Mumbai: The big fat numbers matter. Yes, they really do. And they will continue to be important in 2008.
We live in an obsessive culture of comparison, persistently asking ourselves how we compare with our neighbours or how much the national economy has grown by over the past four quarters. That gives rise to the blizzard of reports on growth rates, market shares and global comparisons. These battles of decimal points and percentages are definitely not unimportant. But the absolute numbers deserve some attention as well: the millions, the billions and the trillions.
Why? Look no further than the great $1.5 trillion disappearing act. It was about a really big number. The World Bank told us this month that India’s 2005 gross domestic product (GDP) was $2.3 trillion—and not $3.8 trillion, as it earlier believed. There you are: $1.5 trillion of national income went ‘poof’ into thin air.
China saw a similar cut. How did this happen? The World Bank recalculated the size of the two largest Asian economies in 2005 based on purchasing power parity (PPP), a method that takes into account the fact that a dollar can buy more in Mumbai and Shanghai than it can in New York. It was a write-down to beat all write-downs, that fashionable euphemism to describe how overoptimism finally met reality in the balance sheets of many global banks in 2007. Even Wall Street banks should be impressed by the size of the cut that India has taken according to the World Bank’s statisticians.
But it’s not all bad news on the bignumber front. First, India and China can cover the ground they have lost in about four years, given their torrid growth rates. It’s a stumble rather than a fall. Second, there are several happy numerical advances due in 2008 that will hopefully blow away the disappointment of having to overtake Japan all over again. (By the old World Bank metrics, the Indian economy had overtaken Japan’s in terms of size in 2006. It’ll now go ahead in a year or two.)
What follows is a whistle-stop tour through some of the more impressive numbers about the Indian economy that you are likely to come across in 2008.
The trillion-dollar baby
Here’s the biggest: India will officially be a trillion dollar economy in 2008, in terms of market exchange rates. That’s not exactly a surprise. We have often heard over the past few months, from investment banks and the finance minister, that India is now a trillion-dollar baby.
But theirs are guesses. We’ll know for sure only in the middle of 2008, when the government’s bean counters have carefully sifted through the numbers to announce a final GDP number for the current fiscal year. But we can work some tentative numbers. India’s GDP was Rs37,96,639 crore in 2006-07. It should grow in nominal terms by 15%. Assuming that the dollar trades at around 40 to a rupee, the Indian economy will official go a little beyond the magic trillion-dollar mark. Be prepared for the big headlines.
And these are figures based on market exchange rates rather than the statistically more tricky PPP method. A write-down is unlikely, unless the rupee suddenly and unexpectedly collapses against the dollar sometime in the next three months. But that seems unlikely, doesn’t it?
India: a middle-income country
A trillion-dollar economy will help push average incomes above the $1,000 mark. The Prime Minister’s Economic Advisory Council says in a July 2007 report that the average income of an Indian at the end of 2007-08 is likely to be $1,021.
That’ll put India in a different league altogether. India has traditionally been a poor country. The World Bank defines a low-income country as one where average incomes are less than $905. So a per capita income of $1,021?will put India in the lower middle-income category (countries with average incomes between $906 and $3,595). That does not mean India has no poor people, but only that the average Indian is no longer poor.
The World Bank website still defines India as a low-income country, one of 53 at the bottom of the heap. But it could be upgraded in 2008. India will then brush shoulders with the likes of other lower middle-income economies such as Algeria, Bolivia and the Philippines rather than with Haiti, Malawi and Uganda.
A trillion-dollar economy with growing incomes will support many other important numerical transitions.
Tax and taxibility
Take taxes. The government’s direct tax collections are likely to cross Rs3 trillion by the end of this fiscal year. Why not? Collections of income and corporation taxes have been sizzling this year, growing in excess of 40% thanks to rising incomes and strong profit growth. It is very likely that direct tax collection of more than Rs3 trillion will mark an important turning point in India’s fiscal history. For perhaps the first time ever, direct taxes will contribute more to government revenues than indirect taxes. The tax department says it has already collected Rs2 trillion of direct taxes till 20 December and more than Rs1.48 trillion from indirect taxes.
There is more significance to this incipient event than a mere change in the structure of government revenues. Direct taxes are progressive, while indirect taxes tend to be regressive. A rich man pays more direct tax than a man who is less well off. The poor pay no direct taxes at all. But they all pay the same indirect tax on every unit of consumption, irrespective of income levels. You and your maid shell out the same amount of money to the taxman each time the two of you buy a bar of soap. That’s why indirect taxes are usually considered to be regressive.
The Rs3 trillion of direct taxes that will be collected by the end of March 2008 will show that relatively more tax is being collected from those who have the ability to pay. This is welcome in a country obsessed with the notion that the current surge in the economy is not inclusive enough.
The buzz in the bazaar
The effects of a trillion-dollar economy will be felt in the country’s bazaars and malls as well. A quick back-of-the-envelope calculation suggests that India’s total consumer spending will almost definitely cross $500 billion in 2008. Total consumer spending of $600 billion over the next 12 months is not inconceivable.
Here’s how the numbers have been estimated. India invests about one-third of its GDP. Government expenditure accounts for 17% more. The remaining half of our GDP is made up of private spending. That’s more than $500 billion in calendar 2008.
Companies and marketers are justified in licking their chops at the sight of such a huge market. However, not all those half a trillion dollars will flow their way. Around half the total money spent by Indian households is on essentials—especially food. This proportion has dropped over the years and will continue to do so as prosperity spreads. But, as of now, only around $250 billion (at best) is available for discretionary spending on all sorts of consumer goodies— from bicycles to expensive cars, from basic radios to plasma TVs, from school fees to medical care.
This explosion of consumer power will be felt in different ways in the economy during 2008. Annual car sales, for example, have crossed a million in 2007; they will continue to grow in 2008—and could double if Tata Motors actually succeeds in selling all of the million new low-priced cars that are expected to roll off its assembly lines next year. There are 250 million mobile phone subscribers in India right now. And eight million new subscribers are signing on every month. So, it is safe to assume that India will have more than 300 million mobile subscribers by the end of 2008, leading to an explosion of chatter and economic productivity. Many other consumer goods will be sold in millions.
Consumers will need outlets to do their shopping. 500 malls are expected to crop up across our urban landscape over the next year. Total mall space could touch 40 million sq. ft, according to industry estimates. Some of the buying in 2008 will be done with plastic. The number of credit and debit cards will cross 50 million early next year and another 20 millions cards could be added by the end of the year.
From here to there
Of course, not everything made within India will be consumed domestically. Exports will continue to grow, though one contentious contemporary issue that will almost definitely spill over into 2008 is the effect of a strong rupee on exporters.
Yet, exports will cross two important milestones in 2008, irrespective of whether these services and goods are flashed across continents through communications networks or if they chug across the seas in mighty container ships. Total Indian merchandise exports are ready to roll in $100 billion territory in 2008. That’s the official commerce ministry target for 2007-08. Exports of software and IT-related services in 2008 will cross $50 billion as well—and inch towards the dream of $60 billion by 2010.
But, while these big fat numbers will impress minds, they will not gladden hearts. That will be done not by a big number but by a small number: one. Even a single gold medal at the 2008 Beijing Olympic Games will create more excitement than all the big numbers mentioned above ever will.