indian economy in the process of global competitiveness
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Indian Economy in the process of Global Competitiveness
BEB PROJECT ASSIGNMENT Binit Kumar Agarwalla
PGPBFS, Xavier Institute of Management, Bhubaneswar
INDIAN
OF GLOBAL
Indian Economy in the process of Global Competitiveness | Error! No text of specified
style in document.
BEB PROJECT ASSIGNMENT BY Binit Kumar Agarwalla (u910060)
PGPBFS, Xavier Institute of Management, Bhubaneswar
NDIAN ECONOMY IN THE PROCES
LOBAL COMPETITIVENESS
Error! No text of specified
style in document.
1
PGPBFS, Xavier Institute of Management, Bhubaneswar
CONOMY IN THE PROCESS
OMPETITIVENESS
Indian Economy in the process of Global Competitiveness 2
Acknowledgement
Any work of this magnitude requires the inputs, efforts and encouragement of the
people from all sides. In compiling the project report on Indian Economy in the
process of Global Competitiveness, I have been fortunate enough to get active and
kind cooperation from many people without whom my endeavours wouldn’t have
been a success.
There is an old adage that says that you never really learn a project until you
practice it. So, I would like to extend my deep gratitude and heartfelt thanks to my
mentor Prof. Asit Ranjan Mohanty for extending his immense help to me in acquiring
valuable knowledge on the subject for successful completion of the project.
I am also thankful to my faculty Prof. Sureswari Prasad Das for providing an
opportunity to prepare a project report on this topic.
At the same time I also thank my friends who have supported me in any means.
Indian Economy in the process of Global Competitiveness 3
CONTENTS
Sl. No. Topic Page No.
EXECUTIVE SUMMARY
4
1. CONCEPTS OF NATIONAL COMPETITIVENESS 5
2. STATE OF INDIAN ECONOMY 10
3. INDIA’S COMPETITIVENESS 11
4. THE FUTURE OF INDIA’S COMPETITIVENESS 19
5. CONCLUDING REMARKS
22
6. REFERENCES
23
Sl. No. Figures Page No.
Fig. 1.1 Determinants of National Competitive Advantage 5
Fig. 1.2 12 Pillars of Competitiveness
9
Fig. 3.1 Global Companies: India’s Presence, Source: Fortune 2009, Financial Times 2009
10
Fig. 4.1 Employment in Rural and Urban Area (Financial Year 2004-05) Source: Planning Commission 2008
11
Fig. 4.2 India’s performance in UNDP’s Human Development Index, Source: UNDP 2009 (Figures in parenthesis indicate ranking among 182 countries)
17
Fig. 4.3 Investment estimates for infrastructure Sector (US$ billion) Source: Planning Commission 2008
20
Fig. 4.4 Most problematic factors of doing business in India Source: World Economic Survey’s Executive Opinion Survey, 2009
20
Indian Economy in the process of Global Competitiveness 4
Executive Summary
The liberal economic policies of India unleashed in 1990s have resulted in two
decades of remarkable economic growth. In addition to the impressive economic
growth presence of abundant natural resources, cost-effective manpower, large
number of English speaking youth indicates the increasing important role to be
played by India in global economy. The integration with the global economy has
provided wider space for India across the globe. At the same time being interwoven
with the global economy, interdependencies of Indian economy with the global
economy has increased. The effects of these interdependencies precipitated well in
the recent economic crisis of 2008-09. The slump demand and liquidity crunch of the
US and the EU economics curbed the economic growth of India. This underscores
the importance of sustainable economic growth of India through implementing
policies and factors that makes India competitive in the global economy.
From the increasing complex and uncertain economic cycles it is evident that the
performance of a nation will depend on not losing long-term competiveness amidst
short-term economic cycles. A nation that gives importance to factors conducive to
productivity and successfully maintains supporting economic environment will be
able to achieve competitiveness and agility required for the changing economic
paradigm. In India, competitiveness will hasten the growth process enabling India to
explore the business opportunities available in India and abroad. A competitiveness
supporting business environment in India will help to tackle the global downturn
effectively and will act as a solid edifice to achieve inclusive and sustainable growth.
