Indian Economy: StrengthsIndian Economic Model

Dr. Varadraj BapatIndian Institute of Technology, Mumbai

varadraj@som.iitb.ac.in9892413119

Dr. Varadraj BapatCA., CWA., M.Com., DISA, PhD.School of ManagementIndian Institute of Technology, MumbaiTeaching Interests: Financial Accounting, Management Accounting, Indian EconomyResearch Interests: Financial Accounting, Financial Inclusion, Corporate FinanceOthers: Yoga, Spirituality, Sanskrut, Bharatiya Sanskriti, ABVP

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What is GDP ?

How much is GDP of India

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What is GDP ?Total value of production of goods n services (in India).

How much is Indian GDP ?

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• Indian Economy - GDP• $2.05 Tn (nominal) 10th; Oct. 2014• $2.22 trillion (Nominal, Dec 2015)[3]

• $2.25 trillion (Nominal, 7th; Apr 2016)• $7.277 trillion (PPP: 3rd; Oct. 2014)[1]

• $8.52 trillion (PPP, December 2015)• $8.72 trillion (PPP, Apr 2016)• GDP growth• 3.986% (2012–13)• 7.4% (2014-15) 7.6% (2015-16)[4]

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• Indian Economy • Inflation (CPI)• CPI: …  WPI: …… [2]• (2016)

• CPI: …., WPI: …. % (April 2013) 

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• Indian Economy • Inflation (CPI)• CPI: 5.77, WPI:1.62 (Apr 2016)• CPI: 5.41%, WPI:-1.99% (Nov 2015)• CPI: 5.11%, WPI:-0.39% (Jan, 2015)

• CPI: 9.31%, WPI: 4.7% (April 2013) 

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• Public Finances• Public debt• …. of GDP• Budget deficit …% of GDP• Credit rating • ………• Foreign reserves• $ … billion

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• Public Finances• Public debt• 66.5% of GDP (2016)• 66.7% of GDP (2013)• Budget deficit• 3.9% of GDP (2015–16)• 4.1% of GDP (2014–15)

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• Budgetory Deficit

• How is it funded ?

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• Credit rating• BBB- (Domestic/ Foreign) • (Standard & Poor's)• Foreign reserves • $366.77 billion (as of 26 August 2016)• $352.5 billion (as of 11 Dec 2015)

(9th)• $338.08 billion (as of 27 Feb 2015)• Main data source: 

CIA World Fact Book

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• Is India's response to globalisation different ?

• Will India be able to move from a very poor economy to prosperous economy ?

• What are the strenghs and weaknesses of Indian economy ?

• What is Indian Economic Model ?

Western Vs. Bharatiya Economic Thoughts

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• Capitalism भांडवलशाही • Vs. Communism मार्क्स �वाद

• Consumerism

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Capitalism भांडवलशाही • 1770

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Capitalism भांडवलशाही •

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Capitalism भांडवलशाही • १७७०

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• Communism मार्क्स �वाद• शोषण मुक्ती • समानता

Marxism• Marx and Engels

studied the history of the world’s economies

Basic Communism

Feudalism

Capitalism

Communism!!!!

Socialism

•They believed they discovered an inevitable pattern

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• Communism

• First Country ?

USSR

• USSR stands for: Union of Soviet Socialist Republics.

• The USSR was formed in December 1922.

• USSR a.k.a. Russia.

• The USSR is a Communist party.

