The Indian Economy Blog

December 23, 2007

Feeling Good About Indian Economy

As another year draws to an end, extracts from two speeches delivered this year — one by an ex-finance minister (who happens to be the current Prime Minister) and another by the current Finance Minister. Both the speeches were delivered to a foreign audience and the extracts reproduced here cover only the hard facts, not the political rhetoric and the palaver.

Let us begin with Dr. Manmohan Singh’s address to the Japanese Business Delegation, on 20 August 2007 -

Today, the Indian economy is in a position to sustain GDP growth rates that are close to 9%. Foreign Exchange reserves stand at over US$ 200 billion. We expect to receive Foreign Direct Investment of about US$ 30 billion this year. Our savings and investment rates are close to 35% of our GDP. Our foreign trade constitutes 33% of our GDP, which is a testimony to India’s growing integration into the global economy.

On cue is the speech by Finance Minister, P. Chidambaram at the Norwegian Nobel Institute, Oslo on ‘India’s Socio Economic Agenda: Development with Democracy’ delivered in October 2007.

The India growth story has been told and retold many times and all of you are familiar with that story. Allow me, however, to narrate some highlights of that story and bring you to the present day. GDP at market prices has increased from US$ 20 billion in 1950-51 to US$ 912 billion in 2006-07 and is expected to cross a trillion dollars in the current year. In terms of purchasing power parity, India’s GDP at US$ 4 trillion in 2006-07 accounted for 6.3 per cent of global GDP. Average annual economic growth, which had been constant and tardy at 3.5 per cent during the first thirty years of Independence, increased to 5.7 per cent during the 1990s and, since 2003-04, the average rate has increased further to 8.6 per cent. 2006-07, in particular, was a splendid year with the GDP growing at 9.4 per cent. This growth has not been jobless growth. During 1999-2000 to 2004-05, India added to its workforce about 12 million people each year. During this period, the rate of growth of employment was 2.9 per cent per year. India, after China, is the fastest growing economy of the world, and together with Brazil, Russia and China is the locomotive driving world growth.

The proportion of people living below the poverty line in India has declined from 51.3 per cent in 1977-78 to about 22 per cent in 2004-05. But in absolute terms they still number around 250 million. More than one third of our 1.1 billion people live on less than one dollar a day.

…we have achieved an enrolment ratio of 95 per cent in primary education. Of the children in school, 73 per cent are now reaching Grade V.

We have managed to provide drinking water to 83 per cent of our rural population and sanitation coverage has gone up in the last decade to 22 per cent from a dismal rate of 3 per cent.

Farm loans have more than doubled in three years from Rs 869 billion in 2003-04 to Rs 2032 billion in 2006-07. Loans to students have trebled from Rs 45 billion at the end of March 2004 to Rs 142 billion at the end of March 2007. It is not widely known that India runs the largest micro-finance programme in the world. At the end of August 2007, 2.93 million self-help groups, an overwhelming number comprising women alone, had been provided credit by the banks. The total amount of outstanding credit is Rs 181 billion.

One-third of the population is below the age of 15 years. India is the only large country in the world where the size of the working age population will grow – and will exceed the number of dependent children and old persons – until 2025, the year up to which projections of population have been made, and perhaps even beyond till 2045.

While the critics sharpen their knives (and you read the comments to this post), savour the moment and feel good about the Indian economy. And do join me in wishing the Indian Economy another great year ahead — 2008.

19 Comments »

  1. [...] Cross-posted on the Indian Economy Blog [...]

    Pingback by Pragmatic Euphony » Blog Archive » Feeling good about Indian economy — December 23, 2007 @ 7:44 pm

  2. Indian economy is doing good. After a long time in our history, we see a hope of becoming a better nation. But in the last 5 years with this present govt. no major initiatives have been taken. This govt. is enjoying the fruits of reforms initiated before, but has itself not initiated any reforms.

    Comment by vj — December 24, 2007 @ 10:32 pm

  3. and today i read that both these architects of Indian economy were ruing the high rates of subsidies that are not serving their prupose and are in effect a drain on the economy!

    Comment by tejbir — December 24, 2007 @ 11:34 pm

  4. Excellent feelgood post. Great summary statistics. Who would have thought that our population problem would turn into an asset!
    upskilling the young ones and preparing them to lead the world will consolidate what we have managed to do in the Wild East…. (Or was that too much like Guru?!)