This report analyses the concepts of competitiveness, building blocks of global
competitiveness, India’s strengths and weaknesses in providing the driving forces of
competitiveness. India’s performance and future is analyzed by comparing it with
some other countries of global economy.
Indian Economy in the process of Global Competitiveness 5
1. CONCEPTS OF NATIONAL COMPETITIVENESS
Michael E. Porter believes that national level productivity is the only meaningful
concept of national competiveness 1 . He finds it to be inappropriate to define
competitiveness solely on the basis of exchange rates, interest rates, cheap and
abundant labour, bountiful natural resources, government policies or management
practices. Classical theory focused factors of production such as land, labour and
natural resources as the drivers of competitiveness of a nation. With the passage of
time the paradigm shift brought by technological breakthrough and globalization has
overshadowed the classical theory. The concept of competitiveness has become
more dynamic and evolving. The evaluation parameter for competiveness of a nation
must include parameters like global strategy, foreign investments, segmented
market, differentiated products, economies of scope and scale, innovation etc.
Productivity (and thus competitiveness) is viewed as a function of political, legal and
macroeconomic context. The interplay of these basic functions leads to productivity
which provides competitiveness advantage to nations. The quality of microeconomic
business environment and the sophistication of company operation and strategy
determine the quality of microeconomic business environment. Stability of political
and legal system creates an environment where competitiveness is possible. But it is
the macroeconomic environment that creates competitiveness.
The question why some nations enjoy competitive advantages over the rest could be
answered based on Porter’s Diamond of Determinants of Competitive Advantages. A
diagram of the diamond is provided in figure 1.1. Each point in the diamond and the
diamond as a system act as basic ingredients for achieving mastery in global market.
Figure 1.1: Determinants of National Competitive Advantage
1 Michael E. Porter, The Competitive Advantages of Nations, HBR, March-April 1990
Firm Strategy, Structure
and Rivalry
Related and Supporting
Industries
Domestic Demand
Conditions
Factor Conditions
Indian Economy in the process of Global Competitiveness 6
The four determinants of competitive advantages are:
1. Factor Conditions
Factor conditions include the nation’s position in matters like skilled labour,
infrastructure etc. that are necessary base of competing.
2. Demand Conditions
The demand of domestic market helps firms to create requisite avenues and
resources to compete at the global level.
3. Related and Supporting Industries
Presence of supplier and related industries provide and growth impetus to
compete.
4. Firm Strategy, Structure and Rivalry
The conditions in which companies are created, governed and companies
learn the basic lessons of competing is crucial to decide the functioning of the
firms and nation.
Based on the concepts postulated by Porter, World Economic Forum comes out with
a report named “The Global Competiveness Report” every year. The report
contributes to enhancing the understanding of determinants of economic growth. It
also provides underpinning factors that makes a country more competitive than
other. Policy makers, economic reformers and business leaders accept the global
competitiveness report as a reliable tool to formulate the strategy for competing at
the international level.
Definition of Competitiveness
World Economic Forum defines competitiveness as “the set of institutions, policies,
and factors that determine the level of productivity of a country.” Productivity
determines the ability to sustain the level of income of a nation as well as it decides
the return on investment. Return on investment in turn decides the economic growth
potential of a nation.
Pillars of Competitiveness
World Economic Forum has identified 12 pillars of global competitiveness. These
are:
1. Institutions
The legal and administrative framework within which the government, firms
and individuals interact with each other determines the institutional
environment of a nation. The quality of institutions have a strong impact on
Indian Economy in the process of Global Competitiveness 7
the way corporate and government decisions are made, the growth drivers
are decided and policies are formulated. Thus, investment on factors of
productions and productive processes are governed by the institutional
mechanism. Government’s commitment to growth and competitiveness,
inclusive growth, corruption, innovation, intellectual property rights, foreign
players, infrastructure building etc. affects the overall macroeconomic outlook
of a nation.
