Transcript A Summary of Indian Economy

A Summary of Indian Economy
(with politics and demography)
Tapen Sinha
AXA Chair Professor, ITAM, Mexico
Special Professor, University of Nottingham, UK
Outline
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Democracy
Demography
Macroeconomic performance
Role of the government
Broad sectoral performance
Trade and investment
Socioeconomic problems
Macroeconomic modelling of the future
Election in India
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670 million voters
One million electronic voting machines
The machines cost around US$100
No electricity is needed: 6 volt battery
Design is akin to a “black box” in aircraft
Once a vote is cast, it is impossible to repeat
Counting is done in a few hours
Box stuffing is virtually impossible
Invalid votes used to exceed the winning margin
Election Results of 2009
Parties
INC
BJP
BSP
CPM
NCP
CPI
RJD
Others
Seats
205
116
21
16
9
4
4
168
Votes %
28.52
18.84
6.18
5.34
2.05
1.43
1.27
36.38
Seats %
37.75
21.36
3.87
2.95
1.66
0.74
0.74
30.94
Current demographics
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Population: 1,189,172,906 (July 2011 est.)
(Mexico: 111,211,789)
Age structure:
0-14 years: 31.1%
15-64 years: 63.6%
65 years and over: 5.3%
Median age: 25.3 years
(Mexico 26.3)
Current demographics
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Population growth rate: 1.55% (2010 est.)
(Mexico: 1.13%)
Birth rate: 22.01 births/1,000 population
(Mexico 19.71%)
Death rate: 8.18 deaths/1,000 population
(Mexico 4.78%)
Net migration rate: -0.07 migrant(s)/1,000
(Mexico -3.61)
Current demographics
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Sex ratio:
at birth: 1.05 male(s)/female
(Mexico 1.05)
under 15 years: 1.06 male(s)/female
(Mexico 1.04)
15-64 years: 1.07 male(s)/female
(Mexico 0.94)
65 years and over: 1.02 male(s)/female
(Mexico 0.82)
Total population: 1.06 male(s)/female
(Mexico 0.96)
Why is there an imbalance of sexes?
• In many Asian countries the ratio of male to
female population is higher than in the West
• As high as 1.07 in China and India, and
even higher in Pakistan.
• Amartya Sen, 1992 has suggested that this
imbalance reflects excess female mortality
• As a result, he has argued that as many as
100 million women are missing
Sex Ratio in India 1961-2001
Year
Females per 1000 males
1961
941
1971
930
1981
933
1991
927
2001
934
Population in India, China 1820-2000
1400000
1200000
Thousands
1000000
800000
China
India
600000
400000
200000
0
1820
1840
1860
1880
1900
1920
1940
1960
1980
2000
Growth rate of population India/China
30%
25%
20%
Growth rate per decade
15%
10%
China
India
5%
0%
1850
-5%
-10%
-15%
-20%
1870
1890
1910
1930
1950
1970
1990
Mortality comparison
0.04
0.035
0.03
0.025
q(x)
O(25-35)
LIC(75-79)
0.02
LIC(94-96)
0.015
0.01
0.005
0
21
26
31
36
41
Age
46
51
56
Preston Curve
Life expectancy at birth
Preston Curve for Mexico, 2004
75.5
75
74.5
74
73.5
73
72.5
72
5,000
10,000
15,000
20,000
25,000
30,000
GDP Per Capita in Pesos, 2004
35,000
Infant Mortality Rate Per 1000
140
130
120
110
100
90
80
70
60
1971
1976
1981
1986
1991
1996
Current rate 55, Mexico 21, US 6.5 and Singapore 2.2
2001
India has a large rural population
1950
1960
1970
1980
1990
2000
Urban
Rural
17%
83%
18%
82%
20%
80%
23%
77%
26%
74%
28%
72%
This is very different from the Latin American experience
Is India densely populated?
• Are there too many people in Holland?
