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This month India celebrated 75 years of Independence. We have taken a look at India's economic development over these 75 years.
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India's Progress over 75 years -
A Tale of Two Halves
There was a decolonization movement in Asia and Africa between 1945 and 1960. We were amongst the first to get Political freedom but did not get Economic freedom at the same time, which most countries did. We followed a Socialistic form of Government, which slowed our progress. Further, the License Raj, corruption, nationalization, and lack of free enterprise caused India to initially lag behind its neighbours’ growth.
Between 1950 and 2008, it was the golden period of growth for the rest of the world. After World War 2, there was a
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population explosion, productivity boom, and increase in global debt to finance and leverage growth, which grew at the same rate as debt. Globalization was on steroids. India after getting left behind has now started catching up to the position we were in the 1950s.
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Per Capita IncomeP
This is the single most important indicator of a country's success. Currently, the per
capita income is at US$ 2200 and the gap between India and the rest of the world is
at the same level as it was in the 1950s, (per capita was at US$ 60 then) - after the gap
widened in the first few decades. However, we are still ranked 158th out of 205
countries so we are near the bottom.
According to industry experts, US$ 2200 is seen as an inflection point for growth in
consumption, when basic needs are taken care of. We are moving from a pyramid
structure (largest population at the lowest strata) to a more diamond-shaped
economy, where the middle-income numbers are rapidly increasing.
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Economic Freedom - we are in the bottom 25% of the world. The more economically free you are, the richer you are. In Autocratic regimes, you tend to get much more
violent shifts in policy, and hence in outcomes In Democratic countries, you get
much more stable policy.
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Market capitalization has risen with our economy. A lot of wealth creation does
happen in India. But at the same time, there has been serious destruction of wealth
in the Government enterprises, which the taxpayer has had to pay for e.g. Airline,
Telecom, Steel, Banking, etc. FII and FDI investments used to move equity, but now
retail investors are embracing the markets. One of India's great weaknesses was in
Manufacturing - after being stifled for years in the License Raj. However, it has been
steadily rising from 10% of GDP a decade ago to 16% currently.
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In the last 10 years India was ranked 3rd in the new Billionaire boom. From 55
billionaires in 2011 (more than half are no longer on the list) to 140 in 2021 (110 are new
names). Wealth as a percentage of GDP has gone up from 13.5% to 19.6%. India is a
county of extremes and concern has been expressed over inequality of income.
Previously a lot of wealth was inherited, but now many new self-made billionaires are
created in manufacturing, healthcare, and technology.
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Rupee was at Rs. 4 per dollar at the time of Independence and is now Rs. 79. We have
depreciated on an average of Re. 1 per year of Independence. However, for years we
were pegged to the dollar and were therefore expensive. We are currently fairly
valued and quite cheap in the terms of the Big Mac Index.
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Rapid Digitization in India
India is digitizing at a more rapid pace than anywhere else in the world, which will assist
in our growth. This is reflected in 3 areas:
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In conclusion, with India taking the Socialist path, growth was stunted for many years
and our economic place in the world fell. However, we are now on a "V" shaped recovery and have
re-reached the position we were at Independence and now would hopefully continue the growth
trajectory.
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How Did China Move Ahead?
India and China were almost at the same level of
economic growth in 1990. Under the leadership of
Deng Xiaoping, China's growth was parabolic. He
created Special Economic Zones which were relatively
free of interference and bureaucratic interventions.
These regions became engines of economic growth.
In the 1990s, China fired 90 million people from their
badly run state companies. The State created the
infrastructure, and new cities, and encouraged rural
people to move to them. Although the population is
similar to India, China has double the amount of big
cities. The focus was on manufacturing and exports.
Only about 10% of India’s population will move outside
their districts. India has strong regional identities.
Whatever China did in the last 30-40 years, it is now
reversing and therein lies the opportunity for India to
shine.