Private institutions and their commitment to development, transparency,
responsiveness and excellence are as important as the government and the
legal framework. Responsible corporate behavior and quality and service
orientation of private players makes business environment suitable for growth
and expansion.
The increasing role of public private partnership is also crucial for increasing
productivity.
2. Infrastructure
Efficient functioning of market economy, distribution of corporate outputs
require effective and extensive infrastructure. Infrastructure also decides the
kind of industries and sectors that will drive the economy. Transportation and
communication are two basic infrastructures for economic growth. Road, rail,
air and port connectivity ensures trading of goods and services within and
across nations.
3. Macroeconomic Stability
Instable macroeconomic conditions like too high interest rates; high inflations,
uncertain price fluctuations, fiscal deficit etc. are detrimental to the economic
health of a nation. Thus macroeconomic stability is another pre-requisite for
competitiveness.
4. Health and Primary Education
Health of the productive human resource is an important asset to the
organization. Workers with illness and health problems could drag the growth
rate down. This will also have a negative impact on the business environment
due to absenteeism and poor performance due to sickness.
Primary education level makes workers more productive and improves their
ability to perform on critical situations.
5. Higher Education and Training
The rapidly changing business environment requires qualified workforce who
can adapt to the ever changing business environment and can act as change
catalysts within the organization. Again nations that strive to move up the
value chain from the simple production sectors to complicated processes and
products.
Indian Economy in the process of Global Competitiveness 8
6. Goods/Services market efficiency
Market efficiency encourages productive players to participate in economic
activities that could generate value for the nation. Market efficiency ensures
that taste, choice and preferences of the consumers are reflected in the
market. Efficient trading of goods and services encourages both domestic and
foreign players to play roles in the market system. This increases competition
which ultimately makes the market system more competitive.
7. Labour Market Efficiency
Labour market efficiency creates a level playing field for the workers in order
to attract best of the talents. It also ensures effective allocation of human
resource and motivates labors to give their best performance.
8. Financial Market Sophistication
Sophisticated financial market generates faith in the investors through
information symmetry. Financial market channelizes the savings of budget
surplus players of the economy towards the budget deficit players with the
ability to generate maximum returns for the economy. Sound banking sector,
well regulated exchange boards, effective central bank etc. makes the
financial market efficient.
9. Technological readiness
Agility with which a nation and its industries adapt to the changing technology
is crucial. Upgradation of the system to fit into the new technology helps to
achieve an edge over others. It is more crucial when it comes to Internet and
Telecommunication Technology as these technologies have their impacts on
almost all industrial sectors.
10. Market Size
Bigger market size is instrumental to achieve economies of scale. With
globalization it is possible to explore foreign markets to reap the benefits of
scale.
11. Business Sophistication
Quality of countries’ overall business networks and quality of firms’ individual
operational excellence and strategy decides overall business sophistication. It
helps to foster responsiveness and innovation.
12. Innovation
Innovation is inevitable for long-run benefits. Investment on Research and
Development (R & D) activities brings innovation. Innovation is more
important as countries approach frontiers of knowledge.
Indian Economy in the process of Global Competitiveness 9
All the 12 pillars of competitiveness are interdependent. However, it is believed that
a nation starts with factor driven competitiveness and moves towards efficiency
driven to innovation driven competitiveness. The pillars of each stage is shown in
figure 1.2
Figure 1.2: 12 Pillars of Competitiveness
Indian Economy in the process of Global Competitiveness 10
2. State of Indian Economy
For the first three decades after independence India followed inward-looking policies.
