'Will India become a superpower?' This is a question that nags every Indian. With the nature of problems that plague India, the chances of the country becoming a superpower are remote.
"India needs to be, not a powerful or dominant country, but a country which is less discontented from within", says Ramachadra Guha writer, historian and biographer who spoke on the topic 'Ten Reasons Why India Will Not and Should Not Become a Superpower' in a meeting organised by Aspen Institute India in New Delhi.
Guha pointed out that in 1948, there was a mood of despair and gloom about India's prospects, the government was seen as the only agent that could bring about change.
Today, however, there is a sense of optimism about India's prospects, although the government is seen as the major impediment in the country's progress.
Tarun Das, president, Aspen Institute India, said India needed more debates such as this to provide a more balanced view of the country's growth and development.
Of the 10 reasons he listed, Guha suggested that environmental degradation is likely to remain the most pressing challenge facing India. Primary education also remains a significant challenge that needs to be overcome.
He went on to elucidate the ten points that he thought would objectively prevent India from becoming a superpower:
1.Religious extremism: Long term trends indicate that liberals and moderates in every religious community in India are on the defensive.
2. Left wing extremism: Extremism in the form of the Naxalite movement, which is a result of geographical reasons and also social and political forces, owing to the continued dispossession and deprivation of tribal people in India.
3. Corruption: The corruption and corrosion of the power center in India, as a result of political parties functioning as family firms rather than open, transparent political systems.
4. Decline of public institutions: This includes universities, police, civil services, the judiciary (except for higher judiciary) etc.
5. Rich-poor divide: The increasing gap between the rich and the poor which is particularly manifested through farmer suicides in India, a phenomenon that has become pervasive only in the last 10-15 years, perhaps because there is now the expectation of a 'good life' that did not exist before.
6. Environmental degradation: The degradation at a local level, which is impacting people's lives in very real ways, whether in the form of massive depletion of underground aquifers, chemical contamination of soil, death of rivers, loss of species etc.
7. Apathy of the media: Apathy in covering issues of rising income inequality, environmental degradation.
8. Political chaos: The political fragmentation manifests as coalition governments at both the central and regional levels, which makes it very difficult to forge sustainable long term policies in the realm of health, education, etc.
9. Border disputes: India's unresolved border disputes, especially in Kashmir and the North East (Nagaland and Manipur) which indicates that there are parts of India that are not comfortable with being part of India.
10. Unstable neighbour: India's increasingly unstable neighbourhood is another serious impediment to our superpower ambitions.
Source
Showing posts with label India. Show all posts
Showing posts with label India. Show all posts
Tuesday, July 14, 2009
Friday, May 1, 2009
World's top 10 buyers & producers of gold
Gold has held mankind enraptured since time immemorial. It has been prized for its beauty, easy workability, indestructibility, and value.
The average global demand for gold in the past 10 years has been mainly for jewellery at 76 per cent, followed by industrial applications of 14 per cent and 10 per cent for investors. The available gold supply is from new mining, reclaimed scrap, official or new bank sales and gold loans made from official reserves.
There are five international gold trading centres: New York, London, Zurich, Tokyo and Hong Kong.
But who are the world's largest buyers and producers of gold?
India, world's number one buyer of gold!
The craze for the yellow metal in India is phenomenal. It has traditionally been the world's largest consumer of gold. India buys an average of 800 tonnes of gold every year and its total jewellery market is worth more than $20 billion.
However, in recent times the demand for gold in India has waned slightly, with the price of the precious metal zooming to record highs. Yet, the country remains the largest buyer of gold, at 770 tonnes in 2007.
China: 2nd largest buyer; number one producer
Beijing has gold holdings of 1,054 tons, up from 600 tons in 2002, and still wants to buy more gold.
China produced 280.5 tons of gold in 2007, making it the world's number one producer of the precious metal.
China is also the world's second largest buyer of gold. It bought 328 tons of gold in 2007.
USA: 3rd largest buyer; 4th largest producer
The United States of America is the world's third highest buyer of gold. In 2007, it purchased 275 tons of the yellow metal.
However, the US is also the world's fourth largest producer of gold. In 2007, it produced 240 tons of gold.
Turkey: 4th largest buyer
Turkey is the world's fourth largest buyer of gold. In 2007, it bought 250 tons of the precious metal.
Saudi Arabia: 5th largest buyer
Saudi Arabia purchased tons of gold in 2007, making it the world's fifth largest buyer of gold.
UAE: 6th largest buyer
The United Arab Emirates is the sixth largest gold-buyer at 107.2 tons (figures pertain to 2007).
Russia: 7th largest buyer; 6th largest producer
The world's seventh largest buyer of gold is Russia. In 2007, Moscow procured 85.6 tons of gold.
Russia is also a big producer of gold. In fact, it is the world's sixth largest gold-producer. In 2007, it produced 169.2 tons of gold.
Vietnam: 8th largest buyer
Vietnam bought 77.5 tons of gold in 2007, making it the world's eighth largest gold-buyer.
Egypt: 9th largest buyer
Egypt follows in the ninth position. In 2007, it procured 69 tons of gold making it one of the biggest gold-buyers in the world.
Italy: 10th largest buyer
Italy is the tenth largest buyer of gold in the world. In 2007, it purchased 59.2 tons of the yellow metal.
South Africa: 2nd largest producer
South Africa is the world's second largest producer of gold after China. In 2007, it produced 270 tons of gold.
Australia: 3rd largest producer
Australia is the world's third largest producer of gold. In 2007, it produced 246.3 tons of gold.
Peru: 5th largest producer
Peru produced 170 tons of gold in 2007, making it the world's fifth largest producer of gold. The United States is the world's fourth largest gold-producer
Indonesia: 7th largest producer
Having produced 146.7 tons of gold in 2007, Indonesia is the world's seventh largest producer of gold. Russia is the world's 6th largest producer of gold.
Canada: 8th largest producer
Canada follows Indonesia in gold production at 101.2 tons (figures pertain to 2007), making it the world's eighth largest producer of gold.
Uzbekistan: 9th largest producer
Uzbekistan is the ninth largest gold-producer in the world. In 2007, it produced 75.3 tons of gold.
Ghana: 10th largest producer
At 75 tons of gold production in 2007, Ghana is marginally behind Uzbekistan. Ghana is the world's tenth largest producer of gold.
Source
The average global demand for gold in the past 10 years has been mainly for jewellery at 76 per cent, followed by industrial applications of 14 per cent and 10 per cent for investors. The available gold supply is from new mining, reclaimed scrap, official or new bank sales and gold loans made from official reserves.
There are five international gold trading centres: New York, London, Zurich, Tokyo and Hong Kong.
But who are the world's largest buyers and producers of gold?
India, world's number one buyer of gold!
The craze for the yellow metal in India is phenomenal. It has traditionally been the world's largest consumer of gold. India buys an average of 800 tonnes of gold every year and its total jewellery market is worth more than $20 billion.
However, in recent times the demand for gold in India has waned slightly, with the price of the precious metal zooming to record highs. Yet, the country remains the largest buyer of gold, at 770 tonnes in 2007.
China: 2nd largest buyer; number one producer
Beijing has gold holdings of 1,054 tons, up from 600 tons in 2002, and still wants to buy more gold.