• Population density highest in the world are Hong
Kong and Singapore over 6,300 per square km
• Perception versus reality: Indian ranks below
Bangladesh (1,000), Belgium, the Netherlands and
Japan (400+)
• India has 330 persons per square km (rank 15)
• Mexico ranks 117
• The story of The Little Prince
Macroeconomic performance
• Measure of general well being is measured
by per capita income
• But which per capita income
• Atlas Method
• PPP Method
• Reason they do not coincide is that the
exchange rates do not reflect underlying
purchasing power: BigMac Index
3500
Comparing per capita income: India China
1700-2000
3000
2500
2000
CHINA
INDIA
1500
1000
500
0
1700
1820
1870
1913
1950
1973
2000
Percapita income as a percent of US percapita income
8
7.5
percent
7
6.5
6
5.5
5
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
Healthcare expenditure is extremely uneven in India
Sectoral
• Agriculture: how it is shrinking but not
demographics
• Industry: the industry puzzle
• Services
• Banking/Finance
• IT – the expanding role (cyber cafes and
post offices)
Sectoral Transformation of the Indian Economy
60
Primary
Secondary
Transport
Service
50
Share of Economic Pie
40
30
20
10
0
1950
1955
1960
1965
1970
1975
Year
1980
1985
1990
1995
Table 3: Sectoral share of GDP at factor cost
Sector
1980/81
Agriculture, forestry, and fishing
38
Industry
26
Services
36
Total
100
Source: Central Statistical Organization.
2001/02
25
26
49
100
Saving Investment 1951-1999
30
25
As a percentage of GDP
20
Investment
Saving
15
10
5
0
1951
1956
1961
1966
1971
1976
1981
1986
1991
1996
Socio-economic problems
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Human development
Poverty
Corruption
Unemployment
Regional imbalance
Ethnic-religious problems
HDI
Poverty
Corruption
1.5
Role of the state
• State planning
– Over half a century, India has undergone ten five year
plans
– Problem: What is planned does not necessarily happen
– The idea was to have key sectors under state control:
defense, electricity, roads, education (public goods)
– Later it expanded to other things: insurance business,
banking, sugar mills
• Public expenditure and receipts: what goes where
Government does not do things well
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Why? Incentives are wrong
Most activities are NOT driven by needs
They are driven by politics
Example 1: public education problem
Example 2: salaries of comparable public
and private sector jobs
• Note: Mexican case
Government: Role of the state
• Deficit(t)=Revenue(t) minus Expenditure(t)
• Debt(t)=Deficit(t)plusDeficit(t-1)plus….
• They are usually measured as a percentage
of GDP: GDP gives a proxy of ability to
pay
• Is high debt to GDP ratio bad?
• Note: debt is not all foreign debt
Are government bonds net wealth
• Government deficit can be financed in two
ways: printing money or issuing bonds
• But bonds have to be paid
• How does government pay for outstanding
debt – by taxing
• Who does it tax
• Portfolio of people: government bonds
versus private bonds or stocks
What is the difference between pre-crisis and post-crisis periods?
Debt to GDP Ratio
60%
debt at a percentage of GDP
50%
40%
Domestic
Foreign
30%
20%
10%
0%
1973
1978
1983
1988
1993
1998
Government revenue
• In the developed countries, they mainly
come from income taxes
• In India, 8% people work in the formal
sector
• Most taxes come from customs duty and
other types of indirect avoidable taxes
• Government revenue is around 8% of GDP
Government expenses
• Policy: free rural electricity
– It benefits the rural rich, it distorts the use of
energy for production
• Policy: highly subsidized seeds and
fertilizer
– Most subsistence farmers do not benefit from
them, it benefits the agri-business
– It distorts incentives for farming
Trade
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Trade and investment
Internal trade and infrastructure
External trade
Domestic saving and investment
Foreign investment
Openness/GDP
30
25
Percent
20
15
10
5
0
1950
1955
1960
1965
1970
1975
Year
1980
1985
1990
1995
2000
Trade is good if...
• ...there is no compulsion
• Usually developing countries export agricultural
products, textile, ...
• Low tech
• This is exactly what economic theory tells us
• India is exporting high tech: does that contradict
economic theory?
• No: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=705801
Rupees per USD 1922-2005
60
Why
50
rate
40
30
20
10
0
1920
1930
1940
1950
1960
1970
1980
1990
2000
Future
• Growth rate in the past decade has been
high with low volatility
• India has the institutions right: better trade
regime, better domestic institutions (such as
democracy), better financial institutions
(such as banks) yet it is low on growth
compared with other countries with same
traits
Table 1: Projected GDP in 2000 US dollars
Year India France Germany UK
2000 469
1,311 1,875
1,437
2005 604
1,489 2,011
1,688
2015 1,411 1,767 2,386
2,089
2020 2,104 1,930 2,524
2,285
Source: Goldman Sachs, 2003.
Thank you
Tapen Sinha
[email protected]
http://icpr.itam.mx/Colmex2009/