We've looked at two sets of reforms, or two generations of reforms and more or

less we get the idea that now India is on a very, very different track.

It is relying more on the market.

Indian businesses are pretty much the drivers of the Indian economy.

The government has not completely withdrawn, although it has removed itself

from certain productive activities and it has essentially

placed itself in providing crucial social services and serving the social sector.

But also facilitating private business activity, whether through infrastructure

investments, whether through you know, education investments.

It is still playing a role, but

not the role that it played during the state-led development model.

So it has undertaken a number of reforms beginning with the major reforms of 1991.

And obviously, more than two decades have now gone by since those reforms.

So the obvious question that does arise, where does India stand today?

So I'm going to say a few things about where does India stand today

in two different parts.

This first part that I will deal with simply to talk about,

to talk about in a structural way.

What does the Indian economy look like today?

And I'll touch upon the key sectors, agriculture, industry and

the services sector, talk a little bit about the high value services and

talk a little bit about the balance of trade issue as well.

So that will give you an idea of where does the Indian economy stand

in the macro sort of sense.

If you look at this graph, it basically what it shows you is the share

of agricultural, forestry and fishing, mining and quarrying.

These are all what we call primary sector economic activities.

Now the typical expedience of any country undergoing modernisation and

growth and development would suggest that the rule of every culture,

or rule of the primary sector activities, they would relatively decline.

Relative to that is the national income.

They would decline over time.

In other words, these sectors become less important to the economy as industries and

services sectors become more important.

So from this point of view, it's quite clear that India is following a fairly

conventional kind of trajectory where the share of agriculture is declining.

Now if you look at, let's say, what we would call the industrial sector, or

the secondary sector, which involves manufacturing,

construction, electricity and basically all the utilities that you have,

now here we have a very interesting picture.

At least in the initial period that is say,

starting from 1950 that is soon after Indian independence.

You see that the importance of industry increases and

then increases incrementally somewhat right through you know, even recently.

But what you do find is that it is fairly stagnant at one level.

In other words, the share of industry is not really going up as it should,

given the fact that India's still relatively under-industrialised,

meaning that it is also a relatively, poor economy.

Now if you, if you were to plot the same graph using say, China's data,

you'll have a very, very different picture.

In fact, you will find that this particular graph would actually be

a rising substantially.

In fact reading from the graph, you will see that in 2011 and

2012 India's share of industry to Gross Domestic Product was roughly about 25%.

But if you were to look at the, the Chinese figure for

the same year, the chances are that it will be about 40%.

Clearly there is a very, very big difference between

how the Chinese economy has developed and how the Indian economy is developing.

Clearly China has gone the industrial path in, what I would say,

a more conventional way, but at a much faster pace.

In other words, it's following the conventional way in the sense that as

agriculture declines, industry increases.

In the Chinese case, agriculture has declined more so than in India,

relatively speaking, but certainly its industry has also gone up relatively.

And of course, absolutely, the Chinese manufacturing sector is very large.

In fact, it has been dubbed as the workshop of the world.

Now when you look at the, the services sector,

which is really the third sector in a structural sense of an economy,

now what you do see here, of course, is that India has a very interesting profile.

Its share of services relative to GDP has been going up.

Normally you would not expect such a thing for

a country that has very low per capita incomes.

In fact, this kind of a ratio, which is you know,

close to 60% of India's GDP comes from services.

This sort of a ratio

generally is found in the, the so-called rich countries.

The United States and Japan,

I think their share of services is closer to about 70%, maybe slightly even more.

But India is not that far behind, and yet we know that India is a much

poorer country compared to the United States and Japan.

So obviously there is something interesting going on in India

to create such a sort of structure of the economy and to create such a profile,

because very few developing countries actually share this attribute where

the share of services is a very big share, big chunk of the Indian economy.

And even within the services if you look at it, now there are lots of services.

There are various kinds of services.

Somebody who flips a hamburger is a service worker.

Somebody who is a neurosurgeon is also a service professional.

So they're all providing services, but they are very,

very different kind of services.

