Razeen Sally

European Centre for International Political Economy (ECIPE)

London School of Economics (LSE)

GLOBALISATION AND INDIA SHINING

India at 60

From Gandhian mysticism, economic isolation and social backwardness to globalisation and India Shining

GLOBALISATION AND INDIA SHINING

a) Snapshot
-- Macroeconomic conditions -- Trade and foreign investment (FDI) -- Financial markets -- Domestic business climate -- Politics and the state -- Comparisons with China

GLOBALISATION AND INDIA SHINING

b) Prospects
-- Politics, economic policy, the business climate -- Comparisons with China

c) Focus
-- States and cities -- Higher education

GLOBALISATION AND INDIA SHINING

History (1947-91)
-- From Fabian socialism to Soviet-style central planning and the license raj

-- Foreign policy: nationalism, non-alignment and the Soviet Union as First Friend -- The economy: a Hindu equilibrium

GLOBALISATION AND INDIA SHINING

Market reforms, 1991-- Half measures in the 1980s -- The 1991 crisis and big-bang reforms (1991-93) -- Gradual, stop-go reforms (1993 to present) -- The state of play

Figure 1: Aggregate GDP

GDP in current USD India and China (1960-2005)
Billions GDP in current USD
2500

2000

1500

1000

500

0 1960

1964

1968

1972

1976

1980

1984

1988

1992

1996

2000

2004

China
Source: World Bank, World Development Indicators (WDI)

India

Figure 2: Per-capita GDP

GDP per capita PPP India and China (1975-2005)
8000

GDP per capita PPP (current int. $)

7000 6000 5000 4000 3000 2000 1000 0 1975 1978 1981 1984 1987 India 1990 China 1993 1996 1999 2002 2005

Source: World Bank, World Development Indicators (WDI)

Figure 3: Poverty as % of Population

Poverty (US$ a day) % of pop. India and China (1950-2004)
70

Poverty (US$ a day) % of population

60 50 40 30 20 10 0 1952 1958 1964 1970 India 1978 1984 China 1990 1996 2002

Source: India 1950-1978 World Bank Poverty in India Dataset Poverty and Human Resources Division Policy, Research Department, The World Bank, Berk zler, Gaurav Datt, Martin Ravallion. January 1996 (http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/0,,contentMDK:20699301~pagePK:64214825~piPK:64214943~theSitePK:469382,00.html); India and China 1981-2004 Chan and Ravillion "How have the world's poorest fared since the early 1980s?" The World Bank Research Observer, vol. 19, no. 2 (Fall 2004)

Figure 4: Inequality India (GINI)

Gini Index for India at National Level (1951-1991)
40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 Aug 51Nov 51 May 53Sep 53 May 55Nov 55 Mar 57Aug 57 Jul 59Jun 60 Feb 63Jan 64 Jul 66Jun 67 Jul 69Jun 70 Oct 73Jun 74 Jul 86Jun 87 Jul 89Jun 90 Jan 92Dec 92

Source: Ozler, Berk, Gaurav Datt and Martin Ravallion. 1996. "A Database on Poverty and Growth in India," mimeo, Policy Research Department, World Bank.

Gini Index India

Figure 5: Savings/ GDP

Savings / GDP India and China (1990-2005)
60

Gross Domestic Savings/ GDP

50

40

30

20

10

0 1990 1992 1994 1996 China 1998 2000 India 2002 2004

Source: World Bank, World Development Indicators (WDI)

Figure 6: Investment / GDP

Gross Capital Formation / GDP India and China (1990-2005)
50
Gross Capital Formation (% of GDP)

45 40 35 30 25 20 15 10 5 0 1990 1992 1994 1996 China 1998 2000 India 2002 2004

Source: World Bank, World Development Indicators (WDI)

Figure 7: Foreign Exchange Reserves

Foreign Exchange Reserves India and China (1990-2005)
Billions
900 800 700 600 500 400 300 200 100 0 1990 1992 1994 1996 China
Source: IMF International Financial Statistics (IFS)

Foreign Exchange Reserves USD

1998 India

2000

2002

2004

Figure 8 (i): Share Agriculture in GDP

Share of Agriculture in GDP India and China (1990-2005)
35

Agriculture value added (% of GDP)

30 25 20 15 10 5 0 1990 1992 1994 1996 China 1998 India 2000 2002 2004

Source: World Bank, World Development Indicators (WDI)

Figure 8 (ii): Share of Manufacturing in GDP

Share of Manufacturing in GDP India and China (1990-2005)
40

Manufacturing value added (% of GDP)

35 30 25 20 15 10 5 0 1990 1992 1994 1996 China 1998 India 2000 2002 2004

Source: World Bank, World Development Indicators (WDI)

Figure 8 (iii): Share of Services in GDP

Share of Services in GDP India and China (1990-2005)
60

Services value added (% of GDP)

50

40

30

20

10

0 1990 1992 1994 1996 China

Source: World Bank, World Development Indicators (WDI)

1998 India

2000

2002

2004

Figure 9: Total Trade (Goods & Services)

