1/19/15Mohan Guruswamy

30

Reality 4. Regional imbalances growing.Reality 5. 24.6% illiterate.Reality 6. Employment in organized sector stagnating

at around 31 mn for past 5 years. Government employs 19.3 mn or 69%, while PSU’s & Pvt. Sector employs only 10.65 mn.

Reality 7. Government capital expenditure for development now down to less than 15% of annual budget.

1/19/15Mohan Guruswamy 31

1/19/15Mohan Guruswamy 32

1/19/15Mohan Guruswamy 33

Key Economic Ratio’s & Long-term Trends.

1/19/15Mohan Guruswamy

34

Balance of Payments & External Situation.

1/19/15Mohan Guruswamy

35

Slide of the CADs.

1/19/15

36

Mohan Guruswamy

1/19/15Mohan Guruswamy 37

The high cost of populism.

1/19/15Mohan Guruswamy 38

A snapshot of the post 2008/9 economic crisis.

1/19/15Mohan Guruswamy 39

India’s International Trade.

1/19/15Mohan Guruswamy 40

The growing importance of Asia to India.

1/19/15Mohan Guruswamy 41

The nature of India’s International Trade.

1/19/15Mohan Guruswamy 42

India’s Energy scenario.

1/19/15Mohan Guruswamy 43

A Petroleum Products Exporter!

1/19/15Mohan Guruswamy 44

BJP’s Main Economic Drivers.

Urbanization as an Economic Driver.

1/19/15Mohan Guruswamy

45

Railways as an Economic Driver.

1/19/15Mohan Guruswamy

46

The four critical areas to focus on are fiscal belt-tightening, improving the business climate, complementing anti-inflation efforts and sustaining the improvement in the current account deficit.

The deficit is forecast to come in at around 4.6% in the 2013-2014 financial year ended in March 2014, down from 4.9% in 2012-2013 and 5.8% in 2011-2012.

India recorded a Current Account Deficit of 1.70% of GDP in 2013. The CAD/GDP ratio in India averaged -1.45% from 1980 until 2013, reaching an all time high of 1.50% in 2003 and a record low of -4.70% in 2012. .

If the government chooses to expedite capital spending to orchestrate a cyclical turn in the investment cycle and boost long-term growth, the short-term casualty will be the Debt/GDP ratio, Rightly, improving the business climate is the anchor of the new government's agenda.

1/19/15Mohan Guruswamy 47

The Immediate Economic Priorities.

Political Economy Constraints.

• The Modi government is driven by its economic and development agenda.

• India is straining to expand its domestic Savings/GDP ratio, which has been declining in the past few years.

• It has evolved into a high subsidy regime in the past decade and it will be difficult to roll back on this, given the nature of mandate of the Modi government. But it will have to bite the bullet now.

• It will seek closer relationships with countries it can realize capital inflows. Only two countries are capable of meeting India’s needs with capital and technology. Japan and China. But Japan is not entirely a free agent.

• India’s traditional strategic autonomy considerations will condition it not to get into any strategic relationships.

• While the USA is an important player in geo-strategic terms, it is not capable of the volumes of investment India needs. The USA is habituated to being intrusive.

1/19/15Mohan Guruswamy 48

1/19/15Mohan Guruswamy 49

Cost of Big Ticket Expansion & Modernization Plans till 2024.

India’s largest city is Mumbai, with a population of 12.5 million, closely followed by Delhi, with a population of 11 million. Overall, there are more than 50 urban areas in India with a population of more than one million people. Transit, water and sanitation modernization. $250 billion.

New cities program. $300 billion The National perspective plan envisions about 150 million acre feet (MAF) of

water storage along with building inter-links. These storages and the interlinks will add nearly 170 million acre feet of water for beneficial uses in India, enabling irrigation over an additional area of 35 million hectares, generation of 40,000 MW capacity hydro power, flood control and other benefits. Cost $120 billion.

4000 kms of high speed railway network. $ 160 billion. Capital expenditure on Defence. $150 billion. Expansion and modernization of highway and road network. $120 billion. Additional 150,000 MW of power generation capacity. $800 billion. TOTAL: Over $1.9 trillion

1/19/15Mohan Guruswamy 50

Political options available to the BJP.

• It is capable of hard decisions, both because of the temperament of Narendra Modi, and because it is a right of center and market friendly government.

• It will be driven by its economic and development priorities, and hence most unlikely to compromise for these goals.

• It can reset India-China relations.• It will reset India-Japan relations.• It has reset India-USA relations.

1/19/15Mohan Guruswamy 51

Urbanization will reshape the world.

1/19/15Mohan Guruswamy 52

Increasing urbanization in BRICs.

1/19/15Mohan Guruswamy 53

Where will India’s growth come from?

The implications of India’s urbanization.

1/19/1554Mohan Guruswamy

1/19/15Mohan Guruswamy 55

Key sectors for India.

India’s next big growth sectors 2014-40. (Relative weighted growth)

1/19/15Mohan Guruswamy

56

1/19/15Mohan Guruswamy 57

Cargestion will push major investment in Mass Transit.

1/19/15Mohan Guruswamy 58

Oil & Gas infrastructure expansion.

1/19/15Mohan Guruswamy 59

But a fast take-off for India!

1/19/15Mohan Guruswamy 60

The Buland Darwaza or Gate to Greatness at Fatehpur Sikri.