China produced 280.5 tons of gold in 2007, making it the world's number one producer of the precious metal.
China is also the world's second largest buyer of gold. It bought 328 tons of gold in 2007.
USA: 3rd largest buyer; 4th largest producer
The United States of America is the world's third highest buyer of gold. In 2007, it purchased 275 tons of the yellow metal.
However, the US is also the world's fourth largest producer of gold. In 2007, it produced 240 tons of gold.
Turkey: 4th largest buyer
Turkey is the world's fourth largest buyer of gold. In 2007, it bought 250 tons of the precious metal.
Saudi Arabia: 5th largest buyer
Saudi Arabia purchased tons of gold in 2007, making it the world's fifth largest buyer of gold.
UAE: 6th largest buyer
The United Arab Emirates is the sixth largest gold-buyer at 107.2 tons (figures pertain to 2007).
Russia: 7th largest buyer; 6th largest producer
The world's seventh largest buyer of gold is Russia. In 2007, Moscow procured 85.6 tons of gold.
Russia is also a big producer of gold. In fact, it is the world's sixth largest gold-producer. In 2007, it produced 169.2 tons of gold.
Vietnam: 8th largest buyer
Vietnam bought 77.5 tons of gold in 2007, making it the world's eighth largest gold-buyer.
Egypt: 9th largest buyer
Egypt follows in the ninth position. In 2007, it procured 69 tons of gold making it one of the biggest gold-buyers in the world.
Italy: 10th largest buyer
Italy is the tenth largest buyer of gold in the world. In 2007, it purchased 59.2 tons of the yellow metal.
South Africa: 2nd largest producer
South Africa is the world's second largest producer of gold after China. In 2007, it produced 270 tons of gold.
Australia: 3rd largest producer
Australia is the world's third largest producer of gold. In 2007, it produced 246.3 tons of gold.
Peru: 5th largest producer
Peru produced 170 tons of gold in 2007, making it the world's fifth largest producer of gold. The United States is the world's fourth largest gold-producer
Indonesia: 7th largest producer
Having produced 146.7 tons of gold in 2007, Indonesia is the world's seventh largest producer of gold. Russia is the world's 6th largest producer of gold.
Canada: 8th largest producer
Canada follows Indonesia in gold production at 101.2 tons (figures pertain to 2007), making it the world's eighth largest producer of gold.
Uzbekistan: 9th largest producer
Uzbekistan is the ninth largest gold-producer in the world. In 2007, it produced 75.3 tons of gold.
Ghana: 10th largest producer
At 75 tons of gold production in 2007, Ghana is marginally behind Uzbekistan. Ghana is the world's tenth largest producer of gold.
Source
Wednesday, March 25, 2009
A real estate crash is good for you; and India!
CONVENTIONAL economics says a crash is bad. In reality, however, it’s a boon. A real estate crash is an economic blessing for billions of people and the country.
Two years back, no one would have imagined that real estate prices could crash by 50 per cent. Today, it’s a fact. Compared to peak prices of 2008, you can expect a correction by 70 per cent in the coming years. Despite that a lot of properties will be lying vacant as there is a huge oversupply – in India and all over the world.
Many builders and brokers will probably send me hate mails for saying this but the fact remains that a 70 per cent crash is a good time for them to create much more wealth and to tap a large market. This crash is excellent for home buyers, businesses, and the entire economy.
Reason: A lot more cash is available for more productive activities in the economy such as building roads, electricity, etc.
How is that?
Let us say earlier a property you wanted to buy was being quoted at Rs 1 crore. To get money to buy this, you might have to scour your entire life savings and take additional loans. You and your family might have to slave for at least 20 years to pay off the EMIs to banks. A lot of your savings gets sucked into unproductive assets like real estate.
Today cost of construction per square foot is only around Rs 600. Based on this a 1000 sq. ft apartment should cost not more than Rs 6 lakhs to construct. Just imagine a flat that cost barely 6 lakh to construct is being sold for Rs 1 crore. A few might argue – that we need to consider land costs.
Land cost is artificially inflated across the country – India has an abundance of land all across. Just move out of the major cities and you will see thousands of acres of vacant land.
Now imagine if that same property is available for Rs 20 lakh, which is the fare value for such a property. Now there is an additional Rs 80 lakh available in the economy for more productive uses.
What happens to this surplus of Rs 80 lakh?
Previously, only a small minority of builders enjoyed this surplus of Rs 80 lakh but now it can be invested to boost consumption.
Roads, factories and new service industries can boom if each family uses this Rs 80 lakh more productively. Electricity, roads, water, health care and education will get a huge boost from this money. No amount of interest reduction or artificial stimulus package can have the same effect as this.
When property prices go down, automatically the ‘black cash’ element would disappear. People would not see the need to find the back alleys to pay Rs 20 lakh.
The question, you should ask!
Today, a place like Dubai, which has sunk billions of dollars into unproductive real estate, is on the verge of collapse. Had they utilised this money for better use, the economy would have been much better today.
A lot more to a crash that is excellent for the economy. The real estate crash has not yet happened in India and is still to come and will probably surprise a lot of people.
India has a bright future ahead and millions of new jobs are going to be created. A lot of new capital also is going to be used productively thanks to this global economic crash. I’ll once again stress that this is one of the best opportunities in history to create immense wealth for all those who are armed with knowledge and have a little bit of patience.
Source
Two years back, no one would have imagined that real estate prices could crash by 50 per cent. Today, it’s a fact. Compared to peak prices of 2008, you can expect a correction by 70 per cent in the coming years. Despite that a lot of properties will be lying vacant as there is a huge oversupply – in India and all over the world.
Many builders and brokers will probably send me hate mails for saying this but the fact remains that a 70 per cent crash is a good time for them to create much more wealth and to tap a large market. This crash is excellent for home buyers, businesses, and the entire economy.
Reason: A lot more cash is available for more productive activities in the economy such as building roads, electricity, etc.
How is that?
Let us say earlier a property you wanted to buy was being quoted at Rs 1 crore. To get money to buy this, you might have to scour your entire life savings and take additional loans. You and your family might have to slave for at least 20 years to pay off the EMIs to banks. A lot of your savings gets sucked into unproductive assets like real estate.
Today cost of construction per square foot is only around Rs 600. Based on this a 1000 sq. ft apartment should cost not more than Rs 6 lakhs to construct. Just imagine a flat that cost barely 6 lakh to construct is being sold for Rs 1 crore. A few might argue – that we need to consider land costs.
Land cost is artificially inflated across the country – India has an abundance of land all across. Just move out of the major cities and you will see thousands of acres of vacant land.
Now imagine if that same property is available for Rs 20 lakh, which is the fare value for such a property. Now there is an additional Rs 80 lakh available in the economy for more productive uses.
What happens to this surplus of Rs 80 lakh?
Previously, only a small minority of builders enjoyed this surplus of Rs 80 lakh but now it can be invested to boost consumption.
Roads, factories and new service industries can boom if each family uses this Rs 80 lakh more productively. Electricity, roads, water, health care and education will get a huge boost from this money. No amount of interest reduction or artificial stimulus package can have the same effect as this.
When property prices go down, automatically the ‘black cash’ element would disappear. People would not see the need to find the back alleys to pay Rs 20 lakh.
The question, you should ask!
