Douglas McWilliams Cebr Deputy Chairman talking to the Indian Professionals Association (22 November 2017) on the way in which the Indian economy is changing gear and starting to invest heavily in infrastructure.
Speaking notes for Douglas McWilliams for Indian Professionals Association Chatham House 22 Nov 2017
I’d like to talk about four things: 1) where India fits into the world economic league table; 2) India’s unique model for economic development 3) How the Indian economy today is changing gear; and finally 4) Some reflections on what it will be like when India is the world’s leading economy
- Cebr’s World Economic League table for last year, which we published with our friends Global Construction Perspectives, suggested that in 2019 and possibly before then India will overtake both France and the UK to become the fifth largest economy in the world in cash dollar GDP terms. But of course using cash GDP is a measure which understates the size of the Indian economy from many perspectives because of the much lower living costs in India. If you adjust for purchasing power, India already is the third largest economy in the world and already three times the size of the UK economy.
Moreover, some time in the second half of this century all the experts expect India to overtake China to become the largest economy in the world. So we are talking about something big here – not just any country but the country set to become the most important country in the world. There will be a new set of numbers on this on 26 December when we release next year’s World economic league table.
- The model for economic development that has underpinned the development of East Asia from Japan through Korea to Singapore to China is essentially that the government has developed the infrastructure and provided basic services – defence, health, sanitation and most important education while the private sector (often from abroad) has provided investment capital skills and markets.
But India has managed to create an entirely different model. If anything governments in the past, instead of supporting economic development have almost hindered it, except perhaps in education. Infrastructure has largely lagged behind development. And instead of starting by exporting low tech like clothing and footwear and moving up to higher levels of sophistication, India has reversed the normal order of things and started right at the very top with the highest possible level of technology in the software sector.
A few years ago when I was on the main board of Marconi and we were considering merging with the Chinese telecom equipment giant Huawei we got quite close to them and amongst other things we asked them what they did for software. And they said: ‘we do the same thing as everyone else – we outsource to India’. The reason it has happened this way is because software and trade down phone lines have been one of the few sectors largely able to escape unimpeded by the so called permit raj and government interference. Because the government has been less able to interfere with sectors that do not produce physical goods, it has been less able to impede the development of india’s now giant software industry which is now the largest in the world. While India’s greatest asset – its massive supply of educated and skilled people – have been able to offer themselves at attractive wages as the key raw material for the industry. My last book, The Flat White Economy, describes how the digital economy has taken off in East London, but there is a much bigger book to be written about how the digital economy has taken off in India.
- The increasing supplies of skilled people is the single biggest reason for being optimistic about India. The population is still growing rapidly at 1.2% per annum. By 2022 the Indian population will be the largest in the world.
Indian GDP this year has been hit by the adjustment pains of demonetisation and the introduction of the GST. But these problems will pass and all the key commentators including Cebr expect growth to accelerate in the rest of this year and into next year.
Moreover growth is changing gear. I mentioned that in the past infrastructure has held back growth. Looking forward the Modi government is committed to changing this growth pattern and investing heavily in infrastructure which is set to grow about twice as fast as GDP for the next 5 years and should continue double digit annual growth for a few decades. Last month the finance ministry announced plans for 84,000 km of new highways. To put this in perspective, the entire size of the whole of the UK’s motorway system is only 3,000 km.
Moreover India is set to skip a few generations of infrastructure and move straight to smart highways and other infrastructure and homes. India’s huge construction programme, together with the Chinese Silk Road/Belt programme make up the two defining infrastructure opportunities anywhere in the world in the current century. India already has solar powered trains.
That is why with our partners Global Construction Perspectives, my company Cebr will be producing, next Spring, a new report on India’s likely construction opportunities and their scale with a wealth of detail.
- Finally, India will at some point be the world’s largest economy. What does that mean?
You can shed a little bit of light on this from looking at the two areas where India already leads the world. First Bollywood, which on most measures is the world’s leading film capital. This has a very traditionally Indian format but the glitziness and the style has moved forward incredibly since I first watched Indian films in the 1950s. But Bollywood is mainly for the domestic market and the Indian diaspora.
In some ways more relevant is India’s role in world cricket which demonstrates India’s interaction with the rest of the cricket playing world. Cricket is the first major international arena where India has moved to dominance. Cebr calculations suggest that between 60% and 80% of world cricket revenues come from India with the IPL accounting for about half of all world cricket revenues.
Which means that in effect India leads world cricket though because cricket has to be played between sides, the power is shared with the two other major revenue creators, Australia and England.
I was at Lords on that day in 1983 when India beat the then dominant West Indies team to win the Cricket World Cup. And to this day India has remained fascinated by the shorter forms of cricket, culminating in cricket’s flagship tournament the Indian Premier League. The IPL is a tournament for young people and reflects a dynamic innovative young economy. It’s got all sorts of innovations, it is very commercial, it is lively, it has dancing girls, all sorts of prizes and it works. And as I said it now accounts for fully 50% of all revenues from cricket anywhere in the world.
But at the same time things can go awry. The last time an England cricket team toured India, the Indian cricket board had been suspended over corruption allegations and its funds were frozen. So everywhere the team went there were constant arguments about hotel bills and so on because the Indian cricket board lacked cheque signing authority. Needless to say, it was all right on the night and the problems all got resolved, though in some cases only at the last minute.
China will be the world’s dominant economic power in the middle of this century and it is likely to be run by quite old and fairly conservative people from an aging society, people who dislike radical change. I suspect that as the Chinese economy becomes dominant, the world will move a less dramatic way with changes on an incremental basis rather than radical shifts.
But when India becomes the largest economy in the world it is likely to be still quite a young country, brash, entrepreneurial, dynamic and innovative. Maybe slightly chaotic… and its world leadership is likely to reflect this.
- So fasten your seat belts. We might be in for an exciting ride!
With a population of over 1.2 billion, India is the second-most populous country in the world. The World Bank defines India’s economic progress as one of the most significant achievements of our times. India’s economy grew at an average annual rate of 7.6% between 2001 and 2010.
Social indicators such as life expectancy and literacy rates have improved significantly and India has developed from a dependence on grain imports into one of the biggest exporters of food. Other export products include petroleum oils, cars, diamonds and gold.
India’s economy is diverse, with the service sector accounting for around 45% of GDP and manufacturing and agriculture also contributing significantly to economic growth.
Poverty remains one of the key issues with one-in-five Indian’s living below the poverty line. Investment will be needed in order to create jobs, housing and infrastructure and to provide education for India’s fast-growing population. India currently ranks 130th in the UN’s Human Development Index.
We expect GDP growth of 6.8% in 2016 and an acceleration to 7.3% in 2017. Growth is forecast to average 6.5% between 2021-2030.
India is currently the world’s seventh largest economy, according to the Cebr World Economic League Table. The country will move into 5th by 2020 and into 3rd by 2030.
| India | 2000 | 2005 | 2010 | 2015 | 2017 | 2020 | 2025 | 2030 |
| GDP, local currency bn (constant prices) | 39609 | 54950 | 81922 | 113503 | 131113 | 163487 | 225202 | 307281 |
| GDP, USD bn (constant prices) | 649 | 1011 | 1881 | 2100 | 2448 | 3278 | 5143 | 8007 |
| GDP, USD bn (current prices) | 477 | 834 | 1708 | 2073 | 2501 | 3580 | 6211 | 10675 |
| Rank | 13 | 13 | 9 | 7 | 6 | 5 | 3 | 3 |