Total Trade India and China (1980-2006)
1400 1200 1000 800 600 400 200 0 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 India Total Trade
Source: WTO, International Trade Statistics

Total Trade (Merchandise and Service)

Billions

Years China Total Trade

Figure 10: Trade/ GDP

Trade as % of GDP (India and China) 1980-2005
80 70 60

Trade/ GDP

50 40 30 20 10 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 China India

Source: World Bank, World Development Indicators (WDI)

Figure 11: Current Account Balance

Current Account Balance cur't USD India and China (1995-2005)
Billions BOP Current USD
180 160 140 120 100 80 60 40 20 0 -20 1995 1996 1997 1998 1999 China
Source: World Bank, World Development Indicators (WDI)

2000

2001 India

2002

2003

2004

2005

Figure 12: Current Account Balance (% of GDP)

Current Account Balance % of GDP India and China (1995-2005)
8 7

Current Account Balance % of GDP

6 5 4 3 2 1 0 -1 -2 -3 China India 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Source: World Bank, World Development Indicators (WDI)

Pie 1 (i): Share of Global Trade (Goods)

Indian Share and Rank of Global Merchandise Trade (2005)
EU 1st 18%

Rest of the World 37%

India 16th 1%

US 2nd 17%

Korea 7th 3%
Source: WTO, International Trade Statistics

Hong-Kong Canada 6th 5th 4% 4%

Japan 4th 7%

China 3rd 9%

Pie 1 (ii): Share of Global Trade (Service)

Indian Share and Rank of Global Services Trade (2005)

Rest of the World 36%

EU 1st 26%

Korea 7th 3% India 6th 3%

US 2nd 18% Canada China 5th 4th 3% 4% Japan 3rd 7%

Source: WTO, International Trade Statistics

Figure 13: Exports of Goods and Service

Manufacturing and Services Exports India (1995-2006)
Value USD of Exports (Manufacturing and Services)
80 70 60 50 40 30 20 10 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Manufacturing exports Services exports

Source: WTO, International Trade Statistics

Billions

Figure 14: Growth in IT Services/ GDP

Telecommunications Revenue in % of GDP India (1990-2005)
2.5

Telecommunications revenue (% GDP)

1.5

0.5

0 1990 1992 1994 1996 1998 2000 2002 2004

Source: World Bank, World Development Indicators (WDI)

Figure 15: Inward FDI Flows

Inward FDI Flows India and China (1980-2005)
80000

Inward FDI Flows (mln USD)

70000 60000 50000 40000 30000 20000 10000 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 Inw ard FDI Flow s India Inw ard FDI Flow s China

Source: UNCTAD, FDI Key Data

Pie 2: Share of Global Inward FDI Stock

Indian share of Global Inward FDI Stock (2005)
India 0.45%

Rest of the World 30%

EU 45% Hong Kong 5%

Japan 1% China 3%
Source: UNCTAD, FDI Key Data

US 16%

Figure 16: Outward FDI Flows

Outward FDI Flows India (2000-2005)
2500

Outward FDI Flows mln USD

2000

1500

1000

500

0 2000 2001 2002 2003 2004 2005 Outw ard FDI Flow s India
Source: UNCTAD, FDI Key Data

Figure 17: Stock Market Capitalisation

Stock Market Capitalisation India and China (1990-2005)
Market Cap of listed companies (billion current USD)
3000

2500

2000

1500

1000

500

0 1990 1992 1994 1996 China 1998 India 2000 2002 2004

Source: World Bank, World Development Indicators (WDI)

Figure 18: Inward Portfolio Capital Flow

Inward Portfolio Capital Flow India and China (1990-2005)
Billions
25

Portofolio investment, equity (DRS, current USD)

20

15

10

0 1990 -5 China India 1992 1994 1996 1998 2000 2002 2004

Source: World Bank, World Development Indicators (WDI)

GLOBALISATION AND INDIA SHINING

Reform results
-- Massive changes: opening to the world, transformed business landscape, IT powerhouse, emerging world-class firms -- But lopsided growth: benefits urban middle classes but not the vast majority of the poor unlike China

GLOBALISATION AND INDIA SHINING

Reform gaps
-- Unreformed agriculture -- Lack of labour-intensive manufacturing and throttled labour markets -- Overregulated, underperforming services sectors -- Remaining trade and FDI barriers -- Remaining capital controls -- The unreformed Indian state

Table 1: Ease of Doing Business

Table 1: World ranking in ease of doing business 2006*
Country/ Economy Ease of Doing Busine ss 1 5 11 18 Starting a Business 11 5 18 28 Dealing with Licenses 8 64 2 3 Employin g Workers 3 16 36 46 Registeri ng Property 12 60 39 18 Gettin g Credit 7 2 13 33 Protectin g Investors 2 3 12 33 Payin g Taxes 8 5 98 57 Trading Across Borders 4 1 19 103 Enforcing Contracts Closing a Business 2 14 1 38

Singapore Hong Kong Japan Thailand

23 10 5 44

Korea
Malaysia Taiwan Pakistan Bangladesh Sri Lanka China Vietnam Philippines India Indonesia

23
25 47 74 88 89 93 104 126 134 135

116
71 94 54 68 44 128 97 108 88 161

28
137 148 89 67 71 153 25 113 155 131

110
38 154 126 75 98 78 104 118 112 140

67
66 24 68 167 125 21 34 98 110 120

21
3 48 65 48 101 101 83 101 65 83

60
4 60 19 15 60 83 170 151 33 60

48
49 78 140 72 157 168 120 106 158 133

28
46 42 98 134 99 38 75 63 139 60

17
81 62 163 174 90 63 94 59 173 145

11
51 4 46 93 59 75 116 147 133 136

*The numbers correspond to each countrys aggregate ranking on the ease of doing business and on each of the ten topics that comprise the overall ranking.

