Saturday, July 31, 2004
Asia's new Tigers
For a while in the 90's, all the talk in global economic and financial circles was about the emergence of the tiger economies of south-east Asia. The meltdown put an end to that. The term "tiger economies" is now enjoying a new lease of life. The players have changed though. It now refers to the Indian and Chinese economies rather than the south-east Asian ones. Morgan Stanley has a new report out called "New Tigers of Asia" which offers a comparison of the growth prospects for the Indian and Chinese economies. Andy Mukherjee excerpts some of the relevant portions of the MS report for Bloomberg.
If the Indian economy grows 8 percent annually, and if Indian households mimic their Chinese counterparts' propensity to own cars relative to incomes, then in a short span of four years India's car market may more than double to rival China's 2003 total of 1.76 million units. In the worst-case scenario -- in which the $575 billion economy expands no more than 6 percent a year, and Indians are more reluctant than the Chinese to splurge on new cars - it will still take only eight years before India becomes the world's fourth-biggest passenger-car market after the U.S., Japan and China.
Telecommunications will be the other industry to watch. Morgan Stanley's best-case estimate is for India to reach China's current level of 295 million fixed-line phones in seven years, up from 46.5 million subscribers at present.
Chetan Ahya and Andy Xie of Morgan Stanley dont paint an entirely rosy picture though.
While India's economy did grow 8 percent last year, there's reason to doubt if that's a sustainable rate for the country that has since 1990 attracted less than 7 percent as much in foreign direct investment as the $480 billion that has poured into China. Besides, India saves only 24 percent of its gross domestic product, compared with a 39 percent savings rate in the most- populous nation -- another reason for India's growth aspirations to remain shrouded by lack of capital.
Almost three-fifths of the power India generates yields no revenue because of theft and distribution of free electricity to farmers. That means industrial power users pay rates that are among the highest in the world, and are double of Chinese levels. That's a big drag on India's export competitiveness.
High customs tariffs in India, amounting to 15 percent of the value of goods imported into the country, curb consumption. In China, where tariffs are only 3 percent of the value of imports, Consumer durables are a third cheaper than in India.
India's labor productivity in manufacturing industries is in disarray because of the country's neglect of basic education. In an eight-hour shift, a Chinese worker produces 35 shirts. An Indian worker manages 20.
Let me make a few quick points about the car market. Until very recently, India sold more cars than China did. The meteoric rise of China's car market is a post-1999 phenomenon. I don't know for sure what the reasons are, but I suspect it may have to do with taxation as much as it does with better transportation infrastructure. The state of roads are a no-brainer. China has much better roads than India does. Tax structures are something the Indian govt could do something about. I think the cost of cars can be brought down dramatically if taxes are brought down and increased competition is encouraged. After all, this is how the mobile phone market took off. Of course, given the current state of tranportation infrastructure in India, it's a valid question to ask whether we really need any more cars on the road.
PS: You can find a more detailed version of the MS report here.
If the Indian economy grows 8 percent annually, and if Indian households mimic their Chinese counterparts' propensity to own cars relative to incomes, then in a short span of four years India's car market may more than double to rival China's 2003 total of 1.76 million units. In the worst-case scenario -- in which the $575 billion economy expands no more than 6 percent a year, and Indians are more reluctant than the Chinese to splurge on new cars - it will still take only eight years before India becomes the world's fourth-biggest passenger-car market after the U.S., Japan and China.
Telecommunications will be the other industry to watch. Morgan Stanley's best-case estimate is for India to reach China's current level of 295 million fixed-line phones in seven years, up from 46.5 million subscribers at present.
Chetan Ahya and Andy Xie of Morgan Stanley dont paint an entirely rosy picture though.
While India's economy did grow 8 percent last year, there's reason to doubt if that's a sustainable rate for the country that has since 1990 attracted less than 7 percent as much in foreign direct investment as the $480 billion that has poured into China. Besides, India saves only 24 percent of its gross domestic product, compared with a 39 percent savings rate in the most- populous nation -- another reason for India's growth aspirations to remain shrouded by lack of capital.
Almost three-fifths of the power India generates yields no revenue because of theft and distribution of free electricity to farmers. That means industrial power users pay rates that are among the highest in the world, and are double of Chinese levels. That's a big drag on India's export competitiveness.
High customs tariffs in India, amounting to 15 percent of the value of goods imported into the country, curb consumption. In China, where tariffs are only 3 percent of the value of imports, Consumer durables are a third cheaper than in India.
India's labor productivity in manufacturing industries is in disarray because of the country's neglect of basic education. In an eight-hour shift, a Chinese worker produces 35 shirts. An Indian worker manages 20.
Let me make a few quick points about the car market. Until very recently, India sold more cars than China did. The meteoric rise of China's car market is a post-1999 phenomenon. I don't know for sure what the reasons are, but I suspect it may have to do with taxation as much as it does with better transportation infrastructure. The state of roads are a no-brainer. China has much better roads than India does. Tax structures are something the Indian govt could do something about. I think the cost of cars can be brought down dramatically if taxes are brought down and increased competition is encouraged. After all, this is how the mobile phone market took off. Of course, given the current state of tranportation infrastructure in India, it's a valid question to ask whether we really need any more cars on the road.
PS: You can find a more detailed version of the MS report here.
