Top Economist Neelkanth Mishra on India's Next 30 Years

The key idea of the video is that India's progress and economic growth have been driven by building on existing infrastructure, opening up the economy to competition, and addressing challenges in sectors like transportation and energy.

00:00 📈 Progress comes from building on existing infrastructure and opening up the economy to competition, as discussed by economist Neelkanth Mishra who explores India's rise, major reforms, challenges, and opportunities, and his personal journey from computer science to economics.

• Progress comes in layers and building on top of existing infrastructure is crucial for growth, as opening up the economy to competition puts pressure on everyone to work harder.
• Neelkanth Mishra, a renowned economist, discusses the rise of India, the state of the country before liberalization, the major reforms of the past 30 years, the challenges and opportunities ahead, and his transition from studying computer science to a career in the economy.
• The speaker discusses their journey and how they ended up joining Hindustan Lever, gaining valuable business experience that they later applied to their economic research, and also mentions their failed attempt at starting their own venture.
• India has undergone significant changes in terms of capitalism and the speaker's personal journey led them to become fascinated with technology and business trends, ultimately leading them to pursue an MBA.
• The speaker discusses their career path from joining First Boston to covering IT services and eventually transitioning to covering healthcare and metals, with a focus on understanding China's impact on the global market.
• The speaker self-taught themselves about economics and finance, and through their research, they discovered that the rupee would fall further and that inflation would not decrease until fiscal discipline improved.

09:19 📚 Life in the speaker's village in India has transformed with the introduction of cell phones, shorter commutes, and the importance of educating people about the UID project, while the thriving informal economy impacts sectors like agriculture and leads to curiosity and research on topics like currency exchange rates and GDP measurement.

• Life in the speaker's village in East Champaran, India has drastically changed over the years, with the introduction of cell phones making communication easier and reducing travel time from three quarters of a day to a few hours.
• People in India are moving to villages due to shorter commutes, and the speaker discusses the transformational impact of roads, electricity, and cell phones at the grassroots level, as well as the importance of educating people about the UID project.
• India's informal economy, which accounts for 45% of the country's GDP, is thriving and has a significant impact on various sectors such as agriculture, as observed through the movement of milk in villages, leading to increased curiosity and research on topics like currency exchange rates and GDP measurement.
• Neelkanth Mishra discusses his involvement in policy making, including his contribution to the calculation of the first rate of the GST, and his continuous learning and study in various areas such as China, Japan, global trade, and the business of leisure.
• The speaker discusses their childhood, being physically weak and an avid reader, and how they initially chose to study physics but ended up studying computer science instead.
• The speaker reflects on their personal journey of self-discovery and questioning, including reading religious texts like the Gita and the Bible, during their time in IIT.

22:06 📚 The speaker emphasizes the importance of intellectual curiosity and taking risks, discusses the funding and enjoyment of research, and highlights India's significant economic changes since 1991.

• The speaker's curiosity and passion for learning, driven by his early experiences with language generation and animation, have led him to explore deep fundamental questions and continuously educate himself.
• Knowing and embracing your natural tendencies, such as risk-taking and intellectual curiosity, is crucial in shaping your journey and taking intellectual risks, even if there are occasional failures, in order to solve bigger problems and make accurate forecasts about the future.
• The speaker discusses the importance of being clear on who is funding research and the compromise of needing to be useful to clients, but also expresses the enjoyment of being paid to read and write, particularly in relation to thinking about the past and gaining confidence in the medium term.
• The speaker discusses the importance of long-term perspective in planning and decision-making, and how his professional career allows him the freedom to deeply think about various topics while utilizing the knowledge earned by specialists in academia.
• India's economic changes since 1991 were significant due to the country's history of being looted, lack of understanding of India's needs, and the importance of making difficult decisions.
• There was a prevailing intellectual consensus in economics, but some decisions made in the past did not play out, leading to a swing to the left in the late 60s, and it was only in the late 70s and early 80s that policymakers realized the need for reforms and started the slow relaxation process.

36:07 📈 India's economy has seen significant changes over the past 30 years, with improvements in productivity, competition, and infrastructure, leading to steady growth, although there is still room for improvement in sectors like Railways and transportation services in Bihar.

• Increasing the number of research analysts or providing them with better resources such as faster computers and access to more databases can significantly increase their productivity.
• India's total factor productivity (TFP) has been steadily increasing since the 1980s, but between 2005 and 2019 it has been falling due to a shift in ownership and a lack of aligned incentives for growth, with significant changes implemented in 1991.
• Over the past 15-20 years, there has been a shift in ownership of businesses in sectors like airlines, metal production, media, and telecom, leading to increased competition, lower prices, and the elimination of inefficient businesses.
• India's economy has seen significant changes over the past 30 years, with the dismantling of state monopolies, reduction in import duties and tax rates, and a decrease in government dependence for approvals, although there is still room for improvement in sectors like Railways.
• The lack of transportation options in Bihar, India, such as limited airports, unsafe trains, and poor road conditions, highlights the need for private competition to improve the quality of transportation services.
• India's progress over the past 30 years, with a steady growth rate of 6-7%, can be attributed to factors such as the integration of rural areas into the economy through road connectivity and electrification, leading to improvements in labor markets, education, and healthcare.