Source: The World Bank Doing Business Database

Table 2: Trading Across the Border

Indicators for Trading Across Borders (2006)*
Country/ Economy Hong Kong Singapore Japan Korea China Ease of Trading Across Borders (World Rankings) 1 4 19 28 38 Documents for export (number) 2 5 5 5 6 Time for export (days) 5 6 11 12 18 Cost to export (US$ per container) 425 382 789 780 335 Documents for import (number) 2 6 7 8 12 Time for import (days) 5 3 11 12 22 Cost to import (US$ per container) 425 333 847 1.04 375

Taiwan
Malaysia Indonesia Philippines Vietnam Pakistan Sri Lanka

42
46 60 63 75 98 99

8
6 7 6 6 8 8

14
20 25 18 35 24 25

747
481 546 1.336 701 996 797

8
12 10 7 9 12 13

14
22 30 20 36 19 27

747
428 675 1.336 887 1.005 789

Thailand
Bangladesh India

103
134 139

9
7 10

24
35 27

848
902 864

12
16 15

22
57 41

1.042
1.287 1.244

Source: The World Bank Doing Business Database

Table 3: Governance Indicators

Percentile world rank of governance indictors for Asian countries 2005*
Voice and Accountability Singapore Hong Kong Japan Malaysia Taiwan 38.2 52.2 74.9 34.3 69.1 Political Stability/ No Violence 84.0 89.6 80.2 62.3 64.2 Government Effectiveness 99.5 92.8 84.7 80.4 83.7 Regulatory Quality 99.5 100.0 85.6 66.8 79.7 Rule of Law 95.7 91.3 89.4 66.2 78.7 Control of Corruption 99.0 92.1 85.2 64.5 70.9

Korea
India Thailand China Vietnam Indonesia

68.1
55.6 49.3 6.3 7.7 40.6

60.8
22.2 29.2 75.9 59 9

78.9
51.7 66 52.2 45 37.3

71.8
41.1 63.9 44.6 25.7 36.6

72.5
56 56.5 40.6 42 20.3

69
46.8 51.2 30.5 26.6 21.2

Sri Lanka Philippines

Bangladesh Pakistan

39.6
47.8 31.4 12.6

10.8
17.5 6.6 5.7

40.7
55.5 21.1 34

50
52 14.9 27.7

54.1
38.6 19.8 24.2

47.3
37.4 7.9 15.8

Source: The World Bank Doing Business Database

GLOBALISATION AND INDIA SHINING

Politics
-- The most difficult country to govern: vast, hugely diverse, split so many different ways -- Messy democratic politics: multi-party coalitions at the centre; kaleidoscope of musical-chair politics in the states -- But advantages (compared with China): unity and stability; checks and balances; British-endowed liberal institutions; the English language; political and civic freedoms

GLOBALISATION AND INDIA SHINING

Focus (1)
-- The states in a federal system -- Growth engines in the south and west (with outliers) -- Policy reforms and business transformation: e.g. Tamil Nadu, Karnataka, Andhra Pradesh, Maharashtra, Gujarat, Punjab, Haryana -- Key sectors, NRIs and FDI -- Transformation of India: a bottom-up, not a top-down story

GLOBALISATION AND INDIA SHINING

Focus (2) -- Indias expanding demand for higher (and lower) education: insufficient, low-quality supply; foreign investment prospects; reform hurdles

GLOBALISATION AND INDIA SHINING

Prospects
-- The big picture: the new Asian Drama

-- Asias transformation of the world economy: much more competition; gains for the West and the Rest; but more difficult adaptation required; wider inequalities; the middle-class squeeze; the middle-income trap
-- Role of India in the new Asian Drama

Figure 19: Share of Global GDP (i)

Asia: Share of global GDP
90 80 70 60

Percent

50 40 30 20 10 0 1820 1870 1913 Asia 1950 1973 1998 2001 2030 Year Rest of the w orld

Source: Agnus Maddison

Figure 19: Share of Global GDP (ii)

Japan, China, India: Share of global GDP
35 30 25 20 15 10 5 0 1820 1870 1913 Japan
Source: Agnus Maddison

Percent

1950

1973

1998 Other Asia

2001

2030

China Year India

GLOBALISATION AND INDIA SHINING

Prospects (cont.)
-- Lou Dobbs is wrong: stupid economics; bad business logic; noxious politics -- Lessons for policy: contain protectionism; constructive economic engagement; strategic foreign-policy partnership