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A Summary of Indian Economy (with politics and demography)

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  1. A Summary of Indian Economy(with politics and demography) Tapen Sinha AXA Chair Professor, ITAM, Mexico Special Professor, University of Nottingham, UK

  2. Outline • Democracy • Demography • Macroeconomic performance • Role of the government • Broad sectoral performance • Trade and investment • Socioeconomic problems • Macroeconomic modelling of the future

  3. Election in India • 670 million voters • One million electronic voting machines • The machines cost around US$100 • No electricity is needed: 6 volt battery • Design is akin to a “black box” in aircraft • Once a vote is cast, it is impossible to repeat • Counting is done in a few hours • Box stuffing is virtually impossible • Invalid votes used to exceed the winning margin

  4. Election Results of 2009

  5. Current demographics • Population: 1,189,172,906 (July 2011 est.) • (Mexico: 111,211,789) • Age structure: • 0-14 years: 31.1% • 15-64 years: 63.6% • 65 years and over: 5.3% • Median age: 25.3 years • (Mexico 26.3)

  6. Current demographics • Population growth rate: 1.55% (2010 est.) • (Mexico: 1.13%) • Birth rate: 22.01 births/1,000 population • (Mexico 19.71%) • Death rate: 8.18 deaths/1,000 population • (Mexico 4.78%) • Net migration rate: -0.07 migrant(s)/1,000 • (Mexico -3.61)

  7. Current demographics • Sex ratio: • at birth: 1.05 male(s)/female • (Mexico 1.05) • under 15 years: 1.06 male(s)/female • (Mexico 1.04) • 15-64 years: 1.07 male(s)/female • (Mexico 0.94) • 65 years and over: 1.02 male(s)/female • (Mexico 0.82) • Total population: 1.06 male(s)/female • (Mexico 0.96)

  8. Why is there an imbalance of sexes? • In many Asian countries the ratio of male tofemale population is higher than in theWest • As high as 1.07 in China and India, and evenhigher in Pakistan. • Amartya Sen, 1992has suggested that this imbalance reflects excessfemale mortality • As a result, he has argued that as many as 100 million women aremissing

  9. Sex Ratio in India 1961-2001

  10. Preston Curve

  11. Current rate 55, Mexico 21, US 6.5 and Singapore 2.2

  12. India has a large rural population This is very different from the Latin American experience

  13. Is India densely populated? • Are there too many people in Holland? • Population density highest in the world are Hong Kong and Singapore over 6,300 per square km • Perception versus reality: Indian ranks below Bangladesh (1,000), Belgium, the Netherlands and Japan (400+) • India has 330 persons per square km (rank 15) • Mexico ranks 117 • The story of The Little Prince

  14. Macroeconomic performance • Measure of general well being is measured by per capita income • But which per capita income • Atlas Method • PPP Method • Reason they do not coincide is that the exchange rates do not reflect underlying purchasing power: BigMac Index

  15. Comparing per capita income: India China 1700-2000

  16. Healthcare expenditure is extremely uneven in India

  17. Sectoral • Agriculture: how it is shrinking but not demographics • Industry: the industry puzzle • Services • Banking/Finance • IT – the expanding role (cyber cafes and post offices)

  18. Socio-economic problems • Human development • Poverty • Corruption • Unemployment • Regional imbalance • Ethnic-religious problems

  19. HDI

  20. Poverty

  21. Corruption

  22. 1.5

  23. Role of the state • State planning • Over half a century, India has undergone ten five year plans • Problem: What is planned does not necessarily happen • The idea was to have key sectors under state control: defense, electricity, roads, education (public goods) • Later it expanded to other things: insurance business, banking, sugar mills • Public expenditure and receipts: what goes where

  24. Government does not do things well • Why? Incentives are wrong • Most activities are NOT driven by needs • They are driven by politics • Example 1: public education problem • Example 2: salaries of comparable public and private sector jobs • Note: Mexican case

  25. Government: Role of the state • Deficit(t)=Revenue(t) minus Expenditure(t) • Debt(t)=Deficit(t)plusDeficit(t-1)plus…. • They are usually measured as a percentage of GDP: GDP gives a proxy of ability to pay • Is high debt to GDP ratio bad? • Note: debt is not all foreign debt

  26. Are government bonds net wealth • Government deficit can be financed in two ways: printing money or issuing bonds • But bonds have to be paid • How does government pay for outstanding debt – by taxing • Who does it tax • Portfolio of people: government bonds versus private bonds or stocks

  27. What is the difference between pre-crisis and post-crisis periods?

  28. Government revenue • In the developed countries, they mainly come from income taxes • In India, 8% people work in the formal sector • Most taxes come from customs duty and other types of indirect avoidable taxes • Government revenue is around 8% of GDP

  29. Government expenses • Policy: free rural electricity • It benefits the rural rich, it distorts the use of energy for production • Policy: highly subsidized seeds and fertilizer • Most subsistence farmers do not benefit from them, it benefits the agri-business • It distorts incentives for farming

  30. Trade • Trade and investment • Internal trade and infrastructure • External trade • Domestic saving and investment • Foreign investment