Today, a place like Dubai, which has sunk billions of dollars into unproductive real estate, is on the verge of collapse. Had they utilised this money for better use, the economy would have been much better today.
A lot more to a crash that is excellent for the economy. The real estate crash has not yet happened in India and is still to come and will probably surprise a lot of people.
India has a bright future ahead and millions of new jobs are going to be created. A lot of new capital also is going to be used productively thanks to this global economic crash. I’ll once again stress that this is one of the best opportunities in history to create immense wealth for all those who are armed with knowledge and have a little bit of patience.
Source
Friday, February 27, 2009
The world's 10 freest economies
The level of economic freedom in the world has continued to grow over the last year, with 83 economies representing every region posting gains in the 15th annual Index of Economic Freedom, says a study jointly done by The Heritage Foundation and The Wall Street Journal.
And what are free economies? Well, economies classified as 'free' or 'mostly free' do a much better job in promoting human development, reducing poverty and protecting the environment. According to the study, economic freedom is strongly related to good economic performance.
Per capita incomes are much higher in countries that are economically free, says the study. Economies rated 'free' or 'mostly free' in the 2009 Index enjoy incomes that are more than double the average levels in all other countries, it adds.
The ten components of economic freedom are: business freedom, trade freedom, fiscal freedom, government size, monetary freedom, investment freedom, financial freedom, property rights, freedom from corruption and labour freedom. So which are the world's freest economies?
India
India ranks 123rd out of 179 countries in the list; and in placed under the category 'mostly unfree'. India's economic freedom score is 54.4.
The study says India continues to move forward slowly with market-oriented economic reforms. It highlights that India had achieved a growth of about 8 per cent over the past five years, and is a leader in information technology and business process outsourcing. It scores on government size, labour freedom, and property rights.
India could improve in business freedom, trade freedom, financial freedom, investment freedom, and freedom from corruption.
Foreign investment is overly regulated, and the judicial system is burdened by backlogs.
Public debt and fiscal deficit also continues to grow. Starting a business takes an average of 30 days in India. Corruption is rampant in India.
The tax rates are high. Inflation is moderately high, averaging 6.1 percent between 2005 and 2007.
Hong Kong
Hong Kong's economic freedom score is 90, making it the freest economy in the 2009 Index. The study sees improvement in fiscal, trade and business freedom.
Hong Kong is known for its openness to global trade and investment.
The study highlights the entrepreneurial activity in Hong Kong which leads to such prosperity.
One of the world's leading financial hubs, the country is known for transparent and efficient regulation of banking and financial services.
Hong Kong's tax rates are among the lowest in the world. Business regulation is straightforward, and the labour market is flexible.
Starting a business takes less than half the world average of 38 days. Inflation is low, averaging 1.9 per cent between 2005 and 2007.
Property rights are protected by an independent judiciary, says the The Heritage Foundation study.
GDP (PPP): $267.8 billion
Singapore
Singapore's economic freedom score is 87.1, making its economy the 2nd freest in the 2009 Index.
The index highlights Singapore's openness to global trade and investment.
The economy has seen a consistent growth rate averaging over 6 per cent in recent years. Singapore has an ideal business environment and high level of entrepreneurial activity.
Regulations are good and promote business. Commercial operations are conducted with transparency and speed. Corruption hardly exists in Singapore. Starting a business takes four days in Singapore.
Inflation is low, averaging 1.7 per cent between 2005 and 2007.
GDP (PPP): $200.5 billion
Australia
With economic freedom score of 82.6, Australia is the 3rd freest in the 2009 Index. Australia scores high in almost all of the 10 'economic freedoms'.
Monetary stability, openness to global trade, competitive financial and investment environment are the highlights of Australia's strong economy.
Property rights are well protected, businesses enjoy flexibility in their licensing, regulation, and employment practices. Starting a business takes only two days.
Australia has a moderate corporate tax rate. Inflation stands at an average of 2.7 per cent between 2005 and 2007. Corruption is minimal.
GDP (PPP): $735.9 billion
Ireland
Ireland is the 4th freest in the 2009 Index with a economic freedom score of 82.2. Ireland's economy is open to global trade and investment.
It has an efficient business environment, attract huge foreign investment. Ireland scores high on financial freedom and freedom from corruption.
Financial markets are transparent. Property rights are protected by an efficient, independent judiciary. The corporate tax rate is a competitive 12.5 per cent.
Starting a business takes an average of 13 days in Ireland. Inflation stands at a low of 2.8 per cent between 2005 and 2007.
GDP (PPP): $171.9 billion
New Zealand
New Zealand, one of the most prosperous economies comes at the fifth position with an economic freedom score of 82.
The economic liberalisation in the 1980s and 1990s had deregulated its economy.
New Zealand's economy gets its boost from the agricultural sector, a strong manufacturing base and booming tourist industry.
Starting a business is very easy here, it just takes a day! Inflation is at 2.7 per cent between 2005 and 2007. However, New Zealand has high tax rates.
GDP (PPP): $106.8 billion
United States
The world's largest economy is ranked 6th in terms of economic freedom with a score of 80.7.
The US economy strength lies in business freedom, investment freedom, financial freedom, property rights, freedom from corruption, and labour freedom.
The regulatory and legal framework boosts entrepreneurship. Financial markets are open to foreign competition and are dynamic and modern.
The judiciary is independent and of high quality. The economy lags in fiscal freedom and government size. Corporate and personal taxes are high. But starting a business takes only six days.
Inflation is low, averaging 3.0 per cent between 2005 and 2007.
GDP (PPP): $13.2 trillion
Canada
Canada scores very high in eight of the 10 'economic freedoms'.
It leads in business freedom, property rights, and freedom from corruption. The process for conducting a business is transparent and offers a good environment for entrepreneurial activity.
Canada lags behind the world average only in size and expense of government. Canada has elaborate social and welfare state programs that raise government's expenses.
Starting a business takes an average of five days, Canada has moderate tax rates. Inflation is low, averaging 2.1 per cent between 2004 and 2006.
GDP (PPP): $1.2 trillion
Denmark
Denmark is the 8th freest economy in the 2009 Index. With a economic freedom score of 79.6, Denmark scores high on eight of the 10 components of economic freedom.
The economy is open to foreign investment and trade. The regulations are transparent and efficient. Denmark also has an efficient and independent judiciary.
While the corporate tax rate is one of the lowest among members of the European Union, personal income taxes are very high, and the overall tax burden is significant, states the study.
There are few state-owned industries, but government spending equals over 50 percent of GDP. Starting a business takes an average of six days. Inflation is low, averaging 1.8 per cent between 2005 and 2007.
GDP (PPP): $194.0 billion
Switzerland
One of the world's richest and most investment-friendly nations, Switzerland has a economic freedom score of 79.4, making its economy the 9th freest in the 2009 Index.
Switzerland has one of the most competitive and flexible economies in the world. It boasts of an efficient business environment and high entrepreneurial activity.
The labour market is flexible. Switzerland has highly developed and well-regulated financial institutions. The economy is open to foreign investment and restriction apply only to few sectors.
The judiciary is independent and reliable. Starting a business takes 20 days here. Inflation is very low, averaging 0.9 per cent between 2005 and 2007
GDP (PPP): $278.6 billion
United Kingdom
The United Kingdom's economic freedom score is 79, making its economy the 10th freest in the 2009 Index. The economy is open to global trade and investment.
