The Boom From The Bottom - Isolated from world trends, India's aspiring middle will help it grow through the credit storm
By Jason Overdorf
NEWSWEEK
Feb 14, 2009
From the magazine issue dated Feb 23, 2009
Though it may not look it on the ground at times, India is one of the few bright spots in a global economy with decidedly dim prospects in 2009. It is forecast to grow at 5 to 6 percent this year—which is more than it averaged in the 1990s. Yes, its stock market has crashed, unemployment is spiking, swaths of the real-estate market have more than a passing resemblance to Miami Beach and it now turns out that Satyam Computer Services—one of the country's top five IT companies—has been cooking its books. But a one-off incident of fraud in the flagship IT sector won't knock the country off the rails. India boasts an unlikely growth driver all its own: legions of poor whose incomes have risen just enough in recent years to create powerful demands for basic goods and services.
The rise of India's aspiring middle—a group that lives above the poverty line but hasn't yet attained true membership in modern consumer society—is hardly a new story. But what's surprising is the resilience of this cohort, and the extent to which it has counterbalanced the global credit crisis and the slump in the global export economy of which India is a key player. In part, this is a consequence of New Delhi's past failures; policymakers were never able to make India the export powerhouse that China has become over the past three decades, so now they don't rely nearly as heavily on growth driven by demand from foreign markets.
The idea that Indian backwardness is a plus may sound absurd. But it is always easier to grow from a poor base, so the fact that India is not yet a major economy is an advantage in a downturn. Such a large population subsisting at so low an economic base is a powerful economic driver if it can be mobilized—and for India this group is proving resilient to the prevailing headwinds in the global economy. "It's kind of a self-sustaining process," says Subir Gokarn, chief economist at Crisil, the Indian arm of Standard & Poor's. "There's a huge underpenetration of most commodities and services, and you have enough people at the bottom experiencing enough of an increase in income to sustain growth."
So even as middle-class consumption wanes in India—signified by a sharp drop in auto sales, airline travel and fine-restaurant dining since mid-2008—demand for basic goods and services remains strong thanks to aspiring consumers, many still tied to the farms, who spend their rupees on essentials like soap, medicine and the shoes and clothing that they wear to work. As Gokarn puts it: "If you go back to the economic textbooks, they will tell you that the poorer you are, the stronger your propensity to consume."
http://www.thehindubusinessline.com/2007/02/08/images/2007020807300101.jpg
The contrast with China, Asia's other economic giant, is stark. Domestic demand makes up three quarters of the Indian economy, compared with less than half for China, which is "why, relative to East Asian economies, India is somewhat insulated from the global trade slowdown," says Shankar Acharya, a former chief economic adviser to the government. Another Indian mainstay—agricultural growth—should remain steady this year, and the services sector, which now accounts for about 55 percent of India's GDP, is expected to be "more resilient" than manufacturing, says Acharya. And despite the financial crisis, the nation's IT sector managed to grow some 20 percent in 2008, according to India's National Association of Software and Services Companies, and IT firms have already extended 100,000 job offers for 2009. "China has been highly focused on the export market, while Indian businesses have been highly focused on the domestic market, and their exports have been incidental," says Saumitra Chaudhuri, chief economist at ICRA, an Indian creditratings agency affiliated with Moody's. That makes India, more than China, a master of its own destiny.
The contrast with China, Asia's other economic giant, is stark. Domestic demand makes up three quarters of the Indian economy, compared with less than half for China, which is "why, relative to East Asian economies, India is somewhat insulated from the global trade slowdown," says Shankar Acharya, a former chief economic adviser to the government. Another Indian mainstay—agricultural growth—should remain steady this year, and the services sector, which now accounts for about 55 percent of India's GDP, is expected to be "more resilient" than manufacturing, says Acharya. And despite the financial crisis, the nation's IT sector managed to grow some 20 percent in 2008, according to India's National Association of Software and Services Companies, and IT firms have already extended 100,000 job offers for 2009. "China has been highly focused on the export market, while Indian businesses have been highly focused on the domestic market, and their exports have been incidental," says Saumitra Chaudhuri, chief economist at ICRA, an Indian creditratings agency affiliated with Moody's. That makes India, more than China, a master of its own destiny.The biggest risk to India in 2009 at this point may not be the global economy but domestic politics. Prime Minister Manmohan Singh's United Progressive Alliance will see its term expire in May, and India's election rules mean that he can no longer enact any significant policies—a measure adopted to prevent incumbents from stacking the deck with populist sops. That means as much as five months of paralysis, precisely when speedy, creative action is the order of the day. Moreover, though the nemesis of Singh's Congress party—the Bharatiya Janata Party—mostly favors similar policies, a change in government would likely result in some further slowing of infrastructure projects that are already running behind schedule. And elections in India can be tricky. In the last one, the BJP-led National Democratic Alliance lost despite rapid economic growth, because poor voters rejected the BJP's campaign claims of an "India Shining."