The notorious license raj regime was characterized by heavy state interventionism
and central planning. Result was erratic and sluggish growth rate. Between 1960 and
1991 the annualized growth rate was abysmal 4% per year. Economic reforms of
1991 steered Indian economy in the path of growth. Policies of economic
liberalization, privatization and globalization helped Indian economy to grow at an
impressive rate. Average GDP growth rate was 6.2% between 1991 and 2008. India
is one of the fastest growing economies today. India’s GDP and per capita GDP
growth is shown in figure below.
Figure 2.1: India’s growth and per capita growth rate, Source: World Bank
According to 2005 World Bank report around 42% of Indians still lived below poverty
line2. The figure was 54% in 1988. India ranks 134th in latest Human Development
Index (HDI)3. Life expectancy in India is 64 years. For China the figure is 72 years. In
2007 foreign direct investment in India accounted to US$ 23 billion4. Export of goods
and services was US$ 239 in the same period. From 2001-02 to 2008-09 export has
tripled more than 3 times due to government efforts and policy frameworks. The
share of trade to GDP has increased from 37.6% in 2003-04 to 60.5% in 2008-095.
Recent period of comparative macroeconomic stability, improvements in domestic
savings, investment has provided strength to Indian economy. Inexpensive skilled
labour, availability of raw materials and growing domestic demand are expected to
2 World Bank 2009a
3 UNDP 2009
4 UNCTAD 2008
5 CMIE
Indian Economy in the process of Global Competitiveness 11
enhance India’s competitiveness in future. Policy reforms needs to focus on poverty
eradication and quality of life improvement. Creation of quality jobs for the growing
working population is essential. The economic growth needs to create more jobs and
needs to distribute the benefits of job creation across the nation. India also needs to
focus on power and transportation for enhancing productiveness. This is possible by
investments by both government and private players.
Corporate sector performance has contributed to India’s growth. Productivity
increase and capital efficiency has enabled Indian corporate sector to compete in
global markets. Corporate top line in India is growing at a robust rate of more than
20% over past five years6.
India’s income growth at 1999-2000 prices during different 5 years plan is
demonstrated in Figure 2.2. The increase in both gross national product and per
capita net national product has grown over the years.
Figure 2.2: India’s Income Growth, Source: Ministry of Finance
6 The India Competitiveness Review, Page 47
Indian Economy in the process of Global Competitiveness 12
3. INDIA’S COMPETITIVENESS
Rank of India is 49 out of the 133 nations in the Global Competitiveness Index. At
present factor driven competitiveness drives India.
India performs abysmally poor in Health and Primary Education with a rank of 101.
Alarming sanitary situation, insufficient quality and quantity of education drags India
down in competitiveness. Energy and transport infrastructure ranked at 76th needs
improvement. Corruption and Securities issues remain to be addressed.
India has better position when it comes to efficiency indicators. India’s financial
system ranks 16th indicating development in this system. India has a strong banking
system ranked at 25th. Due to huge population and growing purchasing power of
consumers, India ranks 4th in market size. Presence of a number of competitors
makes India’s market efficiency reasonably good (rank: 48th). India still needs to
work on lowering the entry barriers in certain markets. Rigid hiring and firing policy
earns a low rank in labour market efficiency (rank: 83). Low penetration rate of
internet and communication technology has resulted in poor rank (83) in
technological readiness. Despite a strong and reliable higher education system, the
rank of India in Higher education is 66 due to the lack of sufficient accessibility to all.
It is remarkable to notice India’s rank in innovation drivers. India ranks 27th in
business sophistication and 30th in innovation.
When compared to other nations India lacks behind in several parameters. China is
ahead of India in 10 out of the 12 pillars of competitiveness. India enjoys competitive
advantage in financial market sophistication, market size, business sophistication
and innovation.
India’s performance could be analyzed on the basis of each of the 12 pillars of
competitiveness.
3.1 Institutions
India stands out much ahead of the countries of same income group and region
when it comes to institutions. Business communities perceive India positively
when it comes to institutions.
Government: Government efficiency and ability to nurture a business-conducive
environment is evaluated encouraging by entrepreneurs.
Judiciary System: The independent and well functioning judiciary system provides
India a sound scope to implement rule of the law.