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Cracks have started appearing in "invincible" Xi Jinping's authority over China. The zero Covid
tolerance policy has caused a huge economic slowdown in Cinna. The protractive Trade War with
the US has not helped. The Premier, Li Keqiang, has urged local officials to stabilize the economy.
The President's crackdown on over-leveraged property companies has caused a crash in real estate
prices. About 1/5th of China's economic activity is tied up in the property market. 24 leading property
companies are on the brink of collapse and 70% of ordinary Chinese people's wealth is tied up in the
real estate. They are now publicly revolting, with rapidly escalating boycotts on mortgage payments
spread across at least 301 projects in about 91 cities. Fears that it will cause a Banking Crisis in China.
It is yet to see whether the Civil unrest spreads in China and how India can benefit from this.
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Economic Growth Going Forward
A country sustaining high growth for decades is difficult. There are 5
countries that maintained 5%+ growth for 5 decades - China, Singapore,
South Korea, Taiwan and Thailand. India's recovery started 4 decades ago
when it started its V-shaped recovery and grew 5%+ per decade along with
Malaysia and Hongkong. If India continues its average 5% growth rate it will
become the 3rd largest economy by 2032. However, it will take 18 years to
double the per capita income.
The four engines of growth are faltering globally.
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Population
Most countries’ working population is shrinking and also the longevity is
increasing. Even in India, the working population growth rate is falling,
and is now around 2%, and is expected to become negative by 2050.
Without favourable population growth, it is difficult to maintain
economic growth of 5%. However we do have an advantage in that
women have just entered the workforce and account for only 21% of the
same, and it is about double that for similar countries and about 70% for
developed economies. So if more women enter the working population,
our growth rate can sustain.
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Productivity
Global productivity is declining. During the last 2 decades, as any hint of
a slowdown or recession, the Central banks have been pumping in
money and hence inefficient companies have been kept afloat. The
culture of constant stimulus has undermined the key merits of
capitalization. The tenets of efficient use of capital have been ignored,
and hence productivity has fallen.
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Globalization
There has been increasing Societal pressure against globalization. Trump,
Brexit, etc are all symptoms of this. In India too we are raising trade
barriers Further the Government has been encouraging "Made in India",
through various policies.
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Debt
Earlier the rate of increase in debt and the rate of increase of growth was
similar. However, governments have taken on unprecedented debt from
the Great Financial Crisis of 2007/8 and again during the Covid crisis.
With debt, you are buying future growth now, and we may currently be
paying the price. Inflation has hit the world and the developed economy's
inflation is higher than India.
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Hence, in conclusion, although there is high inflation around the world and
definite signs of a slowdown, India is better placed when the recovery starts.
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EQUITY MARKET
The market continues to be range bound with a few violent moves on
either side. The previous top of 18000 - 18300 will show some resistance.
There are still global problems. US inflation will take time to be tamed.
Europe has sorted out the Russian gas problem by importing coal from the
US, Australia, etc, and climate change is put on a back burner. China's
problems may be beneficial for India. The market is looking at a good
festive season. Credit offtake has risen to a pre-Covid high.
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DEBT MARKET
In India we are used to inflation being at the 6-7% level. If the rest of the world
continues to raise interest rates, India would have to decide whether to
defend the currency and raise interest rates too or push for growth and
pause the increases. We do not see 10-year GSec crossing 8%.
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GOLD
Gold continues to be range bound, and trying investor's patience. However
there is upheaval in the global economic system, and even if the digital
currency does become popular, it is likely to have some gold backing.
Further, it is good to have some hedge against global uncertainty.
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Inputs and data collected from various sources
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AKURDI |
WAKAD |
WANOWRIE |
MAGARPATTA |
B-20, Jai Ganesh Vision, Akurdi, Pune-411 035. |
No-1, Nisarg Deep Apartment, Kaspate Vasti Wakad, Pune-411 057. |
No. 26, Shraddha Regency, ’A’ Opp Kedari Garden, WANOWRIE, Pune-411 040. |
No. 14, 4th Floor, Destination Centre, Magarpatta City, Hadapsar, Pune-411 013. |
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