India after May 2014 Economics, Politics and Society Omkar Goswami - - PowerPoint PPT Presentation

India after May 2014 Economics, Politics and Society

Omkar Goswami CERG Advisory Chicago, February 2015

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UPA-2: Seemed like a golden dawn…

• Congress won 206

seats (+61). With its allies and ‘outside’ support, UPA-2 got 291 seats out of 543

• The Communists lost

35 seats

206 56 29 116 43 93

Lok Sabha Seats, 2009

Congress UPA Allies Support to UPA BJP NDA Allies Others

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…That gave way to a disastrous five years

• Gross capital formation

fell from 37% of GDP to 30%

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8.6% 9.4% 9.2% 6.7% 6.1% 5.3% 4.5% 4.6% 4.4% 4.4% 4.7% 5.2% 4.6% 4.6% 5.7%

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% Apr-Jun 2009 Jul-Sep 2009 Oct-Dec 2009 Jan-Mar 2010 Apr-Jun 2010 Jul-Sep 2010 Oct-Dec 2010 Jan-Mar 2011 Apr-Jun 2011 Jul-Sep 2011 Oct-Dec 2011 Jan-Mar 2011 Apr-Jun 2012 Jul-Sep 2012 Oct-Dec 2012 Jan-Mar 2013 Apr-Jun 2013 Jul-Sep 2013 Oct-Dec 2013 Jan-Mar 2014 Apr-Jun 2014

Real GDP growth

• 6.0%
• 6.4%
• 4.9%
• 5.7%
• 4.8%
• 4.6%
• 4.1%
• 7%
• 6%
• 5%
• 4%
• 3%
• 2%
• 1%

0% FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015

Fiscal deficit as % of GDP

Government was paralyzed by scandals

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• 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

May 2014: The change

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282 54 44 16 149 Lok Sabha Seats 2014

BJP NDA Allies Congress UPA Allies Others

The BJP chose to fight for good governance with Narendra Modi The results exceeded all

• pinion poll forecasts

BJP alone won 52% of the seats The last time a party won majority in the Lok Sabha was December 1984 Congress got decimated… 44 seats

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State Seats BJP+Allies Gujarat 26 26 Rajasthan 25 25 Madhya Pradesh 29 27 Maharashtra 48 42 Uttar Pradesh 80 73 Bihar 40 31 Chhattisgarh 11 10 Jharkhand 14 12 Karnataka 28 17 Delhi 7 7

A sense of Modi

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He is not a Delhi man… not a Lutyens ‘insider’ Has a vision for India’s progress and its place in the sun Works with bureaucrats and key ministers. Excellent administrator and quick decision taker Wants to be there for at least two terms… and will do what it takes to rule and deliver

þ ý

Runs a ‘presidential’ form

• f government. Most

ministers unsure of their administrative turf Starting too many highly publicized programs without the bandwidth to roll these out across India Too many ‘religious’ distractions by a significant fringe that is embarrassing for a person wanting to be seen as pursuing development

Dependence on some

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Arun Jaitley to bring in the Goods and Services Tax, FDI in insurance, better tax administration, select privatization and cut in subsidies Piyush Goyal to get the coal blocks properly re-auctioned, help restart stalled investments in the power sector and reform distribution Suresh Prabhu to bring much needed railway reforms: rationalizing fare, better rolling stock, more safety, higher margins, releasing unused land Amit Shah to ensure that BJP wins enough state elections to control the Rajya Sabha Manohar Parrikar to spur major investments in defense

Some hubris… and a reversal

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After May 2014, the two thought all elections were going to be cake-walks Then came his famous suit during President Obama’s visit Then came Arvind Kejriwal of the Aam Aadmi Party and the Delhi elections on 7 February 2015

67 3

So, in Facebook…

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Challenge 1: Economic headwinds