With the light bulb flickering, Singh's Congress may face an even bigger challenge winning them over. The poor don't care how much faster than other nations India is growing, only whether their lives are better than they were five years ago.
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Gross domestic product 2007, PPP (millions of Ranking Economy international dollars)
1 United States 13,811,200
2 China 7,055,079
3 Japan 4,283,529
4 India 3,092,126
5 Germany 2,727,514
6 Russian Federation 2,088,207
7 France 2,061,884
8 United Kingdom 2,046,780
9 Brazil 1,833,601
10 Italy 1,777,353
11 Spain 1,405,262
12 Mexico 1,345,530
13 Korea, Rep. 1,199,270
14 Canada 1,178,205
15 Turkey 922,189
16 Indonesia 841,140
17 Iran, Islamic Rep. 776,538
18 Australia 733,120
19 Netherlands 621,830
20 Poland 601,776
21 Saudi Arabia 554,250
22 Argentina 523,169
23 Thailand 519,439
24 South Africa 463,331
25 Pakistan 409,973
26 Egypt, Arab Rep. 403,865
27 Greece 370,202
28 Belgium 366,148
29 Malaysia 355,225
30 Venezuela, RB 334,212
31 Sweden 332,669
32 Colombia 320,884
33 Ukraine 320,762
34 Austria 317,261
35 Switzerland 301,718
36 Philippines 299,678
37 Hong Kong, China 293,115
38 Nigeria 292,595
39 Algeria 262,119 a
40 Norway 251,151
41 Romania 245,508
42 Czech Republic 239,689
43 Singapore 230,824
44 Portugal 230,776
45 Chile 230,423
46 Vietnam 221,346
47 Peru 218,777
48 Bangladesh 196,975
49 Denmark 195,396
50 United Arab Emirates 195,364 a
51 Ireland 187,890
52 Hungary 187,837
53 Israel 185,883
54 Finland 181,999
55 Kazakhstan 167,647
56 Morocco 125,392
57 Kuwait 114,597
58 New Zealand 110,391
59 Slovak Republic 109,030
World Development Indicators database, World Bank, revised 17 October 2008
PPP is purchasing power parity; an international dollar has the same purchasing power over GDP as a U.S. dollar has in the United States. Note: Rankings include only those economies with confirmed PPP GDP estimates.
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Gross national income per capita 2007, Atlas method and PPP
World Development Indicators database, World Bank, revised 17 October 2008
Atlas power parity (int'l methodology)
Ranking Economy (US dollars)
1 Liechtenstein a
2 Bermuda a
3 Norway 76,450
4 Luxembourg 75,880
5 Qatar .. a
6 Switzerland 59,880
7 Denmark 54,910
8 Iceland 54,100
9 Channel Islands .. a
10 Andorra .. a
11 Cayman Islands .. a
12 Ireland 48,140
13 San Marino 45,130 a
14 Sweden 46,060
15 United States 46,040
16 Netherlands 45,820
17 Finland 44,400
18 Isle of Man 40,600 a
19 United Kingdom 42,740
20 Austria 42,700
21 Belgium 40,710
22 Canada 39,420
23 Germany 38,860
24 France 38,500 c
25 Japan 37,670
132 China 2,360
133 Tonga 2,320
134 Morocco 2,250
135 Georgia 2,120
136 Vanuatu 1,840
137 Bhutan 1,770
138 Syrian Arab Rep. 1,760
140 Paraguay 1,670
141 Indonesia 1,650
142 Philippines 1,620
143 Honduras 1,600
144 Egypt, Arab Rep. 1,580
145 Congo, Rep. 1,540
145 Sri Lanka 1,540
147 Timor-Leste 1,510
148 West Bank/Gaza 1,230 a
149 Guyana 1,300
150 Mongolia 1,290
152 Bolivia 1,260
152 Moldova 1,260 e
154 Kiribati 1,170
155 Djibouti 1,090
156 Cameroon 1,050
157 Lesotho 1,000
158 Nicaragua 980
159 Sudan 960
160 India 950
161 Nigeria 930
2 Bermuda a
3 Norway 76,450
4 Luxembourg 75,880
5 Qatar .. a
6 Switzerland 59,880
7 Denmark 54,910
8 Iceland 54,100
9 Channel Islands .. a
10 Andorra .. a
11 Cayman Islands .. a
12 Ireland 48,140
13 San Marino 45,130 a
14 Sweden 46,060
15 United States 46,040
16 Netherlands 45,820
17 Finland 44,400
18 Isle of Man 40,600 a
19 United Kingdom 42,740
20 Austria 42,700
21 Belgium 40,710
22 Canada 39,420
23 Germany 38,860
24 France 38,500 c
25 Japan 37,670
132 China 2,360
133 Tonga 2,320
134 Morocco 2,250
135 Georgia 2,120
136 Vanuatu 1,840
137 Bhutan 1,770
138 Syrian Arab Rep. 1,760
140 Paraguay 1,670
141 Indonesia 1,650
142 Philippines 1,620
143 Honduras 1,600
144 Egypt, Arab Rep. 1,580
145 Congo, Rep. 1,540
145 Sri Lanka 1,540
147 Timor-Leste 1,510