It scores very high on investment freedom, financial freedom, property rights, business freedom, freedom from corruption, labour freedom and trade freedom.
The average tariff rate is low and regulation is efficient. There are few restrictions on foreign investment. The financial system is well developed and the judiciary is independent and reliable.
Property rights are well enforced and contracts are secure. The UK ranks below the world average only in fiscal freedom and government size.
The disadvantage here is the high income tax. Starting a business takes 13 days. Inflation is low, averaging 2.3 per cent between 2005 and 2007.
Source
And what are free economies? Well, economies classified as 'free' or 'mostly free' do a much better job in promoting human development, reducing poverty and protecting the environment. According to the study, economic freedom is strongly related to good economic performance.
Per capita incomes are much higher in countries that are economically free, says the study. Economies rated 'free' or 'mostly free' in the 2009 Index enjoy incomes that are more than double the average levels in all other countries, it adds.
The ten components of economic freedom are: business freedom, trade freedom, fiscal freedom, government size, monetary freedom, investment freedom, financial freedom, property rights, freedom from corruption and labour freedom. So which are the world's freest economies?
India
India ranks 123rd out of 179 countries in the list; and in placed under the category 'mostly unfree'. India's economic freedom score is 54.4.
The study says India continues to move forward slowly with market-oriented economic reforms. It highlights that India had achieved a growth of about 8 per cent over the past five years, and is a leader in information technology and business process outsourcing. It scores on government size, labour freedom, and property rights.
India could improve in business freedom, trade freedom, financial freedom, investment freedom, and freedom from corruption.
Foreign investment is overly regulated, and the judicial system is burdened by backlogs.
Public debt and fiscal deficit also continues to grow. Starting a business takes an average of 30 days in India. Corruption is rampant in India.
The tax rates are high. Inflation is moderately high, averaging 6.1 percent between 2005 and 2007.
Hong Kong
Hong Kong's economic freedom score is 90, making it the freest economy in the 2009 Index. The study sees improvement in fiscal, trade and business freedom.
Hong Kong is known for its openness to global trade and investment.
The study highlights the entrepreneurial activity in Hong Kong which leads to such prosperity.
One of the world's leading financial hubs, the country is known for transparent and efficient regulation of banking and financial services.
Hong Kong's tax rates are among the lowest in the world. Business regulation is straightforward, and the labour market is flexible.
Starting a business takes less than half the world average of 38 days. Inflation is low, averaging 1.9 per cent between 2005 and 2007.
Property rights are protected by an independent judiciary, says the The Heritage Foundation study.
GDP (PPP): $267.8 billion
Singapore
Singapore's economic freedom score is 87.1, making its economy the 2nd freest in the 2009 Index.
The index highlights Singapore's openness to global trade and investment.
The economy has seen a consistent growth rate averaging over 6 per cent in recent years. Singapore has an ideal business environment and high level of entrepreneurial activity.
Regulations are good and promote business. Commercial operations are conducted with transparency and speed. Corruption hardly exists in Singapore. Starting a business takes four days in Singapore.
Inflation is low, averaging 1.7 per cent between 2005 and 2007.
GDP (PPP): $200.5 billion
Australia
With economic freedom score of 82.6, Australia is the 3rd freest in the 2009 Index. Australia scores high in almost all of the 10 'economic freedoms'.
Monetary stability, openness to global trade, competitive financial and investment environment are the highlights of Australia's strong economy.
Property rights are well protected, businesses enjoy flexibility in their licensing, regulation, and employment practices. Starting a business takes only two days.
Australia has a moderate corporate tax rate. Inflation stands at an average of 2.7 per cent between 2005 and 2007. Corruption is minimal.
GDP (PPP): $735.9 billion
Ireland
Ireland is the 4th freest in the 2009 Index with a economic freedom score of 82.2. Ireland's economy is open to global trade and investment.
It has an efficient business environment, attract huge foreign investment. Ireland scores high on financial freedom and freedom from corruption.
Financial markets are transparent. Property rights are protected by an efficient, independent judiciary. The corporate tax rate is a competitive 12.5 per cent.
Starting a business takes an average of 13 days in Ireland. Inflation stands at a low of 2.8 per cent between 2005 and 2007.
GDP (PPP): $171.9 billion
New Zealand
New Zealand, one of the most prosperous economies comes at the fifth position with an economic freedom score of 82.
The economic liberalisation in the 1980s and 1990s had deregulated its economy.
New Zealand's economy gets its boost from the agricultural sector, a strong manufacturing base and booming tourist industry.
Starting a business is very easy here, it just takes a day! Inflation is at 2.7 per cent between 2005 and 2007. However, New Zealand has high tax rates.
GDP (PPP): $106.8 billion
United States
The world's largest economy is ranked 6th in terms of economic freedom with a score of 80.7.
The US economy strength lies in business freedom, investment freedom, financial freedom, property rights, freedom from corruption, and labour freedom.
The regulatory and legal framework boosts entrepreneurship. Financial markets are open to foreign competition and are dynamic and modern.
The judiciary is independent and of high quality. The economy lags in fiscal freedom and government size. Corporate and personal taxes are high. But starting a business takes only six days.
Inflation is low, averaging 3.0 per cent between 2005 and 2007.
GDP (PPP): $13.2 trillion
Canada
Canada scores very high in eight of the 10 'economic freedoms'.
It leads in business freedom, property rights, and freedom from corruption. The process for conducting a business is transparent and offers a good environment for entrepreneurial activity.
Canada lags behind the world average only in size and expense of government. Canada has elaborate social and welfare state programs that raise government's expenses.
Starting a business takes an average of five days, Canada has moderate tax rates. Inflation is low, averaging 2.1 per cent between 2004 and 2006.
GDP (PPP): $1.2 trillion
Denmark
Denmark is the 8th freest economy in the 2009 Index. With a economic freedom score of 79.6, Denmark scores high on eight of the 10 components of economic freedom.
The economy is open to foreign investment and trade. The regulations are transparent and efficient. Denmark also has an efficient and independent judiciary.
While the corporate tax rate is one of the lowest among members of the European Union, personal income taxes are very high, and the overall tax burden is significant, states the study.
There are few state-owned industries, but government spending equals over 50 percent of GDP. Starting a business takes an average of six days. Inflation is low, averaging 1.8 per cent between 2005 and 2007.
GDP (PPP): $194.0 billion
Switzerland
One of the world's richest and most investment-friendly nations, Switzerland has a economic freedom score of 79.4, making its economy the 9th freest in the 2009 Index.
Switzerland has one of the most competitive and flexible economies in the world. It boasts of an efficient business environment and high entrepreneurial activity.
The labour market is flexible. Switzerland has highly developed and well-regulated financial institutions. The economy is open to foreign investment and restriction apply only to few sectors.
The judiciary is independent and reliable. Starting a business takes 20 days here. Inflation is very low, averaging 0.9 per cent between 2005 and 2007
GDP (PPP): $278.6 billion
United Kingdom
The United Kingdom's economic freedom score is 79, making its economy the 10th freest in the 2009 Index. The economy is open to global trade and investment.
It scores very high on investment freedom, financial freedom, property rights, business freedom, freedom from corruption, labour freedom and trade freedom.