Intellectual Property Rights: India is also ranked low in Intellectual Property
Rights (IPR) related issues. Considering the importance role played by IT and
Indian Economy in the process of Global Competitiveness 13
communication technology it is imperative to strengthen the IPR related laws in
India.
Corruption: Business communities rank India poor on trust on politicians and
administrative/bureaucratic corruption. Transparency International has ranked
India 85 out of 180 nations in Corruption Perception Index. India is still
considered as a nation where business is affected by bureaucratic red tape. May
be a second round of reforms to eliminate the red tape is demand of the time
now.
Terrorism: Threat of terrorism has been always associated with India. The serial
bomb blasts in various cities of the nation followed by the Mumbai terrorist attack
stains negative colours on the business environment of India.
Crimes: On a positive note India ranks much better when it comes to other forms
of crimes scoring well above its comparative nations of same income group and
region.
Private Institution: India’s rank in private institutions is at a reasonable number of
51. Unfortunately the rank has shown a negative movement which might be
assigned to Satyam episode. India needs to improve its accounting and corporate
governance practices in order to unmask such scams.
3.2 Infrastructure
Indian competitiveness is adversely affected by the poor state of infrastructure
and lack of it. Shortage of power, water and transportation facility etc. hold back
India. The country ranks 76 in infrastructure. Some economists opine that lack of
infrastructure prevents India’s transition from an agrarian economy to a
manufacturing economy.
Electricity: Electrification is the biggest infrastructural challenge faced by India.
Electricity production per unit of GDP has started falling after 2000. The electricity
loss during distribution and transportation remain s a major problem to be
tackled. High government regulation and dominance of public players have
added to the wounds of power sector.
Road Transport: India ranks below Pakistan and China when it comes to road
communication. 65% of freight and 85% of passenger traffic are carried by the
road. Hence, Improvement of road connectivity is imperative. Road accidents are
also high in India. This underscores the need of road safety.
Port Infrastructure: India’s port infrastructure suffers from low turnaround time,
insufficient handling capacity, and frequent human intervention. Low productivity
and bottlenecks make the situation worse. It is reported that India’s ports operate
at more than 90% of their capacity. This emphasizes the need of upgrading the
Indian Economy in the process of Global Competitiveness 14
existing ports and building new ports to meet the business and trade
requirements. Indian government’s attempt to encourage public-private
partnership (PPP) is expected to bring reforms in port functioning. Government is
also planning to provide more autonomy to major ports to increase their
performance.
Air transport: India is out-forming many of its comparative countries in terms of
air transportation. Government’s decision to end state monopoly in aviation
sector has paid up. Competition among private and public players, emergence of
low cost airlines has demonstrated the dynamism of India’s aviation sector.
Governments initiative to modernize 35 airports are and privatization of Mumbai,
Delhi, Hyderabad, Cochin and Bangalore airports are expected to increase the
efficiency and performance of aviation sector.
Railroad: With 14 million passengers daily, India’s rail is the largest rail of the
world. Indian ranks an impressive 20th position in rail infrastructure. However, the
high density road corridors face capacity constraints.
It is widely accepted that India’s infrastructure development would be possible
through investment. Lack of sufficient public funds emphasized public private
partnership (PPP) in this sector. Allocation of more than 40% of budgetary outlay
to infrastructure development in the 2010-2011 budgets is positive signal at long-
term orientation for competitiveness building.
3.3 Macroeconomic Stability
Indian ranks 96 in macroeconomic pillar. Fiscal deficit is the primary reason for
this low rank. However, the 2010-2011 budget aiming at reducing the deficit from
more than 6% to 5.5% over might increase India’s rank in this parameter in
future. The Fiscal Responsibility and Budget Management Act (FRBMA) 2003
have helped India to achieve some fiscal discipline. Balance budget is still a
distant dream.