    Comment by Londonsen — December 25, 2007 @ 3:18 am

  5. Its encouraging to hear that india is making quite aan apprciable progress.What about the budget deficit we are suffering from. a 9% gdp growth with a deficit does not make me too optimistic. Again,political unrest has increased in west bengal which had just started to see the face of development. what about bihar,orissa,assam,uttar pradesh,kashmir and gujrat? are these states contributing to the growth? our PM forgot to mention that the growth can only be attributed to 4 particular states.

    Comment by mallika — December 25, 2007 @ 11:12 am

  6. Mallika,
    Can’t comment on other states, but Gujarat is the fastest growing state in the nation. Orissa might be able to grow fast, if those mining/metals projects actually kick-off. Bihar, UP, Assam, Kashmir are ofcourse a different story.

    Comment by vj — December 25, 2007 @ 12:53 pm

  7. I would kind of disagree with the feel good factor of India. You can call me a pessimistic or may be a overtly cautious person.

    What is clearly being seen is a growth versus development problem. I would not disagree with the fact that there is growth in Indian economy but definately not development which is shown by the fact that “80% of our population lives below $2 a day (PPP) (World Bank) or converted in rupees terms, Rs. 20 only (NCEUS) Therefore, clearly the income skewness is increasing and poor are not geeting the benefits of this growth.

    Comment by Akshay Jain — December 25, 2007 @ 3:53 pm

  8. Agreed with Akshay, thats a good reality check !
    All the theories will lead to more or less this conclusion – Neverthless India is getting rich, but there are only certain pockets of population, this generation and generations to come, who will be enjoying the fruits.
    The poors, who struggle for food, enormous in sheer numbers, will obviously not be able to send their kids to the technology school to get a lucrative job in IT or call center or any other US outsourced jobs, whose tuition fees have become out of reach, nor will they be ever able to buy a square foot of land at these inflated prices. So its a fifth grader math, they will always be struggling for basic needs, and thats no development !
    Look at the “small” incidences like suicides of farmers in multiple states, firing at the crowd of thousands of young people lined up to get military jobs etc..

    Cheers !!

    Comment by ST — December 28, 2007 @ 1:16 am

  9. While the statistics make excellent reading I have to agree with the above comments. The problem will never go away for too many people. India is a vast country and as in most growth economies the rich will always get richer and while the poor may eventually become a smaller percentage of the population these people will never have access to some of the basics required to survive.
    India has fuelled the IT market in recent years and shown that the education system in some areas is working exceptionally well, and this is the area that needs to be strengthened in the poorer regions.

    Comment by john — December 28, 2007 @ 4:48 pm

  10. There is nothing which can be “strengthened” though,unfortunately. Higher education is already out of reach of poor. The fees for a polytechnic diploma in 1994 was Rs 4500 per year, which now I hear is a whopping Rs 75000. Thats just a diploma not even degree. Thousands of engineers in some states are doing the job of a clerk, or a contract technical resource. Leave aside the BAs, Bcoms and others. Because higher ed was privatized long back, we are now seeing its devastating effect on society. Education is also a real problem in developed states like the US, But the economy in these states is very different. It is developed, less population, jobs for everyone who wants to work (on anything available), with an almost guranteed basic needs fulfilment, add to that no social and cultural pressures etc… That is exactly what doesnt match with countries like India. So at that expense, the already middle class will be sending their sons and daughters to higher eds, the farmers and peasants will remain where they are, only a few proportion will somehow manage.
    While I want to be proud and happy with the “development” in India, as more & more people now own cars, 4 lane highways coming, new airports, cheap air tickets and increasing traffic, Mcdonalds and Pizza (a symbol of affluence in India I guess !), I also try to peek inside into the villages just to see, and find sad stories all over full of struggle. Thats what makes me try to find a theory to explain this and came up with this !!!
    Of course dynamics in any economy is not so easy explain as it is not exact science.
    A comment of growth concentrated in 4 states above is well put. There are only a few states in India, and again, some urban pockets in those states, which are seeing lots of growth compared to other states and rural areas.

    Cheers !!

    Comment by ST — December 29, 2007 @ 1:54 am

  11. I would like a little more information on the key drivers of India’s growth. Globalization and demographic dividend are two factors that have been discussed to death at this site, but what else? I am sure it takes an array of social and economic forces to cause such a sea change in a country’s economy. I await your response.