The average tariff rate is low and regulation is efficient. There are few restrictions on foreign investment. The financial system is well developed and the judiciary is independent and reliable.
Property rights are well enforced and contracts are secure. The UK ranks below the world average only in fiscal freedom and government size.
The disadvantage here is the high income tax. Starting a business takes 13 days. Inflation is low, averaging 2.3 per cent between 2005 and 2007.
Source
Wednesday, February 11, 2009
Slumdogs and negative lists
If India is to embrace the power of the market, we need to ensure that the rules of the game are fair.
As the film Slumdog Millionaire graphically depicts in an early scene, the plight of the urban poor can be sickeningly sad. Unfortunately, policymakers believe that the challenges of poverty are still in rural India, and the market finds urban India’s burgeoning middle class too attractive to pay attention to the urban poor.
I want to focus on a practice in the banking industry—relatively unknown outside the sector—that I believe can cause enormous damage to the lives of the urban poor: negative lists in credit appraisals. A negative list is a list of areas of a city that a bank has identified where residents would not qualify for credit approval, just by virtue of the location.
This is a relatively new development in India. Historically, banks relied on customer relationships and on-the-ground assessments by local staff to make credit decisions. However, a more rule-based approach to the credit approval process, de-emphasizing individual judgement and focusing on credit scores is now being practised, led apparently by some foreign banks and private sector banks (and possibly some public sector banks as well). Such a process can—while delivering many risk management benefits and scale economies—create an insidious form of systemic discrimination against the poor.
The data on negative lists is very hard to come by, given that much of this is proprietary within each bank, and no formal paper trail can really be established. However, the urban microfinance organization that I am involved with has stitched together some sketchy information for Bangalore, and the results are troubling:
* There are a total of 153 negative list areas, spread across 43 pin codes accounting for about 40% of the total pin codes in the city.
* These are common to many banks since they use common local agents.
* A qualitative analysis of the negative list areas indicates high overlap with the low-income and slum areas of the city.
* Factors that apparently go into the definition of the negative list include crime statistics.
To put it bluntly, negative lists are discriminatory. Consider the implications.
Lack of access to formal credit can have damaging consequences—on a personal level, it can drive people into debt traps from informal sources who can charge interest rates up to 10% a day. On a larger level, though, the consequences are even more destructive. As formal funds get sucked out of these areas, commerce gets bogged down, the entire neighbourhood deteriorates, driving a downward spiral of economic decay where the whole community—residents, traders, labourers— become dependent on an informal ecosystem of financial support to keep them afloat. This is the breeding ground for the mafia and criminal networks.
I’m not trying to sensationalize the problem. The US had a practice similar to our negative lists, called “redlining”, where areas of a city that were poor or dominated by blacks were credit-quarantined. Consider this quote from a book titled When Work Disappears—The World of the New Urban Poor by William Julius Wilson, professor of social policy at Harvard, “Redlining paralysed the housing market, lowered property values and further encouraged landlord abandonment. Abandoned buildings would serve as havens for drug dealing and other illegal activity.”
I don’t believe there is a sinister motive behind negative lists—just a natural evolution of seemingly logical business rules to ensure a systems-based process for low-risk credit growth in banks. This is especially true given that we don’t have reliable information on individuals, and credit history data is just beginning to get systematically compiled and shared. Unfortunately, we don’t always understand the downstream consequences of our actions.
Given the seriousness of the negative list issue, it needs to be stopped. This is not going to happen with corrective action from market forces—it will require policymakers to enact legislation to set the right framework, and then enormous patience, persistence and creativity to ensure compliance.
A bit of comparative history is useful. When the redlining practice in the US became public in the 1960s, there was enormous pressure for several years to get corrective policies. The Fair Housing Act of 1968 and the Community Reinvestment Act of 1977 were seminal pieces of legislation that addressed redlining discrimination.
We need to initiate a similar process here in India. First of all, RBI needs to formally confirm the existence of the practice of negative lists. The onus is then on RBI and the ministry of finance to establish the necessary regulatory checks to protect against this.
Discriminating on the basis of location means not giving people an equal shot at improving their lives. In this sense, these people are doubly damned: first by their birth into a poor household— what Warren Buffett evocatively calls the “ovarian lottery”—and second, by our systematic biases in denying opportunities to them. If India is to be a country where we want to embrace the power of the market, we need to ensure that the rules of the game are fair: that is, everyone gets equal opportunity to fulfil their full economic potential.
Source
As the film Slumdog Millionaire graphically depicts in an early scene, the plight of the urban poor can be sickeningly sad. Unfortunately, policymakers believe that the challenges of poverty are still in rural India, and the market finds urban India’s burgeoning middle class too attractive to pay attention to the urban poor.
I want to focus on a practice in the banking industry—relatively unknown outside the sector—that I believe can cause enormous damage to the lives of the urban poor: negative lists in credit appraisals. A negative list is a list of areas of a city that a bank has identified where residents would not qualify for credit approval, just by virtue of the location.
This is a relatively new development in India. Historically, banks relied on customer relationships and on-the-ground assessments by local staff to make credit decisions. However, a more rule-based approach to the credit approval process, de-emphasizing individual judgement and focusing on credit scores is now being practised, led apparently by some foreign banks and private sector banks (and possibly some public sector banks as well). Such a process can—while delivering many risk management benefits and scale economies—create an insidious form of systemic discrimination against the poor.
The data on negative lists is very hard to come by, given that much of this is proprietary within each bank, and no formal paper trail can really be established. However, the urban microfinance organization that I am involved with has stitched together some sketchy information for Bangalore, and the results are troubling:
* There are a total of 153 negative list areas, spread across 43 pin codes accounting for about 40% of the total pin codes in the city.
* These are common to many banks since they use common local agents.
* A qualitative analysis of the negative list areas indicates high overlap with the low-income and slum areas of the city.
* Factors that apparently go into the definition of the negative list include crime statistics.
To put it bluntly, negative lists are discriminatory. Consider the implications.
Lack of access to formal credit can have damaging consequences—on a personal level, it can drive people into debt traps from informal sources who can charge interest rates up to 10% a day. On a larger level, though, the consequences are even more destructive. As formal funds get sucked out of these areas, commerce gets bogged down, the entire neighbourhood deteriorates, driving a downward spiral of economic decay where the whole community—residents, traders, labourers— become dependent on an informal ecosystem of financial support to keep them afloat. This is the breeding ground for the mafia and criminal networks.
I’m not trying to sensationalize the problem. The US had a practice similar to our negative lists, called “redlining”, where areas of a city that were poor or dominated by blacks were credit-quarantined. Consider this quote from a book titled When Work Disappears—The World of the New Urban Poor by William Julius Wilson, professor of social policy at Harvard, “Redlining paralysed the housing market, lowered property values and further encouraged landlord abandonment. Abandoned buildings would serve as havens for drug dealing and other illegal activity.”
I don’t believe there is a sinister motive behind negative lists—just a natural evolution of seemingly logical business rules to ensure a systems-based process for low-risk credit growth in banks. This is especially true given that we don’t have reliable information on individuals, and credit history data is just beginning to get systematically compiled and shared. Unfortunately, we don’t always understand the downstream consequences of our actions.