Government borrowing: The high government debt of around 75% of the GDP is
detrimental to the state of economy. It is estimated that Indian government
borrows 34% of the money it spends. Regulations forcing the commercial banks
to invest in government bonds divert the money from the more productive sector
of the economy.
Inflation: India is facing severe challenges to curtail the increasing inflation rate.
Particularly the food inflation rate is a matter of concern. With the increase in oil
and petroleum prices as an outcome of 2010-2011 budget it is expected that the
price of commodity products will continue to increase as more inflationary
pressures.
Indian Economy in the process of Global Competitiveness 15
India has been exploring the options of coming out populist budgets to cut back
subsidy and to for reforms in tax structure. Withdrawal of subsidy in some sectors
like IT corroborates the fact that government is giving priority to reduce fiscal
deficit.
3.4 Health and Primary Education
India ranks 101 in health and primary education. The situation is linked to lack of
government funds to invest in such sectors, lack of skill manpower and
infrastructure.
Sanitation and diseases: Only 28% of India’s population has access to sanitation
facilities. A sizeable portion of Indian population suffers from diseases like
tuberculosis; malaria etc. 21% of Indian suffers from malnutrition.
Primary Education: India has achieved more than 90% of enrollment in primary
education. Since many countries have achieved universal literacy at primary
education level India still lags behind. Quality of primary education remains a
problematic area. Poor spending is the primary reason for such abysmal
performance. Indian has increased its planned allocation to schools from Rs
26,800 Crores to Rs 31,036 Crores in 2010-2011 budget.
3.5 Higher Education and Training
With a rank of 66 Indian has higher enrollment rate then its comparative
countries, but has lower quality of education. Enrolment rate in secondary
education is at 55% which is low. Quality is far better in higher education. On a
positive note India performs better in quality of higher education and provision of
on the job training. In the last few budgets India had the provisions to create more
IIMs, IITs and NIFTs to give boost to the higher education sector.
3.6 Goods/services Market Efficiency
According to a World Bank report starting a business in India takes 30 days.
Though the number has reduced, it needs further reduction. Costs associated
with starting a new business are high in India.
Tax structure: World Bank estimates that on an average Indian firms pay 76% of
their profits as tax. Widening tax base is an option that could be exercised by the
government to lower tax rates.
Market Competition: Lowering barriers for foreign players will helps to improve
market efficiency through more fierce competition.
Formal Sector: India needs to encourage its players to switch from unorganized
informal sector to organized formal sectors. This will improve productivity and will
Indian Economy in the process of Global Competitiveness 16
help to handle the critical issues of tax base increase as many informal sectors
are outside the tax structure.
3.7 Labour Market Efficiency
Labour market has been a problem for India’s competitiveness. India ranks 83 in
these parameters.
Firing cost: In India it is difficult to dismiss employees. The cost of firing is also
very high.
Employer and Employee Relation: Employee and employer relation is not
considered as confrontational in India
Labour efficiency: Labour efficiency level of India is encouraging. Educational
attainment gap has also prevented adequate participation of female workforce.
Brain drain: India faces lesser brain drain than the countries of similar growth
rate. This is expected to increase India’s competitiveness as India is being able to
retain and attract talent.
3.8 Financial Market Sophistication
Indian ranks 16th in financial market sophistication. Despite financial crisis of
recessions of 2008-09 India’s rank has improved on this parameter.
Equity market: India has an extremely dynamic equity market. A jump from $387
billion to $1811 billion in total market capitalization of the companies listed in
equity market from 2005 to 2008 corroborates this fact. Obtaining funds from
domestic markets of India has become easier.
Decreasing government regulation on matters of allocation of funds, simple
policies for foreign capital investment etc. are some of the improvement areas in
this sector.
3.9 Technological Readiness
India Ranks 83 in technological readiness. India’s compound annual growth rate
in technology is around 65% from 1998 to 2008. Broadband access, use of
computers etc. lags in India. However, when it comes to firms in adopting
technology, Indian firms outperform many of its competitors in technology
adoption. Greater diffusion and spread of ICT is a priority area for India.