Communist control of the World

• Moscow

मार्क्सस� वाद शोषण मुक्ती / समानता •धम� / परंपरा नष्ट करा •मानवी मुल्य पायदळी

मार्क्सस� वाद •हुकुमशाही•हत्या •खून•गरिरबी

मार्क्सस� वाद १० कोटी हत्या

मार्क्सस� वाद

• हुकुमशाही• हत्या • खून• गरिरबी

मार्क्सस� वाद

• हुकुमशाही• हत्या • खून• गरिरबी

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• Capitalism भांडवलशाही • Vs. Communism मार्क्स �वाद• • १९९०

• Consumerism

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• Capitalism भांडवलशाही • Consumerism अनि�र्बं�ध उपभोग

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• Capitalism भांडवलशाही • Consumerism अनि�र्बं�ध उपभोग

• Bush urged the U.S. public to go shopping and take vacations (2001 -9/11)

• (http://consortiumnews.com/2011/09/11/chronicling-americas-911-descent/)

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• Capitalism भांडवलशाही • Consumerism अनि�र्बं�ध उपभोग

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निवषमता  

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निवषमता  

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• Capitalism भांडवलशाही • Consumerism अनि�र्बं�ध उपभोग • Market Economy• Market Society• Market Family

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• Capitalism भांडवलशाही • Consumerism अनि�र्बं�ध उपभोग • Market Economy• Market Society• Market Family

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Family Destroyed - Marriage  In US, More than 50 % of children born to under 30

women are out of wedlock

- Marriage is Luxury Goodhttp://parenting.blogs.nytimes.com/2012/02/19/for-younger-mothers-out-of-wedlock-births-are-the-new-normal/http://www.nytimes.com/2012/02/18/us/for-women-under-30-most-births-occur-outside-marriage.html?pagewanted=all

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Family Destroyed - Marriage  In US, More than 50 % of children born to under 30

women are out of wedlock

- Marriage is Luxury Goodhttp://parenting.blogs.nytimes.com/2012/02/19/for-younger-mothers-out-of-wedlock-births-are-the-new-normal/http://www.nytimes.com/2012/02/18/us/for-women-under-30-most-births-occur-outside-marriage.html?pagewanted=all

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Family Destroyed - Marriage  In US, More than 50 % of children born to under 30

women are out of wedlock

- Marriage is Luxury Goodhttp://parenting.blogs.nytimes.com/2012/02/19/for-younger-mothers-out-of-wedlock-births-are-the-new-normal/http://www.nytimes.com/2012/02/18/us/for-women-under-30-most-births-occur-outside-marriage.html?pagewanted=all

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Family Destroyed - Marriage

A million children growing up without fathers in UKIn UK there are more households with TV’s than

fathershttp://www.bbc.co.uk/news/education-22820829 (9 June

2013)

Marriage or divorce in US or Europe

Year Marriages per 1000 unmarried women

1970 63.4

2008 37.4

Year Households with children less than 181960 49 percent2008 31 percent

‘;k Children living with single parents

1960 9 percent

2008 26 percent

Society and Family• Warnings came true sooner than later

• This cost 88 million additional houses, valued at $16 trillion at current prices.

Year Average persons per house

1930 4.5

1950 3.5

2010 2.6

Avg persons per house in us

• Pic

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High rate of crime

प्रचंड गुन्हेगारी.भ्रष्टाचार खून मारामारी बलात्कार

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High rate of crimeThe dataset includes figures for 126

countries. India a rate of Murders reported per 100,000 population

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High rate of crimeThe dataset includes figures for 126

countries. No of prisoners

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High rate of crimeThe dataset includes figures for 126

countries. India is 79th on that list with a rate of 1.8 rapes reported per 100,000 population

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ृष्टीचे शोषण नैसर्गिग2क संपत्ती चा विवध्वंस प्रचंड प्रदूषण

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Impact ?

• Saving Rates ?

US on a binge

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US personal savings

U.S. personal savings rate has been on its way down. In other words, consumers have been spending more than they have been earning. Some economists warn that this is troubling and unsustainable.

http://www.businessinsider.in/CHART-OF-THE-DAY-Why-The-Personal-Savings-Rate-Is-Tumbling/articleshow/21189234.cms 9 Apr 2013

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US

• Foreign investments made in the US total almost $2.4 trillion, which is more than twice that of any other country. (2012)

• Wiki CIA World jgf

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US

• What made USA to borrow so much and reduce savings ?