Given the seriousness of the negative list issue, it needs to be stopped. This is not going to happen with corrective action from market forces—it will require policymakers to enact legislation to set the right framework, and then enormous patience, persistence and creativity to ensure compliance.
A bit of comparative history is useful. When the redlining practice in the US became public in the 1960s, there was enormous pressure for several years to get corrective policies. The Fair Housing Act of 1968 and the Community Reinvestment Act of 1977 were seminal pieces of legislation that addressed redlining discrimination.
We need to initiate a similar process here in India. First of all, RBI needs to formally confirm the existence of the practice of negative lists. The onus is then on RBI and the ministry of finance to establish the necessary regulatory checks to protect against this.
Discriminating on the basis of location means not giving people an equal shot at improving their lives. In this sense, these people are doubly damned: first by their birth into a poor household— what Warren Buffett evocatively calls the “ovarian lottery”—and second, by our systematic biases in denying opportunities to them. If India is to be a country where we want to embrace the power of the market, we need to ensure that the rules of the game are fair: that is, everyone gets equal opportunity to fulfil their full economic potential.
Source
Thursday, December 18, 2008
Despite crisis, Indians high on spirits
Global meltdown, sky-high inflation rate and gloomy economic outlook were of little concern to Indians in 2008, as they chose to be high on spirits, thus propelling the alcoholic beverage industry to register a handsome double-digit growth--or was it the case of drowning sorrows in drink. You decide.
Nevertheless, in a year that saw inflation touching a 13-year high of 12.82 per cent in August, the 150 million cases beer market grew by 15 per cent, according to All India Breweries Association figures.
The wine segment, which has a total market size of around 1.5 million cases, posted an even higher growth rate of 30 per cent, as per International Wines and Spirits Record, while other alcoholic beverages, with a market size of 190 million cases, grew at 15 per cent.
And all this happened amid spiralling prices of spirits, which shot up by up to 30 per cent in some parts of the country. The average price of generally consumed liquors ranges between Rs 600 and Rs 1,500 per bottle of 750 ml. High prices of molasses, the basic raw material for producing alcohol, had sky-rocketed forcing companies to pass on the increased input costs to tipplers.
However, on the corporate front, it was a rather quiet year in terms of big-ticket mergers and acquisitions, but the domestic landscape did feel the ripples of take-overs in the global arena.
A case in point is the 7.8 billion pounds take-over of Scottish & Newcastle, which owned 37.5 per cent stake in United Breweries, by a consortium of Carlsberg and Heineken, resulting in conflict of interests in India. Heineken got the rights of the Indian market, among others, of S&N. While it was already the single largest shareholder with 42.5 per cent in Asia Pacific Breweries (APB) -- its joint venture with Fraser & Neave -- Heineken also became the largest single stakeholder in United Breweries too. APB wanted to bring its flagship Tiger beer to India, which the UB Group resisted, as it directly competed with Kingfisher. UB Group also opposed the entry of Heineken nominee on its board.
In a similar situation, Belgian brewer InBev acquired US-based Anheuser Busch for USD 52 billion. Both companies were already competing in India through separate joint ventures.
InBev has a joint venture with India's biggest Pepsi bottler, Ravi Jaipuria group, in which the Belgian beer maker had a minority 49 per cent stake and Anheuser Busch had operations in the country through its JV with Crown Beer International.
Post their merger on international turf, the two companies began negotiations for amicable solution for conducting business in India.
UB Group firm, United Spirits, was also in the news for its talks with world's number one liquor manufacturer, Diageo, for a possible stake sale. While the company admitted it had received certain 'unsolicited' proposals from a host of companies, it did not divulge the details.
The domestic liquor industry, nevertheless, witnessed some acquisitions mainly in the form of companies taking over brewers. UK-based Cobra Beer picked up 76 per cent stake in Bihar-based brewery Iceberg Industries Ltd and also acquired the Iceberg beer brand for an undisclosed sum.
United Spirits agreed to acquire its contract manufacturing unit Balaji Distilleries in Tamil Nadu in an all-stocks deal. The distillery has been contract manufacturing for UB Group ever since its inception in 1983. The only outbound acquisition came in the form of homegrown liquor firm Champagne Indage taking over the consolidated assets of UK-based Darlington Wines, which had an estimated revenue of 25 million in 2007.
The iconic liquor player Shaw Wallace & Company Ltd also faded into history in April when the shareholders of the company approved a scheme of amalgamation that sought to merge Shaw Wallace & Company with the UB Group company, United Spirits Ltd.
In terms of new brands making debut in India, the controversial Tiger beer by APB stood out, despite unhappiness expressed by the UB Group. German firm Radeberger Gruppe, along with Dalmia Continental, added fizz to teetotallers' night-outs with its non-alcoholic beer, Clausthaler.
The wines segment also saw new brands like Celesta by Baramati-based Nira Valley Grape Wines, while United Spirits also started selling its products in the country.
The stock market meltdown in the country took its toll on the liquor segment too. Delhi-based Globus Spirits Ltd's plan to raise Rs 68 crore from the public came crashing. Even after receiving market regulator SEBI's nod in early January, the company had to shelve its IPO indefinitely.
While everybody awaits an upturn in the economy, liquor makers do not seem to be unduly worried as tipplers drink anyway, be it for a happy occasion or to gulp down woes.
Nevertheless, in a year that saw inflation touching a 13-year high of 12.82 per cent in August, the 150 million cases beer market grew by 15 per cent, according to All India Breweries Association figures.
The wine segment, which has a total market size of around 1.5 million cases, posted an even higher growth rate of 30 per cent, as per International Wines and Spirits Record, while other alcoholic beverages, with a market size of 190 million cases, grew at 15 per cent.
And all this happened amid spiralling prices of spirits, which shot up by up to 30 per cent in some parts of the country. The average price of generally consumed liquors ranges between Rs 600 and Rs 1,500 per bottle of 750 ml. High prices of molasses, the basic raw material for producing alcohol, had sky-rocketed forcing companies to pass on the increased input costs to tipplers.
However, on the corporate front, it was a rather quiet year in terms of big-ticket mergers and acquisitions, but the domestic landscape did feel the ripples of take-overs in the global arena.
A case in point is the 7.8 billion pounds take-over of Scottish & Newcastle, which owned 37.5 per cent stake in United Breweries, by a consortium of Carlsberg and Heineken, resulting in conflict of interests in India. Heineken got the rights of the Indian market, among others, of S&N. While it was already the single largest shareholder with 42.5 per cent in Asia Pacific Breweries (APB) -- its joint venture with Fraser & Neave -- Heineken also became the largest single stakeholder in United Breweries too. APB wanted to bring its flagship Tiger beer to India, which the UB Group resisted, as it directly competed with Kingfisher. UB Group also opposed the entry of Heineken nominee on its board.
In a similar situation, Belgian brewer InBev acquired US-based Anheuser Busch for USD 52 billion. Both companies were already competing in India through separate joint ventures.
InBev has a joint venture with India's biggest Pepsi bottler, Ravi Jaipuria group, in which the Belgian beer maker had a minority 49 per cent stake and Anheuser Busch had operations in the country through its JV with Crown Beer International.
Post their merger on international turf, the two companies began negotiations for amicable solution for conducting business in India.