148 West Bank/Gaza 1,230 a
149 Guyana 1,300
150 Mongolia 1,290
152 Bolivia 1,260
152 Moldova 1,260 e
154 Kiribati 1,170
155 Djibouti 1,090
156 Cameroon 1,050
157 Lesotho 1,000
158 Nicaragua 980
159 Sudan 960
160 India 950
161 Nigeria 930
162 Côte d'Ivoire 910
Purchasing Power (int'l methodology) Parity
Ranking Economy (US dollars)
1 Luxembourg 63,590
4 Kuwait 49,970 a
5 Norway 53,320
6 Brunei Darussalam 49,900 a
9 Singapore 48,520
10 United States 45,850
12 Hong Kong, China 44,050
13 Switzerland 43,870
17 Netherlands 39,310
18 Austria 38,140
19 Ireland 37,090
20 Bahrain 34,310 a
23 Sweden 36,590
24 Denmark 36,300
26 Canada 35,310
27 Belgium 34,790
28 Japan 34,600
29 Finland 34,550
30 Iceland 33,960
31 United Kingdom 33,800
32 France 33,600
33 Germany 33,530
34 Australia 33,340
36 Greece 32,330
38 Spain 30,820
4 Kuwait 49,970 a
5 Norway 53,320
6 Brunei Darussalam 49,900 a
9 Singapore 48,520
10 United States 45,850
12 Hong Kong, China 44,050
13 Switzerland 43,870
17 Netherlands 39,310
18 Austria 38,140
19 Ireland 37,090
20 Bahrain 34,310 a
23 Sweden 36,590
24 Denmark 36,300
26 Canada 35,310
27 Belgium 34,790
28 Japan 34,600
29 Finland 34,550
30 Iceland 33,960
31 United Kingdom 33,800
32 France 33,600
33 Germany 33,530
34 Australia 33,340
36 Greece 32,330
38 Spain 30,820
122 China 5,370
142 Tonga 3,650 b
143 Honduras 3,620 b
144 Indonesia 3,580
145 Vanuatu 3,410 b
146 Micronesia, Fed. Sts. 3,270 b
147 Mongolia 3,160
148 Timor-Leste 3,080 b
149 Cape Verde 2,940
150 Moldova 2,930
151 Guyana 2,880 b
153 Congo, Rep. 2,750 a
154 India 2,740
155 Pakistan 2,570
156 Vietnam 2,550
157 Nicaragua 2,520 b
158 Uzbekistan 2,430 b
159 Djibouti 2,260
160 Kiribati 2,240 b
161 Yemen, Rep. 2,200
162 Cameroon 2,120
163 Mauritania 2,010
164 Kyrgyz Republic 1,950
165 Lao PDR 1,940
166 Lesotho 1,890
167 Sudan 1,880
168 Papua New Guinea 1,870 b
169 Nigeria 1,770
170 Tajikistan 1,710
171 Cambodia 1,690
PPP is purchasing power parity; an international dollar has the same purchasing power over GNI as a U.S. dollar has in the United States. Note: Rankings include all 209 World Bank Atlas economies, but only those with confirmed GNI per capita estimates or those that rank among the top twenty for the Atlas method are shown in rank order. Figures in italics are for 2006 or 2005. a. 2007 data not available; ranking is approximate. b. Estimate is based on regression; other PPP figures are extrapolated from the 2005 International Comparison Program benchmark estimates. c. Data include the French overseas departments of French Guiana,
Guadeloupe, Martinique, and Réunion. e. Data exclude Transnistria.
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India Enters the Top 10By Reuben Abraham
Indian Economy Blog
July 16, 2005
The World Bank has recently updated its development indicators. Among the indicators updated are the GDP figures and the per-capita figures. According to the updated numbers, India’s $691 billion economy has just overtaken South Korea to become the 10th largest economy in the world (and the 3rd largest in Asia). China has moved into 7th place now with its $1.6 trillion economy. India’s share of the world economy has gone up to about 1.7%, while China’s has gone up to about 4%. The U.S. still dominates the world economy with a 29% share. A look at the top 10 also reveals why the G8 is an anachronism. Russia is not in there. China will probably overtake Italy in the next couple of months. Spain has a larger economy than Canada. And India ought to enter the top 8 in the next couple of years. Among developing countries, Mexico, Russia, Brazil and Turkey also feature in the top 20.
You can also check out where these countries stand if you used PPP to compute GDP. Also online are the per-capita income figures using U.S dollars and PPP methodologies. India does abysmally in both cases with rankings of 159 and 146 respectively, while China ranks at 132 and 119.
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