50:42 📱 Access to electricity and mobile phones has improved living conditions and productivity in rural areas of both America and India, but India still needs to improve its micro infrastructure and unlock its economy through ambitious infrastructure projects.

• Access to dense sources of energy, such as electricity, has led to significant productivity growth and improved living conditions in both rural America and Indian villages.
• Phone penetration in rural India increased from 10% to 60% by 2013-14, but has since stagnated, and while it is debatable whether it should be 100%, the low penetration in 2008 was due to the high cost of phones and lack of electricity for telecom companies.
• Building new and efficient layers in India's economy, such as mobile banking and direct benefit transfers, has connected the population to the larger economy, increased productivity, and laid a strong foundation for the country's growth in the last 30 years.
• India's micro infrastructure, including broadband and Wi-Fi, is still underdeveloped, but the country is making progress in expanding its connectivity, which will lead to a transformation in the next few years, along with the ongoing development of macro infrastructure such as national highways and expressways.
• Unlocking the Indian economy through ambitious infrastructure projects, such as the Delhi Mumbai Expressway, will lead to significant benefits for trucking, logistics, and manufacturing companies, as well as open up opportunities for remote regions to connect with ports and major cities.
• In 1998, Atal Bihari Vajpayee asked someone to write a speech for him, but when he delivered it a few months later, he added his own touches and made it his own.

01:03:58 📈 India's road construction capabilities have improved, the national highway authority's lean structure and privatization have contributed to its success, more investment in railways is needed, access to capital has improved, and private equity funding has exceeded public market funding.

• India's road construction capabilities have significantly improved over the past 25 years, with companies now able to handle much larger projects due to increased ambition and improved balance sheets.
• The success of India's national highway authority is attributed to its lean organization structure and privatization of certain tasks, allowing for competition and efficiency in project execution.
• India needs to invest more in railways to increase freight capacity, reduce energy consumption, lower logistics costs, and attract foreign investment.
• Access to capital is crucial for India's economic growth, as a significant amount of investment is needed to achieve the country's GDP targets and create additional annual income.
• The availability of capital in India has improved over the last 20 years, with the evaluation process for loans becoming more efficient and the emergence of angel investing clubs providing smaller amounts of capital for early-stage entrepreneurs.
• Private equity funding in India has exceeded public market funding in the past decade, leading to a much-needed correction in the ecosystem, with over $60 billion of private capital deployed in the last 15 years.

01:16:47 📈 India's transition to product-oriented companies, availability of funding options, and young entrepreneurs are driving growth and innovation, while a growing working age population and declining fertility rate are positive factors for India's future, but sustaining high growth and creating enough jobs are crucial for economic stability.

• Starting a company in India has become easier with the availability of funding options like angel networks and micro VCs, allowing entrepreneurs to raise millions of dollars without personal risk or collateral, leading to increased freedom for experimentation and innovation.
• The fear of failure among young entrepreneurs in India is almost absent, which is crucial for growth, and there is a need for both external capital and internal accruals for faster growth.
• India's transition from pure services to more product-oriented companies, along with advancements in cloud computing and intellectual property protection, has led to better quality work and the emergence of semiconductor Fabs, while the country's young and ambitious entrepreneurs, who have grown up in a newer version of India, are benefiting from the demographic dividend.
• India's working age population is projected to grow significantly in the next 10 years, making it an outlier compared to other countries, and this is seen as a positive factor for India's future.
• India's total fertility rate falling below 2.1 will lead to a surge in savings and productivity over the next 20-25 years, similar to the experiences of Japan and China, resulting in increased income and GDP.
• India's economic growth is dependent on sustaining a high growth rate for the next 30 years to support an aging population and avoid social instability, while also creating enough jobs, particularly for women and those in agriculture.

01:28:29 📈 India's stagnant real estate construction is expected to boost GDP growth and create opportunities, while the software engineering workforce is set to double, and India has the potential to become a major exporter, but needs to improve cost competitiveness and solve energy dependency.

• Real estate construction in India has been stagnant for nearly a decade, but as the cycle starts to normalize and turn, it is expected to boost GDP growth and create opportunities in construction jobs and demand for materials.
• India's software engineering workforce is expected to double in the next 10 years, with a growing demand for software and an increasing role in global goods exports, particularly in the electronics industry.
• India is following the path of countries like Korea, Taiwan, and China in terms of economic development, particularly in the manufacturing sector, and has the potential to become a major exporter of autos, auto components, and other goods, but it needs to take advantage of the transition to electric vehicles and improve its cost competitiveness in areas like energy and compliance.
• India's competitive positioning has improved in various sectors, with advancements in infrastructure, access to trained manpower, and overall public policies, making it likely to be the "India Century" in the next 25 years.
• India's economic growth in the next 30 years will depend on solving the issue of imported energy dependency, maintaining political consensus, and allowing for decentralized control and investment in districts.
• Thank you for your time and insights, I would love to have a detailed conversation with you again in the future.

