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
Billions
GDP in current USD India and China (1960-2005)
2500
GDP in current USD
2000
1500
1000
500
0
1960
1964
1968
1972
1976
China
Source: World Bank, World Development Indicators (WDI)
1980
1984
1988
India
1992
1996
2000
2004
Figure 2: Per-capita GDP
GDP per capita PPP India and China (1975-2005)
GDP per capita PPP (current int. $)
8000
7000
6000
5000
4000
3000
2000
1000
0
1975
1978
1981
1984
1987
India
Source: World Bank, World Development Indicators (WDI)
1990
China
1993
1996
1999
2002
2005
Figure 3: Poverty as % of Population
Poverty (US$ a day) % of pop. India and China (1950-2004)
Poverty (US$ a day) % of population
70
60
50
40
30
20
10
0
1952
1958
1964
1970
India
1978
1984
1990
1996
2002
China
Source: India 1950-1978 World Bank Poverty in India Dataset Poverty and Human Resources Division Policy, Research Department, The World Bank, Berk Özler, 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 India
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.
Figure 5: Savings/ GDP
Savings / GDP India and China (1990-2005)
Gross Domestic Savings/ GDP
60
50
40
30
20
10
0
1990
1992
1994
Source: World Bank, World Development Indicators (WDI)
1996
China
1998
2000
India
2002
2004
Figure 6: Investment / GDP
Gross Capital Formation / GDP India and China (1990-2005)
Gross Capital Formation (% of GDP)
50
45
40
35
30
25
20
15
10
5
0
1990
1992
1994
Source: World Bank, World Development Indicators (WDI)
1996
China
1998
2000
India
2002
2004
Figure 7: Foreign Exchange Reserves
Billions
Foreign Exchange Reserves USD
Foreign Exchange Reserves India and China (1990-2005)
900
800
700
600
500
400
300
200
100
0
1990
1992
1994
1996
China
Source: IMF International Financial Statistics (IFS)
1998
India
2000
2002
2004
Figure 8 (i): Share Agriculture in GDP
Share of Agriculture in GDP India and China (1990-2005)
Agriculture value added (% of GDP)
35
30
25
20
15
10
5
0
1990
1992
1994
1996
China
Source: World Bank, World Development Indicators (WDI)
1998
India
2000
2002
2004
Figure 8 (ii): Share of Manufacturing in
GDP
Share of Manufacturing in GDP India and China (1990-2005)
Manufacturing value added (% of GDP)
40
35
30
25
20
15
10
5
0
1990
1992
1994
1996
China
Source: World Bank, World Development Indicators (WDI)
1998
India
2000
2002
2004
Figure 8 (iii): Share of Services in GDP
Share of Services in GDP India and China (1990-2005)
Services value added (% of GDP)
60
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)
Billions
Total Trade (Merchandise and Service)
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
Years
China Total Trade
Figure 10: Trade/ GDP
Trade as % of GDP (India and China) 1980-2005
80
70
Trade/ GDP
60
50
40
30
20
10
0
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
China
Source: World Bank, World Development Indicators (WDI)
India
Figure 11: Current Account Balance
Billions
Current Account Balance cur't USD India and China (1995-2005)
180
160
BOP Current USD
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
Current Account Balance % of GDP
7
6
5
4
3
2
1
0
-1
1995
1996
1997
1998
1999
2000
2001
-2
-3
China
Source: World Bank, World Development Indicators (WDI)
India
2002
2003
2004
2005
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%
US
2nd
17%
India
16th
1%
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)
EU
1st
26%
Rest of the World
36%
Korea
7th
3%
India
6th
3%
Source: WTO, International Trade Statistics
US
2nd
18%
Canada China
5th
4th
3%
4%
Japan
3rd
7%
Figure 13: Exports of Goods and Service
Billions
Value USD of Exports (Manufacturing and Services)
Manufacturing and Services Exports India (1995-2006)
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
Figure 14: Growth in IT Services/ GDP
Telecommunications Revenue in % of GDP India (1990-2005)
Telecommunications revenue (% GDP)
2.5
2
1.5
1
0.5
0
1990
1992
1994
Source: World Bank, World Development Indicators (WDI)
1996
1998
2000