UB Group firm, United Spirits, was also in the news for its talks with world's number one liquor manufacturer, Diageo, for a possible stake sale. While the company admitted it had received certain 'unsolicited' proposals from a host of companies, it did not divulge the details.
The domestic liquor industry, nevertheless, witnessed some acquisitions mainly in the form of companies taking over brewers. UK-based Cobra Beer picked up 76 per cent stake in Bihar-based brewery Iceberg Industries Ltd and also acquired the Iceberg beer brand for an undisclosed sum.
United Spirits agreed to acquire its contract manufacturing unit Balaji Distilleries in Tamil Nadu in an all-stocks deal. The distillery has been contract manufacturing for UB Group ever since its inception in 1983. The only outbound acquisition came in the form of homegrown liquor firm Champagne Indage taking over the consolidated assets of UK-based Darlington Wines, which had an estimated revenue of 25 million in 2007.
The iconic liquor player Shaw Wallace & Company Ltd also faded into history in April when the shareholders of the company approved a scheme of amalgamation that sought to merge Shaw Wallace & Company with the UB Group company, United Spirits Ltd.
In terms of new brands making debut in India, the controversial Tiger beer by APB stood out, despite unhappiness expressed by the UB Group. German firm Radeberger Gruppe, along with Dalmia Continental, added fizz to teetotallers' night-outs with its non-alcoholic beer, Clausthaler.
The wines segment also saw new brands like Celesta by Baramati-based Nira Valley Grape Wines, while United Spirits also started selling its products in the country.
The stock market meltdown in the country took its toll on the liquor segment too. Delhi-based Globus Spirits Ltd's plan to raise Rs 68 crore from the public came crashing. Even after receiving market regulator SEBI's nod in early January, the company had to shelve its IPO indefinitely.
While everybody awaits an upturn in the economy, liquor makers do not seem to be unduly worried as tipplers drink anyway, be it for a happy occasion or to gulp down woes.
Wednesday, August 6, 2008
Why India might overtake China
It has only been a few years since Asia bulls have been touting the arrival of the Chinese Century, citing that nation's enormous potential.
Now, get ready for predictions of the India Century.
That, in fact, was the title of a recent white paper by the Chicago-based consultancy Keystone-India, founded by a group of top economists from Ernst & Young who believe that India is on track to surpass China in growth. "We believe this is India's moment," declares Keystone Chief Economist William T Wilson.
China has a two decade-long track record of 9.5% average annual growth, exports 10 times as much as India, and dwarfs India as a magnet for foreign investment.
By contrast, India has achieved an annual growth rate of 7% or higher only seven times in the past two decades. And largely because of its unruly politics and stifling bureaucracy, it wasn't long ago that economists bemoaned the "Hindu growth rate," implying the nation is simply culturally incapable of achieving high growth.
Even under Keystone's projections, India wouldn't match China's current hypergrowth rates for at least another 15 years. And even by 2050, China's economy would be bigger measured in US dollars.
But longer term, Keystone contends India will be in a stronger position. It projects that China's average annual growth will peak at 8.8 per cent over the next five years, and then gradually trend downward to under 7 per cent in the 2020s and around 4% by the 2040s.
India's annual growth is projected to rise to around 7.3 per cent by 2010 and stay over 7 per cent until the mid-2030s, and still be in the 6% range until 2050.
What's more, Wilson contends that Keystone's forecasts are conservative.
Demographics
The biggest reason India has more long-term growth potential is simply that its population is younger and is growing more quickly than China's. Currently, China has 300 million more people than India.
But because of its very low birth rate, largely due to the one-child policy, China's population is expected to peak at around 1.45 billion by 2030.
India's population is expected to increase by 350 million by 2030, more new people than the US, Western Europe, and China combined. India will have 200 million more people than China by midcentury.
What's more, China's population is aging rapidly. As a result, the number of working-age Chinese is projected to peak in 2020 and start declining steadily thereafter, while India's workforce will keep growing for at least four more decades.
However, India's fertility rate also is declining, meaning future families will have fewer children to support and more to spend on consumption.
Development experts call this combination of a growing workforce and declining fertility a 'demographic dividend,' which helped power explosive economic growth in East Asia's Tiger economies from the 1960s through the early 1990s.
Capital Efficiency
The big driver of China's economic growth has been massive investment, equal to 40% to 45% of gross domestic product a year, an extraordinarily high rate on world standards�and twice the percentage of India's.
In 2004, investment in China was equal to half of its $1.5 trillion in GDP. In that context, China's 9.5% growth rate that year shouldn't be too surprising.
"It is staggering how much investment was needed to power Chinese growth in recent years," Wilson notes. "Any nation investing half of GDP in fixed-capital income looks a lot like pre-crisis Asia."
India, however, gets much more bang for the rupee. It has achieved 6% average growth with an investment rate half that of China's, around 22% to 23% a year.
Investment Growth
Many signs point to big increases in investment in India, Wilson says.
In fact, he estimates investment in India could reach 35% of GDP within a decade, which would enable it to match China's 9% plus growth. One reason is that the savings rate in India rose from 23.5% of GDP in 2001 to 28.1% in 2004.
And because of its growing workforce and the decline in family size, India's savings rate should continue to rise to a projected 37% in 20 years.
Since investment is highly correlated to domestic savings, that should translate into higher investment and economic growth.
Meanwhile, the rapidly aging population of China means that its savings rate also is likely to drop in the future, as it has in most other nations with graying workforces.
Second, India thus far has gotten by with minimal foreign investment. Keystone notes that in the past four years alone, China has drawn $200 billion more in foreign investment.
However, India is planning to open up many long-protected sectors that have great allure to foreign investors and that could draw huge inflows of money.
They include telecom, where Indian demand now is growing even faster than China's, commercial real estate, and department stores. Although some of the reforms have stalled recently due to domestic political opposition, Wilson believes the government will prevail.
"If you look at the institutional changes and the number of industries that have liberalised over the past five years, the pace has been phenomenal,he says.
Wilson predicts India's real estate sector will draw a huge influx of money from foreign hedge funds, and liberalisation of retail will be 'the real big bang' for the economy.
New Entrepreneurs
Indian industry so far has been led by many of the big business families and conglomerates that dominated when India was still a quasi-socialist, heavily regulated economy.
They generally have done a good job of taking advantage of new opportunities offered by liberalization since the early 1990s. But the more dynamic companies in India are smaller ones that are led by new generations of entrepreneurs who take greater risks or are more connected to the global economy.
These new companies also have more creative managers, argues Debashis Ghosh, another Keystone partner who worked at Ernst & Young.
Keystone focuses on researching mid-sized Indian companies with $10 million to $100 million in annual sales.
"The bigger companies are still led by oldschool types who used to depend on access to government and got huge when there was nobody else in the game.
"Because they had scale, foreigners had to deal with them," says Ghosh.
"Now, though, the top talent from the Indian Institutes of Technology and the Indian Institutes of Management are flowing into the mid-sized sector. That is like getting a management team of all Wharton and Massachusetts Institute of Technology grads."
As a result, he contends that the Indian companies of the future are more dynamic than those of China, where management tends to be weak.
Higher Productivity
India has averaged respectable productivity growth of 2.5% a year over the past two decades. But that can grow sharply, thanks to liberalization of many industries, a literacy rate that has risen from 18% in 1951 to 65% now, and India's rising openness to foreign trade, which has jumped from 15% of GDP in 1991 to 26% now.