International

• Slow rate of growth in 2015
• Advanced economies: 2.3%
• Euro zone: 1.1%
• World economy: 3.8%
• Russia in deep trouble
• Growth in 2015: (-)3.5%
• Uncertain global capital and

currency markets

• Growing terrorism spreading

from the Middle East

• Terrorist incursions from

Pakistan Domestic

• Still no signs of a sustainable

investment cycle

• Interest rates remain too high
• Manufacturing growth muted
• No pick-up in infrastructure
• Critical bottlenecks remain:

coal, spectrum for wireless, land for highways

• Business climate needs huge

improvement

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Challenge 2: Education

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63% 58% 74% 70% 66% 78%

56% 50% 70% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% All-India Rural Urban Persons Males Females % of population that is literate

Education

74% 68% 86% 82% 79% 90% 65% 56% 82%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% All-India Rural Urban Persons Males Females % literate

Entire pop Ages 20-44

Challenge 3: Demography…

13 400 500 600 700 800 900 1,000 1,100 1990 1995 2000 2005 2010 2015 2020 2025 2030 15-64, China 15-64, India Millions

The potential working population

30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 1990 1995 2000 2005 2010 2015 2020 2025 2030 Total dep rato, China Total dep rato, India Ratio of dependents to earners

The dependency ratios

…Which is a challenge in practice

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364 364 360 358 351 229 234 239 239 237 352 384 414 436 453 199 230 256 284 315 61 70 85 102 120 200 400 600 800 1,000 1,200 1,400 2010 2015 2020 2025 2030 0-14 15-24 25-44 45-64 65+

Population in millions Health, nutrition & primary / secondary education High school education, college, skills training Creating and sustaining employment Re-skilling the older workforce Taking care of the old

Challenge 4: Creating jobs

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30 44 44 43 41 39

10 20 30 40 50 2015 2020 2025 2030 2035 2040 Extra jobs needed in each five-year period (millions)

Challenge 5: Peculiar structure of GDP

16 35% 40% 45% 50% 55% 60% 65% 70% 75% 20% 25% 30% 35% 40% 45% 50% Services as % of GDP BRA INDIA SAF ARG BNG CHL RUS KOR MAL CHI VIE THA INDO Industry as % of GDP

India’s structure of the economy is like Latin America and South Africa, which have much greater per capita income Totally different from the rest of SE and East Asia It has to do with how India hindered manufacturing

Challenge 6: The sky, land and under

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Urgent need to free spectrum and design economically efficient ways of allocating this to capable bidders Urgent need to ease up constraints imposed on land use to help growth of manufacturing and highways Urgent need to open up coal blocks, allow for mining of ores and improve the bidding process for hydrocarbons If freed up, these three sectors can contribute to an uptick of 1% in GDP growth

• ver the next

decade

Challenge 7: Economic disparities

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Census of India, 2011

Top 150 districts 151 to 300 301 to 450 450 to 593

Challenge 8: Inequalities

0% 20% 40% 60% 80% 100% Bottom 20% 40% 60% 80% 100% USA India China South Africa

% of the population % of income or consumption

% of pop. USA India China S. Africa Top 20% 46.0% 42.8% 47.1% 69.9% Second 20% 10.4% 12.1% 9.7% 4.3% Third 20% 15.8% 15.7% 15.3% 7.7% Fourth 20% 23.1% 20.9% 23.2% 15.7% Bottom 20% 4.7% 8.5% 4.7% 2.4%

In terms of inequalities, India is better than China, the USA and much better than South Africa However, it is a nation with a strong voice… which needs the problem to be addressed

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Challenge 9: Eastern geopolitics

Thatta Hambantota Arunachal Myanmar Riparian rights

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And yet: The only two shows in town

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There are two shows in town: China and India No emerging market comes close to them in size and GDP No nation of any heft comes close in terms of growth

20,933

8,550

5,000 10,000 15,000 20,000

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Brazil Indonesia Russia South Africa Turkey China India GDP in PPP, nominal, USD billions

With the highest growth rates

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• 4
• 2

2 4 6 8 10 12 14 16

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

China India Advanced economies Emerging markets

China’s growth is trending down India’s is slowly trending up Both nations will settle at 7% to 7.5% growth... which can be sustained over the next decade

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,
• ther than China, it is the only big show on earth

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India frustrates. Yet, only the myopic will ignore India

Questions

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