So there are what we would called low wage, low tech services, and

there are high tech, high wage services as well.

Now if you, desegregate the services data, and

you break it down into finance, insurance, real estate, business services,

these are relatively high-value services.

And one of the interesting things about India you'll find is that the high-value

services begin to increase somewhere along,

sometime around the 1970s they begin to increase.

And of course they have become quite large.

In fact, they have been growing year after year.

So roughly about 18% of India's services come under the sort of

high-value high-value services.

And what I'm not showing you here, but you know,

one can actually look up the data if you are interested,

you will also find that India is known for its information technology services.

And in fact, some of the statistics show that the share of

such services, just the sort of IT services,

is close to around 4 to about you know, maybe less than 5% of GDP.

Now that's a very large chunk,

just given the fact that it is only a single sector.

And when you actually look at the export data,

you will also find that the share of IT services is close to 24% or

25% of India's total exports of goods and services.

Now that too is actually quite remarkable, because no other country has

that sort of a characteristic where the average incomes are very low and yet

the share a high value exports is very, very high when it comes to India.

Now let's look at a little bit of the balance of trade issue.

I mentioned earlier that during the era of state legend development period,

India was constantly facing what we call a balance of payments

crisis because it was not really exporting very much.

But one of the interesting things in this chart you will see, of course,

is that once the reforms begin, so whether they are in the late 1970s or you know,

and then continued in the 1980s, and then again with a major sort of,

break in 1991, you can clearly see that both exports and imports have gone up.

Although clearly, imports have gone up much faster than exports.

So as a result of course, there is what we would call a trade deficit.

Now trade deficit by itself is not a very bad thing so

long as it is a manageable one.

But one of the problems with India's trade situation is that

although India has begun exporting quite a bit

it obviously it could do far better.

In fact, the previous, one of the previous graphs

showed you that Indian sort of industries is almost sort of stagnating.

Well, there is plenty of opportunities in that area where India could increase its

manufacturing activities, and hopefully from there then export as well.

But India doesn't do very much of exports of manufacturing.

Whatever exports of manufacturing it does, they're fairly on the low-end

of the scale, except for you know,

a few automotive components which are also on the low-end.

But they are doing some exports of cars, for example, which is of course,

a high value manufactured product.

But by and large,

India's exports of manufactured goods is not particularly prominent.

Now, this deficit that you see, so the, the in the curve that you see down below

here, the negative one here, this one over here.

Now clearly, of course, that is indicating the deficit.

Now this deficit seems to be getting wider over time.

Now this is, of course, a concern.

It's a concern only in the sense,

not that India does not have the foreign exchange reserves.

It does, because it is exporting more.

But, what it does indicate also is that India is importing a lot.

And what this graph does not show you is that India is importing a lot of oil.

And this is, of course, a real challenge for

India because India is heavily dependent on imported oil, and

a good share of India's export revenues is used to pay for this oil import.

So clearly there is, there is that energy question.

Just as the rest of the world also has the energy issue ahead of it,

India also particularly has one because it relies heavily on imported oil.

And just to sort of have what it already has,

it has to keep on exporting more and more.

This, of course, is something that the Indian government also has to address.

So but this is rare, this sort of balance of trade stands more or less today.

India does have a deficit.

The deficit by itself is not a problem so long as it is manageable, but

it cannot simply get out of hand.

So when you look at the foreign exchange reserves,

you can clearly see that from from virtually nothing,

India's foreign exchange reserves has gone up considerably.

And it's a fairly comfortable position.

Of course, China has ten times the foreign exchange that India has, but China is also

a very, very different country, so therefore, it's not surprising.

But I think credit must be given to the fact that Indian economy has changed

direction, and clearly it is generating foreign exchange reserves.

But foreign exchange reserves come not only from exports, which it does,

no doubt, but we have also mentioned that remittance income still plays a very,

very important role.

In fact, in the next segment I will have an opportunity to talk about, a little bit

about remittance income, which is sent by the Indian workers working abroad.

3.7 Where does India stand? India's place in the world economy

Contemporary India

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