2002
2004
Figure 15: Inward FDI Flows
Inward FDI Flows India and China (1980-2005)
Inward FDI Flows (mln USD)
80000
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
Source: UNCTAD, FDI Key Data
Inw ard FDI Flow s China
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)
Outward FDI Flows mln USD
2500
2000
1500
1000
500
0
2000
2001
2002
2003
Outw ard FDI Flow s India
Source: UNCTAD, FDI Key Data
2004
2005
Figure 17: Stock Market Capitalisation
Market Cap of listed companies (billion current USD)
Stock Market Capitalisation India and China (1990-2005)
3000
2500
2000
1500
1000
500
0
1990
1992
1994
1996
China
Source: World Bank, World Development Indicators (WDI)
1998
India
2000
2002
2004
Figure 18: Inward Portfolio Capital Flow
Billions
Portofolio investment, equity (DRS, current USD)
Inward Portfolio Capital Flow India and China (1990-2005)
25
20
15
10
5
0
1990
1992
1994
1996
1998
-5
Source: World Bank, World Development Indicators (WDI)
China
India
2000
2002
2004
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
Starting
a
Business
Dealing
with
Licenses
Employin
g
Workers
Registeri
ng
Property
Gettin
g
Credit
Protectin
g
Investors
Payin
g
Taxes
Trading
Across
Borders
Enforcing
Contracts
Closing
a
Business
Singapore
1
11
8
3
12
7
2
8
4
23
2
Hong Kong
5
5
64
16
60
2
3
5
1
10
14
Japan
11
18
2
36
39
13
12
98
19
5
1
Thailand
18
28
3
46
18
33
33
57
103
44
38
Korea
23
116
28
110
67
21
60
48
28
17
11
Malaysia
25
71
137
38
66
3
4
49
46
81
51
Taiwan
47
94
148
154
24
48
60
78
42
62
4
Pakistan
74
54
89
126
68
65
19
140
98
163
46
Bangladesh
88
68
67
75
167
48
15
72
134
174
93
Sri Lanka
89
44
71
98
125
101
60
157
99
90
59
China
93
128
153
78
21
101
83
168
38
63
75
Vietnam
104
97
25
104
34
83
170
120
75
94
116
Philippines
126
108
113
118
98
101
151
106
63
59
147
India
134
88
155
112
110
65
33
158
139
173
133
Indonesia
135
161
131
140
120
83
60
133
60
145
136
*The numbers correspond to each country’s 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
Ease of Trading
Across Borders
(World Rankings)
Documents for
export (number)
Time for
export
(days)
Cost to export
(US$ per
container)
Documents for
import (number)
Time for
import
(days)
Cost to import
(US$ per
container)
Hong Kong
1
2
5
425
2
5
425
Singapore
4
5
6
382
6
3
333
Japan
19
5
11
789
7
11
847
Korea
28
5
12
780
8
12
1.04
China
38
6
18
335
12
22
375
Taiwan
42
8
14
747
8
14
747
Malaysia
46
6
20
481
12
22
428
Indonesia
60
7
25
546
10
30
675
Philippines
63
6
18
1.336
7
20
1.336
Vietnam
75
6
35
701
9
36
887
Pakistan
98
8
24
996
12
19
1.005
Sri Lanka
99
8
25
797
13
27
789
Thailand
103
9
24
848
12
22
1.042
Bangladesh
134
7
35
902
16
57
1.287
India
139
10
27
864
15
41
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
Political Stability/ No
Violence
Government
Effectiveness
Regulatory
Quality
Rule of
Law
Control of
Corruption
Singapore
38.2
84.0
99.5
99.5
95.7
99.0
Hong Kong
52.2
89.6
92.8
100.0
91.3
92.1
Japan
74.9
80.2
84.7
85.6
89.4
85.2
Malaysia
34.3
62.3
80.4
66.8
66.2
64.5
Taiwan
69.1
64.2
83.7
79.7
78.7
70.9
Korea
68.1
60.8
78.9
71.8
72.5
69
India
55.6
22.2
51.7
41.1
56
46.8
Thailand
49.3
29.2
66
63.9
56.5
51.2
China
6.3
75.9
52.2
44.6
40.6
30.5
Vietnam
7.7
59
45
25.7
42
26.6
Indonesia
40.6
9
37.3
36.6
20.3
21.2
Sri Lanka
39.6
10.8
40.7
50
54.1
47.3
Philippines
47.8
17.5
55.5
52
38.6
37.4
Bangladesh
31.4
6.6
21.1
14.9
19.8
7.9
Pakistan
12.6
5.7
34
27.7
24.2
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)
-- India’s 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
-- Asia’s 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
Percent
60
50
40
30
20
10
0
1820
1870
1913
Asia
Source: Agnus Maddison
1950
1973
1998
Year
Rest of the w orld
2001
2030
Figure 19: Share of Global GDP (ii)
Japan, China, India: Share of global GDP
35
30
Percent
25
20
15
10
5
0
1820
1870
1913
Japan
Source: Agnus Maddison
1950
1973
China Year
India
1998
Other Asia
2001
2030
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