    Comment by Floridian — December 30, 2007 @ 4:31 am

  12. The key drivers, in my opinion and with a limited working knowledge I have, are a combination of what it is required to do business – simply put. And the biggest driver of course is the Money ! In license raj,( a mixed economy model started by Nehru after independence) as we all know, there was no encouragement to open businesses, so no competition, and hence no need for innovation too. Public sector had more responsibility for technological innovation in many core sectors (at least theorotically) but they failed miserably due to corrupt politics. So after we lost the train, and arrears in balance of payments mounted upto throat, we started “Liberalization” in early 90s as a condition of IMF loans.
    Well, what it means, is whoever has technology and money, can do business in our country. Now if I invest my money and open business anywhere, I will do it to earn money, and take that money to my home where I can use it to my will. I have no business to think what good or bad I am doing to that area, except to make sure I have expanding customer base.
    So the forces (Highly skilled and intelligent people of India deprived of opportunities, physical resources and a huge demographic market) which were trapped for several years suddenly got released after 1991, more after 1999. Now everything required to do business is readily available suddenly, technology which took years to develop in the west, and a pile of money. So the people who have this entered in the race, flooded goods in the market, created some jobs in the process, and here we go – everybody, especially in urban areas,seems different.
    There was a indigenous development too which happened during this period, in spite of incompetent politicians. People did it somehow in a will to succeed – see small scale industries in states like Gujarat, Maharashtra, tremendous agricultural development in Punjab, Haryana, some parts of UP etc..
    But by and large, “Growth” really started getting noticed only after privatization and more businesses opening. So the people of India, amongst the most intelligent in the world, now got opportunity ! No wonder they started running in the race and powered the “growth” engine.
    As we all know, because the horse has been suddenly let loose, those who were in a better position in society could immediately take advantage of it. These are the few people we keep talking about, who will ever get richer and richer, start with Ambanis and come down to middle level industrialists, real estaters, politicians, middle class elites etc… Go further down and these are working class, whose no. have gone up no doubt, but no so much compared to what it should have been if you look at population. Come further down and now we have lower class peasants, farmers and poors in the country, just enormous in sheer numbers. Wondering what has happened to push the price of edible oil to Rs. 80 and sometimes getting Daal but no Atta, and sometimes getting Atta and no Daal !

    This theory may have flaws, may need modifications and corrections. Feel free to do so !

    Cheers !

    Comment by ST — December 30, 2007 @ 9:00 am

  13. Singapore economy contracted by 3.2 percent last quarter.

    US manufacturing contracted in December.

    Doom! Doom! Doom!

    Comment by HmmBut — January 3, 2008 @ 4:16 am

  14. [...] Source Tags: , Economic-development, facts-and-Figures, GDP, growth story, India, Indian-economy [...]

    Pingback by Indian Economic growth story | Facts and Figures — January 4, 2008 @ 2:24 pm

  15. Statistically, as they say, the poor will always be with us. This is even more evident in India where the size of its poor and the level of their deprivation is mind boggling. However, there is one thing that has not been mentioned here and is often overlooked in macro level planning that can help – technology. Promising technologies and innovations, both humble and hi-tech are available or will soon be available that can be leveraged in a mass scale improve the quality of life of the poor even though their relative poverty does not improve much. To name a few , cell phones, WiFi, online education and telemedicine, nanotechnology based cheap water desalination/recycling, bio technology enabled cheap pharmaceuticals and boost to agricultural productivity, cheap solar, wind, cellulosic ethanol energy, improved stoves, fortified foods and low cost housing.

    What is needed is to take these technologies to the micro scale to the masses in innovative and cost effective ways involving the private sector as opposed to repeatedly throwing money at state managed massive, centralized and criminally wasteful top-down schemes and subsidies.

    Comment by nirm — January 7, 2008 @ 2:24 am

  16. the indian economy is doin fine and the share jus crossed 21000 points. all sectors are booming and the fdi and fii is jus flowing in that good for the economy. but the thing that wories me is whether will it be able to sustain that growth in the near future or will recession creep in too quickly. by 2050 will INDIA be a superpower

    Comment by rambhai — January 10, 2008 @ 8:19 pm

  17. While one feels great about the India Growth Story, there is a hidden downside: social and environmental costs are being quietly passed on, and frankly, society and environment are getting saturated.

    An important social principle is violated by many manufacturing activities: While engaged in a profit-making activity, one must not leave a mess behind for the rest of society to clean up.

    This principle can easily be understood as common decency. If I come to your house as a salesman in order to market something, I must clean up any mess that I make while selling my product.

    But this principle is continually breached by manufacturers and marketers on a large scale in our country, and nobody even thinks of objecting!