3.10 Market size
Indian ranks fourth in market size. The US is the first followed by China and
Japan. Consumption in Indian market still faces the problems of low income.
Indian Economy in the process of Global Competitiveness 17
Increasing annual disposable income has increasing the consumption capacity of
Indian consumers over the year.
Sales Tax: Movement of goods and services within states of India is governed and
sales tax imposed by state governments. As a result price of the same product
varies in different states. In addition regulations like Essential Commodities Act
restrict free movements of goods within the nation. Deregulation in these areas
will give a boost to India’s competitiveness.
Export Market: India is world’s 26th biggest exporter with just 1% share of total
exports of the world. This underscores the room of growth in export market for
India. Improvement in trade openness will increase exports.
3.11 Business Sophistication
India ranks 27th in global sophistication parameter. Nation’s competence in
Business Process Outsourcing, Information technology, telecommunication,
consumer retailing, automobile sector, pharmaceutical and air transport could be
the reasons for higher business sophistication.
There are seven Indian companies in fortune magazine’s global 500 lists of
biggest companies by revenue. Financial Times list includes 5 Indian financial
companies on the basis of their revenue. Presence of Indian companies in global
market is demonstrated in Table 3.1
Figure 3.1: Global Companies: India’s Presence, Source: Fortune 2009, Financial Times 2009
Indian Economy in the process of Global Competitiveness 18
3.12 Innovation
Spending in research and development is crucial to foster innovation. The
provisions of budget 2010-2011 encouraged higher investments on R&D.
Academia: National Institutes of Technology, Indian Institutes of Technology and
Indian Institute of Science etc. focuses on research and development activities.
Research organizations: research organizations like ISRO, ICAR, BARC, ICSR
etc. have been instrumental in fostering innovation in India.
Private Spending: Private spending on research and development in India is low.
This is a negative trend and needs attention.
IPR: Intellectual property rights in India are believed to be not par with other
nations. In order to nurture innovation India needs increase the purview and
enforceability of Intellectual Property Rights.
Indian Economy in the process of Global Competitiveness 19
4. The Future of India’s Competitiveness
India in order to become one of the super powers of the nation has to harness the
resources available in the optimal way. Sustainable growth and exploration of global
avenues will drive India in the direction of growth and prosperity. India has to focus
on the following aspects:
4.1 Cost Effective and Skilled Manpower
India has the advantage of low labour cost. A large chunk of English speaking
population provides advantage to India in global markets. India produces large
number of engineers, doctors, Ph Ds each year. However, looking at the
international standards, though the number of skilled manpower is high India has a
lot of scope of improving the enrolment rate in higher education. Skilled manpower
will enable India to lead innovation. The redesign and business process
reengineering cost will come down due to skilled manpower.
4.2 Optimum utilization of Raw Materials
India has a significant raw material availability advantage in sectors like iron, textiles.
Unfortunately India has been exporting many of these raw materials without
processing them for value addition. The nation could build infrastructure and
requisite expertise for processing and value-addition of these raw materials to meet
the demand of both domestic and international markets.
4.3 Domestic Market Size
As of 2005, India has a market size of US$ 370 billion7. It is expected that the Indian
market will quadrupled by 2025. Domestic demand will surge in future. India’s
infrastructure growth, importance to manufacturing and industrial product growth will
help to tap these demands. India could generate revenues and employment by
exploring the market size.
4.4 Demographic Dividend
India accounts for 16% of world’s economy. In the next 20 years around 265 million
people will enter into working age cohort. India’ average age will be 29 by 2020.