Key Insights

Economic Transformation and Infrastructure Development

• 🌍 The conversation with Neelkanth Mishra provides incredibly insightful information about the rise of India, the major reforms of the last 30 years, and the challenges and opportunities the country will face in the coming decades.
• 💰 Neelkanth Mishra highlights the dramatic change in India's economic landscape, stating that there was no way to get capitalism in the past, but now it has become a prominent force.
• 🚗 The transformation of India's villages due to improved infrastructure like roads, electricity, and cell phones is a stunning phenomenon that is often overlooked.
• 🌍 Neelkanth Mishra's extensive research on China, Japan, global trade, global food, and the business of leisure demonstrates his commitment to understanding the macro perspective and connecting it with grassroots-level insights, making him a well-rounded economist.
• 💡 The significant improvement in road connectivity in India over the past 20 years has played a crucial role in connecting half of the population and driving economic growth.
• 🛣️ The construction of thousands of kilometers of highways and expressways in India is a silent revolution that is revolutionizing transportation and connectivity across the country.
• 🏗️ The ambitious macro infrastructure projects like the Mumbai-Nagpur, Delhi-Chandigarh, and Delhi-Dehradun corridors are bringing incredible shifts and reducing travel time, connecting remote villages to major cities.
• 🚧 India's road construction capabilities have significantly improved over the past 25 years, with the country now building 40-50 kilometers of roads per day, compared to just 200 kilometers in the past.
• 💰 "Now 750 billion dollars off additional annual income has to be created even if you assume 25 return on Capital employed which is phenomenal returns right you need three trillion dollars of investment."
• 💰 As the real estate cycle in India starts to normalize and turn, it has the potential to boost the country's GDP growth by one percent a year for nearly a decade.

Demographic Dividend and Future Growth

• 💰 The fear of failure among young entrepreneurs in India is almost absent, which is phenomenal and essential for growth.
• 🌍 India's demographic dividend, being the largest and one of the youngest countries in the world, is a critical factor for its future growth and development.
• 📈 India is adding the largest number of people to its working network in the next 10 years, which is seen positively by almost everyone.
• 📈 The decline in India's total fertility rate below 2.1 will lead to a surge in savings and productivity in the next 30 years, similar to what Japan and China experienced in the past.

Technological Advancements and Global Trade

• 📱 The rapid advancement of technology, such as the introduction of cell phones in rural areas, has significantly transformed the lives of people in Indian villages.
• 🌍 India is starting to participate in the global electronics trade, with the country's exports in this sector expected to surpass $100 billion in the next few years, benefiting from the spillover from China and the need for labor-intensive production outside of China.
• 🚗 The transition to EVs in India has the potential to drive major exports and growth in the auto component industry, similar to China's success in this sector.

Q&A

Q: What were some of the major infrastructure developments in India over the past few decades that have driven economic growth?

A: India has seen major infrastructure developments in areas like roads, highways, electricity, and telecommunications over the past few decades that have been crucial for economic growth. For example, road construction capabilities have significantly improved, with over 40-50 km of roads being built per day now compared to just 200 km in the past. The construction of national highways and expressways like the Mumbai-Nagpur corridor has revolutionized transportation and connectivity. Rural electrification has reached over 97% of villages. Cell phone penetration has increased from 10% to 60% from 2008 to 2014. Overall, better road connectivity and access to electricity and phones has led to transformation of rural areas, improvement in productivity, and integration of rural populations into the mainstream economy.

Q: How is India's demographic profile and young entrepreneurial culture contributing to its economic rise?

A: India is benefiting immensely from its demographic dividend of having the one of the youngest populations in the world. Its working age population is projected to increase significantly in the next decade. The total fertility rate has also fallen below 2.1, which will boost savings and productivity. There is also almost no fear of failure among young entrepreneurs, leading to increased experimentation and innovation. India is transitioning from pure services to more product-oriented companies, particularly in areas like electronics and EVs. The availability of funding from angel investors and micro VCs has made it easier for young entrepreneurs to start companies. Overall, the young, ambitious entrepreneurs are driving growth in India.

Q: What are some of the challenges India still needs to address to sustain high economic growth?

A: To sustain a high growth rate and support its aging population in the future, India needs to focus on creating enough jobs, especially for women and agricultural workers. It needs to solve issues like imported energy dependency and lack of cost competitiveness. Improving micro infrastructure like broadband and WiFi is crucial. While progress has been made, railways, ports, and transportation services need more investment and competition from private players. Reducing logistics costs through better rail freight and lowering energy costs should be a priority. Maintaining political consensus and allowing decentralized investment and control at district levels will be key.

Q: What are the future opportunities for India to become a major global exporter?

A: India has the potential to become a major exporter, following the path of countries like South Korea, Taiwan and China. The EV transition provides a huge opportunity for India to drive exports in auto components and automobiles. India's software engineering workforce is projected to double in the next decade, increasing its role in global goods exports. As costs related to infrastructure, trained manpower and compliance improve, India can competitive in exports of electronics, apparel, leather goods, etc. Its participation in the global electronics supply chain is rapidly increasing already. Leveraging spillover effects from China and focusing on labor-intensive production can allow India to seize opportunities in exports.

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