• Alan Greenspan -

Greenspan

• Alan Greenspan served as Chairman of the Federal Reserve of the United States from 1987 to 2006. 

• Directed the very course of US economy and of the globe for two decades.

• God of Money• Sparing the Americans from the need to

save. Enticing them to spend.

Beginning of Economic crisis

• the decline of families first.• Later, such decline in turn led to more and

more social welfare spend to support the weakening families, thus feeding each other.

• US families reels under debt.

Current situation

• Home loans of households top $10 trillion.• More than 1/3rd weren’t incurred to buy

houses.• According to Greenspan himself,

household borrowed $3.2 trillion against security of appreciation in their home values (called ‘home equity cashed out’) during 2002-2007, and splurged into consumption.

Current situation• 111 million US households use 1.2 billion credit

cards, on which they owe $2.5 trillion.• Not just families, their finances too are broken,

thanks to the financial networks of the US praised by Greenspan, having ‘enticed’ and made the US families profligate.

• The state-provided social security that has replaced the families and made them state- dependent is stressed and potentially bankrupt.

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Overall Debt % of GDPCANADA= 276 %RUSSIA= 72%UNITED STATES=280%CHINA= 184 %BRAZIL = 148%INDIA= 122 %BRITAIN = 507 %JAPAN= 512 %GERMANY= 278 %SOUTH KOREA=314%FRANCE= 346 %SWITZ= 314 %SPAIN= 363 %ITALY = 314 %

@Prof R.Vaidyanathan,IIMB,2012

http://www.economist.com/blogs/graphicdetail/2012/01/daily-chart-8

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• VERY HIGH level of Debt

• Govt • Household

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Debt in USA• Fannie Mae

http://grandfather-economic-report.com/debt-nat.htm81% ($46 trillion) of all debt was created since 1990,a period primarily driven by debt instead of by productive activity.

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Household Debt % of GDP

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Household Debt in US

A sign in a US bank:

“We can loan you enough money to get you completely out of debt.”

US Debt

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What is Driving US ?U.S. household consumer debt profile:Average credit card debt: $15,112Average mortgage debt: $146,215Average student loan debt: $31,240 (Rs. 18 Lakhs)In total, American consumers owe:$11.08 trillion in debt $846.9 billion in credit card debt$7.75 trillion in mortgages$1,002.0 billion in student loans (As of November 2013)• http://www.nerdwallet.com/blog/credit-card-data/averag

e-credit-card-debt-household/ accessed on 8.11.2013

Saving Rates

• India• US

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Saving Rates in BharatGDS as % of GDP

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1990 [YR1990]

2000 2006 2009 2012 20140

5

10

15

20

25

30

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US personal saving

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0

2

4

6

8

1992 1997 2002 2007

as % of disposable income

US on a binge

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Share in % of world GDP based on PPP--

Strengths of India

The magic mantra of ‘Demographic Dividend’

Concept of Demographic DividendRapid and sustainable economic growth as consequence of a demographic transition from high fertility and high mortality to low fertility and low mortality equilibrium; reducing the dependency ratio and increasing the size of the working age population;

Concept of Demographic Dividend

This large cohort of working age population presents the opportunity to stimulate economic growth – demographic dividend;

Changes in the child dependency ratio Once fertility

begins to decline, the child dependency ratio falls.

Child dependency ratio (<15/15-64)

Increasing survival of children initially raises the ratio

Then declining fertility reduces the ratio.

Changes in the old-age dependency ratio• Serious population

aging begins more than a century after the transition starts.

• The old-age dependency ratio rises rapidly, by a factor of five or six.

Old-age dependency ratio (65+/15-64)

Onset of serious population aging is late in the transition

Rising dependency as mortality falls

Population aging

Rising dependency as mortality falls

The “first dividend”: Dependency falls

Dependency ends where it began. Transitory effect.

Variation in the total dependency ratio

Population aging

Rising dependency as mortality falls

The “first dividend”: dependency falls

At start: Many children and few elderly.At end: Many elderly and few children.This generates the “second dividend”.