Manufacturing Surge China dwarfs India as a manufacturing power, especially for export.
And it will be a long time before India, with its inadequate infrastructure and components supply base, will be a serious export rival. But in recent years, India's domestic manufacturing industry has been growing strongly.
What's more, a number of Indian companies are especially strong in high-end manufacturing, such as auto parts, power generators, and medical equipment, that requires a lot of engineering.
In terms of quality and efficiency, several Indian auto parts companies are on par with the US.
"If you look at engineering work across the board, in industries from pharmaceuticals to telecom, what India is doing is an order of magnitude beyond what China is doing," says Keystone's Ghosh.
Anyone who visits both countries today may find it hard to imagine India overtaking China in economic performance.
But when you look at the fundamental drivers�growth in the workforce, fixed investment, and productivity -- over the long run the prospect looks a lot more plausible.
Now, get ready for predictions of the India Century.
That, in fact, was the title of a recent white paper by the Chicago-based consultancy Keystone-India, founded by a group of top economists from Ernst & Young who believe that India is on track to surpass China in growth. "We believe this is India's moment," declares Keystone Chief Economist William T Wilson.
China has a two decade-long track record of 9.5% average annual growth, exports 10 times as much as India, and dwarfs India as a magnet for foreign investment.
By contrast, India has achieved an annual growth rate of 7% or higher only seven times in the past two decades. And largely because of its unruly politics and stifling bureaucracy, it wasn't long ago that economists bemoaned the "Hindu growth rate," implying the nation is simply culturally incapable of achieving high growth.
Even under Keystone's projections, India wouldn't match China's current hypergrowth rates for at least another 15 years. And even by 2050, China's economy would be bigger measured in US dollars.
But longer term, Keystone contends India will be in a stronger position. It projects that China's average annual growth will peak at 8.8 per cent over the next five years, and then gradually trend downward to under 7 per cent in the 2020s and around 4% by the 2040s.
India's annual growth is projected to rise to around 7.3 per cent by 2010 and stay over 7 per cent until the mid-2030s, and still be in the 6% range until 2050.
What's more, Wilson contends that Keystone's forecasts are conservative.
Demographics
The biggest reason India has more long-term growth potential is simply that its population is younger and is growing more quickly than China's. Currently, China has 300 million more people than India.
But because of its very low birth rate, largely due to the one-child policy, China's population is expected to peak at around 1.45 billion by 2030.
India's population is expected to increase by 350 million by 2030, more new people than the US, Western Europe, and China combined. India will have 200 million more people than China by midcentury.
What's more, China's population is aging rapidly. As a result, the number of working-age Chinese is projected to peak in 2020 and start declining steadily thereafter, while India's workforce will keep growing for at least four more decades.
However, India's fertility rate also is declining, meaning future families will have fewer children to support and more to spend on consumption.
Development experts call this combination of a growing workforce and declining fertility a 'demographic dividend,' which helped power explosive economic growth in East Asia's Tiger economies from the 1960s through the early 1990s.
Capital Efficiency
The big driver of China's economic growth has been massive investment, equal to 40% to 45% of gross domestic product a year, an extraordinarily high rate on world standards�and twice the percentage of India's.
In 2004, investment in China was equal to half of its $1.5 trillion in GDP. In that context, China's 9.5% growth rate that year shouldn't be too surprising.
"It is staggering how much investment was needed to power Chinese growth in recent years," Wilson notes. "Any nation investing half of GDP in fixed-capital income looks a lot like pre-crisis Asia."
India, however, gets much more bang for the rupee. It has achieved 6% average growth with an investment rate half that of China's, around 22% to 23% a year.
Investment Growth
Many signs point to big increases in investment in India, Wilson says.
In fact, he estimates investment in India could reach 35% of GDP within a decade, which would enable it to match China's 9% plus growth. One reason is that the savings rate in India rose from 23.5% of GDP in 2001 to 28.1% in 2004.
And because of its growing workforce and the decline in family size, India's savings rate should continue to rise to a projected 37% in 20 years.
Since investment is highly correlated to domestic savings, that should translate into higher investment and economic growth.
Meanwhile, the rapidly aging population of China means that its savings rate also is likely to drop in the future, as it has in most other nations with graying workforces.
Second, India thus far has gotten by with minimal foreign investment. Keystone notes that in the past four years alone, China has drawn $200 billion more in foreign investment.
However, India is planning to open up many long-protected sectors that have great allure to foreign investors and that could draw huge inflows of money.
They include telecom, where Indian demand now is growing even faster than China's, commercial real estate, and department stores. Although some of the reforms have stalled recently due to domestic political opposition, Wilson believes the government will prevail.
"If you look at the institutional changes and the number of industries that have liberalised over the past five years, the pace has been phenomenal,he says.
Wilson predicts India's real estate sector will draw a huge influx of money from foreign hedge funds, and liberalisation of retail will be 'the real big bang' for the economy.
New Entrepreneurs
Indian industry so far has been led by many of the big business families and conglomerates that dominated when India was still a quasi-socialist, heavily regulated economy.
They generally have done a good job of taking advantage of new opportunities offered by liberalization since the early 1990s. But the more dynamic companies in India are smaller ones that are led by new generations of entrepreneurs who take greater risks or are more connected to the global economy.
These new companies also have more creative managers, argues Debashis Ghosh, another Keystone partner who worked at Ernst & Young.
Keystone focuses on researching mid-sized Indian companies with $10 million to $100 million in annual sales.
"The bigger companies are still led by oldschool types who used to depend on access to government and got huge when there was nobody else in the game.
"Because they had scale, foreigners had to deal with them," says Ghosh.
"Now, though, the top talent from the Indian Institutes of Technology and the Indian Institutes of Management are flowing into the mid-sized sector. That is like getting a management team of all Wharton and Massachusetts Institute of Technology grads."
As a result, he contends that the Indian companies of the future are more dynamic than those of China, where management tends to be weak.
Higher Productivity
India has averaged respectable productivity growth of 2.5% a year over the past two decades. But that can grow sharply, thanks to liberalization of many industries, a literacy rate that has risen from 18% in 1951 to 65% now, and India's rising openness to foreign trade, which has jumped from 15% of GDP in 1991 to 26% now.
Manufacturing Surge China dwarfs India as a manufacturing power, especially for export.
And it will be a long time before India, with its inadequate infrastructure and components supply base, will be a serious export rival. But in recent years, India's domestic manufacturing industry has been growing strongly.
What's more, a number of Indian companies are especially strong in high-end manufacturing, such as auto parts, power generators, and medical equipment, that requires a lot of engineering.
In terms of quality and efficiency, several Indian auto parts companies are on par with the US.
"If you look at engineering work across the board, in industries from pharmaceuticals to telecom, what India is doing is an order of magnitude beyond what China is doing," says Keystone's Ghosh.
Anyone who visits both countries today may find it hard to imagine India overtaking China in economic performance.
But when you look at the fundamental drivers�growth in the workforce, fixed investment, and productivity -- over the long run the prospect looks a lot more plausible.
Courtsey:Specials.rediff.com
Excerpted from: Chindia-How China and India are Revolutionizing Global Business by Pete Engardio
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