    Have you ever pondered how mineral water and soft-drink manufacturers who sell their product to you in a PET bottle take no further responsibility what happens to their non-biodegradable bottle? Most often, it ends up as litter in the environment, because the consumer simply does not know what to do with the bottle, other than tossing it away.

    This is not how it should be. At the time of conceptualizing and designing the product, the manufacturer has the responsibility of thinking what will happen to the discarded packaging, or, in the case of non-consumables, to the product itself after its use. He must take the responsibility to create a safe avenue for its disposal or recycling.

    This requires a mechanism to collect the empty container or used product. So he must set up that mechanism. For instance, the grocery shopkeeper may incentivate the consumer to return PET bopttles to him by initially charging a coupl;e of rupees as deposit for the bottle, which he returns when the consumer returns the bottle to him. These bottles can then be sent back to the company’s recycling facility. (This is how soft-drink bottles made of glass were returned to manufacturers until very recently, remember? We, the consumers, were OK with this system. So why the sudden urge to package everything in discardable materials?)

    We should mobilize citizens to demand legislation that every manufacturer must repurchase/collect and recycle as many tonnes of raw material as he uses on a week-by-week basis. For example, if a mineral-water manufacturer uses ten tonnes of plastics per week to manufacture bottles, he MUST buy back ten tonnes of plastic scrap and safely recycle it.

    Now think for a moment about used automobiles. Used cars and scooters in India are sold as second-hand vehicles, and then third-hand, fourth-hand. A second-hand vehicle may go from a metropolis to a small town or village. It keeps going further and further into the interiors as it ages, as its condition deteriorates and its market price dwindles. And then?

    And then it is sometimes sold to a garage at a throwaway price, and this garage may salvage spare parts from it. ut what remains of this vehicle, including worn-out tyres, may lie around rusting and gathering dust for years and years on some deserted road. The tyres, when they are often burnt in winter for warmth, releasing black, acrid smoke and carcinogenic chemicals into the atmosphere.

    Or it lies as a rusting eyesore in some building compound for many years as the last owner loses all motivation to either repair it or sell it.

    Thus, every automobile manufacturer sells a product that turns into many hundred tonnes of junk — assorted metal, plastic, glass and rubber junk — after 6-8 years. They end up littering the beautiful countryside with this junk. Is this socially acceptable behaviour?

    If one looks for solutions, they are not difficult to find. Legislation and regulations are the answer.

    Automobile manufacturers must be required by law to buy back that many tonnes of metals, plastics, glass etc every week, and find ways to recycle them. The cost may be met by raising the market price of their product… but the responsibility to make the recycling activity happen MUST be fixed on the manufacturer of every product.

    The same applies to tyres, batteries, plastic goods, newspapers, textiles, chemicals, auto-lubricant oils, etc. The list is long.

    It is possible that this will make some manufacturing and marketing processes unviable. If so, this would mean that these economic activities were unviable in the first place, and were sustainable only by passing on hidden costs to the environment, to society and to consumers! Such activities must necessarily come to an end.

    Many industrial activities are environmentally and socially subsidized to keep them economically profitable. Let us lobby governments to knock off that subsidy and see how many activities remain sustainable!

    I propose peaceful demonstrations to compel industries to self-regulate, and legislators to pass laws:

    Small groups of citizens shall collect the branded packaging material of various manufacturers from the environment, and delivering them in large bundles every week to their corporate offices. It belongs to them, right? So let them have it back!

    A peaceful demonstration like this, sustained over some weeks, would make a powerful statement. I think this will make a powerful media impact as well… and thereby, an impact on the consciousness of people.

    This would be the first step to making changes happen. Citizens, industry and government must first be made to acknowledge that there is a problem; then viable solutions will begin to emerge.

    What say, fellow-citizens? I would appreciate your detailed responses to this idea.

    Those who wish to join me in peaceful social action (as described) are urged to email me at friendlyghost.kk@gmail.com

    Warmly,
    Krish

    http://friendlyghost.rediffiland.com
    http://globalwarming.rediffiland.com

    Comment by Krishnaraj Rao — January 24, 2008 @ 1:05 pm

  18. both these architects of Indian economy were ruing the high rates of subsidies that are not serving their prupose and are in effect a drain on the economy!

    Comment by nm group — February 20, 2008 @ 3:33 pm

  19. hi krish!
    While one feels great about the India Growth Story, there is a hidden downside: social and environmental costs are being quietly passed on, and frankly, society and environment are getting saturated.
    you are absolutely right..
    all the best

    Comment by nm group — February 20, 2008 @ 3:34 pm

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