Variation in the total dependency ratio

How Dependency Ratios Change Over A Classic Demographic Transition:Actual and Projected for India and Simulated, 1900-2100

USA

Least developed countries

China

Europe

There is great variation in projected old age dependency ratios for 2050

Southern Europe

Ratio in Southern Europe projected to be 6 times as high as in the least developed countries.

Differences are due to position in transition, baby booms and busts, and fertility below replacement.

Japan

LABOUR INCOME AND CONSUMPTION

How labour income and consumption vary by age

• To understand the economic implications of age structures, we need to know how labour income and consumption vary with age.

Asian Country: Thailand, 1998

Thailand's Economic Lifecycle, 1998Per capita labor income and consumption per year (baht)

010,00020,00030,00040,00050,00060,00070,00080,00090,000

100,000

0 10 20 30 40 50 60 70 80 90+

Consumption

Labor income

Source: Chawla 2005.

Western countries have high consumption in old age (USA, 2003)

0

10000

20000

30000

40000

50000

60000

0 20 40 60 80

Dol

lars

(US

, 200

0)

Labor Income

Consumption

-20000

-10000

0

10000

20000

30000

40000

50000

0 20 40 60 80

Dol

lars

(US

, 200

0)

Source: National Transfer Account data.

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StrengthsSaving MindsetFamily ValuesSocial CapitalIntegral approachSustainable thinkingDemocratic ValuesDiversityLanguage skillsLong history of Higher EducationEntrepreneurshipBharatiya Sanskruti

89Strength: Bharatiya Sanskruti

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StrengthsSaving Mindset

Bharatiya Sanskruti

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Gold

• Investment: beneficial or harmful ?• Gold accumulation by Indian families

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Gold: Consumer Demand 1995-2011

Countries 1995 2000 2005 2008 2010 2011 2014

India 477 855 722 713 1006 933 843

China 427 329 293 432 667 811 813

Middle East 365 498 388 346 234 200 212

USA 315 396 377 267 235 195 179

Total Incl.others

2864 3288 3092 3048 3217 3450 3923

Gold price ($/oz)

384.1 279.1 444.5 872 1224.5

1571.5

1571.5

Note: 1 Tonne=32,151 troy oz of fine gold; * Jewellary only Source: World Gold Council—Gold Demand Trends various issues

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StrengthsFamily ValuesSocial Capital

Bharatiya Sanskruti

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Family ValuesSocial Capital

 

• Strong family ties• Low rate of crimes• Rapes are 30 times more in US

than in Bharat

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• REMITTANCES from abroad ?

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REMITTANCES

Top recipient countries of remittances (in billions of US Dollar) (update)Country 2008 2009 2010 2011

India 50 49 53 64

China 23 23 33 40

Mexico 26 22 22 24

Philippines 19 20 21 23

Nigeria 19 18 20 21http://en.wikipedia.org/wiki/Remittance

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StrengthsIntegral approachSustainable thinking

Bharatiya Sanskruti

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• What is world economic history ?

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Share of World GDP from 0 to 1998

Year 0 1000

1500

1600

1700

1820

1870

1913

1950

1973

1998

W. Eur

10.8 8.7 17.9 19.9 22.5 23.6 33.6 33.5 26.3 25.7 20.6

USA 0 0 0.3 0.2 0.1 1.8 8.9 19.1 27.3 22.0 21.9

China

26.2 22.7 25.0 29.2 22.3 32.9 17.2 8.9 4.5 4.6 11.5

India

32.9 28.9 24.5 22.6 24.4 16.0 12.2 7.6 4.2 3.1 5.0

World

100 100 100 100 100 100 100 100 100 100 100

Source: Table-B-20 Appendix B; pp263; The World Economy: A millennial Perspective—Angus Maddison OECD Development Centre Studies --2007

GDP during 2,000 yearsSource: Angus Maddison. 2001. The World Economy: A Millennial Perspective. OECD, Paris

Share of Global GDP (%): Year 0-1998

0

5

10

1520

25

30

35

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Western EuropeUnited StatesJapanChina India

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• India is not a story from Rags to Riches.

• It’s an economic empire re-establishing itself

• Western economies have to loot others to sustain

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• Bharatiya approach is integral and sustainable

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The Integral Approach

0 Individual1 Family2 Society3 Nation4 Nature5 Parameshti

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StrengthsEntrepreneurshipBharatiya Sanskruti

@Prof R.Vaidyanathan,IIMB,2012

• Global entrepreneurship monitor shows that …………. % of India Population is engaged in various entrepreneurial activities.

• Also Guess for US, Eurpoe and China

@Prof R.Vaidyanathan,IIMB,2012

• Global entrepreneurship monitor shows that …………. % of India Population is engaged in various entrepreneurial activities.

• 18 %

• US 11 %• Europe 5 %• China 3 %

@Prof R.Vaidyanathan,IIMB,2012

• Rise of Bharat, is unique – without high FDI, high export and mostly domestic forces-led, unlike that of China. Also the Global Entrepreneur Monitor [GEM] study 2003 showed that Indian economy was entrepreneur-led, unlike China which is investment and state-led.

The performing India • UNIDO study in 1997 identified 370 clusters in India• 2600 rural and artisan clusters.• Of these only 13 Govt.sponsored• Contribute 70% of Industrial out-put and 66% of direct

exports• Panipat – 75% of blankets produced in the country• Tirupur – 80% of cotton knitwear• Agra – 75% of leather exports• Ludhiana – 95% of woollen knitwear,85% of sewing

machines,60% of Bi-cycles and spares• Surat – 85% of diamond polishing and 60% of synthetic

textiles• High technology easily absorbed and improvised

Domestic Consumption drives growth• The economist Stephen Roach of Morgan

Stanley puts it, "India's domestic consumption-led approach to growth is better balanced than resource-mobilization & export driven model of China."

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StrengthsDemocratic ValuesDiversity

Bharatiya Sanskruti

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StrengthsLanguage skills – multiple language capacity of IndiansSanskrit

Long history of Higher Education“Beautiful Tree” Dharma Pal ji

Bharatiya Sanskruti

Despair …?

• We continue to look to at West for our own solution.

India on the move…?

• Towards Superpower ? or• Towards Jagat Guru ?

From Davos to DevGiri !

• Reasons to rejoice:

– Transition from Exploited Subdued India to Enlightened Self-confident Bharat

Economics that hurt the moral well-being of an individual or a nation are immoral and therefore sinful.MM-263That economics is untrue which ignores or disregards moral values.XXV-475

Our object in framing the Constitution is rally two-fold: (1) To lay down the form of political democracy, and (2) To lay down that our ideal is economic democracy and also to prescribe that every Government whatever is in power shall strive to bring about economic democracy. The directive principles have a great value, for they lay down that our ideal is economic democracy.

Deendayal Upadhyay “I visualize for India a decentralized polity and self-reliant economy with the village as the base. We cannot rely upon superficial Western concepts like individualism, socialism, communism, capitalism and need to be rooted in the timeless traditions of our ancient culture. He was of the view that the Indian intellect was getting suffocated by Western theories and ideologies and consequently there was a big roadblock on the growth and expansion of original Bharatiya thought.

• Maharishi Aurobindo said: “India shall arise upon the ruins

of the west” He said by the year 2011 the western countries will fall and India will rise.

India has to get into act

•The Question is are we getting ready to create a new world order?

Bharat has to get into act

References

1 Indian Models of Economy, Business and Management Models- K Kanagasabapathi

2 India Unincoporated- L Vaidyanathan3 Indian Business and Financial Models

course by S Gurumurthy conducted at IITB.

Further readings

1 Too big to fail- Andrew Ross Sorkin2 The Inside Job- A Documentary on how

the global economic crisis happened.

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