India’s demographic dividends will impact India’s competitiveness by:
• Greater demand for goods and services
• Shifting of labour intensive value addition to India
• Greater contribution in R&D activities
7 Study by Mckinsey Global Institute, 2007
Indian Economy in the process of Global Competitiveness 20
4.5 Employment Generation
To be a globally competitive nation India needs to achieve inclusive growth. Indian
government has adopted acts like NREGA for addressing unemployment. Indian
needs to chuck out plans to absorb the surplus labour from agricultural sector to non-
agricultural sectors with higher productivity. The details of employment in rural and
urban area is provided in figure 4.1
Figure 4.1: Employment in Rural and Urban Area (Financial Year 2004-05)
Source: Planning Commission 2008
4.6 Social Development
Human development index (see table 4.2) underscores the requirement of social
development. An improvement of health and literacy state is the need of the time.
Health and literacy rate would drive productivity and competiveness. Government
spending the social sector has been increasing consistently. However, the private
players also come out to contribute in social development through corporate social
responsibility.
Table 4.2: India’s performance in UNDP’s Human Development Index, Source: UNDP 2009
(Figures in parenthesis indicate ranking among 182 countries)
Indian Economy in the process of Global Competitiveness 21
4.7 Infrastructure Development
Inadequate infrastructure has caused inequitable growth. The economically
backward segment bears the brunt of lack of infrastructure as the segment with
higher economic power has been able to ration the infrastructural spending in favour
of it due to its ability to pay. India’s spending on infrastructure has been lower than
other countries. The 2010-2011 union budget is a positive step for infrastructure
development. Table 4.3 provides the estimates of infrastructure spending under 5
year plan.
Table 4.3: Investment estimates for infrastructure Sector (US$ billion)
Source: Planning Commission 2008
Problematic Factor of Doing Business
The policy framework of India that aims to enhance competitiveness has to focus on
the barriers of doing business in India. The most problematic factors of doing
business in India is depicted in Figure 4.4
Indian Economy in the process of Global Competitiveness 22
Figure 4.4: Most problematic factors of doing business in India
Source: World Economic Survey’s Executive Opinion Survey, 2009
5. CONCLUDING REMARKS
India has to surpass each of these barriers in order to compete globally. In addition
to addressing the needs of infrastructure, inefficient government bureaucracy and
corruption should be the primary focus of government. India has successfully
implement reforms in 1991. But the World economic Forum’s executive survey
demonstrates the need of further reforms in terms of restriction and liberalization.
Access to financing, tax regulation and policy stability are viewed as hurdles in India.
India needs to encourage entrepreneurs to invest in its economy so that the problem
of unemployment could be tackles and some of the huge job seeker population could
be turned into job-provider population. Rural industrialization and credit availability in
rural sector could bring the neglected rural market to the forefront. Agricultural
development has to be the focus to avoid acute food crises and inflation in food
items. Value addition activities in minerals, food, and textile have mammoth potential
of improvement. Value addition can help India improve its exports and narrow down
the balance of payment issues.
The map of competitiveness for India has to be based in a long-term broad vision.
However, the policy makers have to focus on factors like sustainability, environment,
inclusive growth and social sector both during drafting the policy and implementing it.
Neglecting development and too much focus on growth will hit the global
competiveness of India in long run. India has rightly identified this and has been
focusing on inclusive growth currently. However, implementation and monitoring has
to be aligned with the objectives of formulation of policies. Steps like E-governance,
Right to Information etc. are expected to increase global competitiveness of India.
Indian Economy in the process of Global Competitiveness 23
6. REFERENCES
1. Michael E. Porter, the Competitive Advantages of Nations, HBR, March-April 1990
2. World Bank Report 2009a
3. UNDP Report 2009
4. UNCTAD Report 2008
5. CMIE
6. The India Competitiveness Review, Page 47
7. Fortune 2009, Financial Times 2009
8. World Economic Survey’s Executive Opinion Survey, 2009
9. Planning Commission of India Report 2008
10. Global Competitiveness of Indian Banks, P Singh, IIM Lucknow
11. Global Competitiveness Review, 2009, World Economic Forum
12. Global competitiveness and total factor productivity in Indian manufacturing; R
Kiran, M Kaur; International Journal of Indian culture and business management,
Volume 1 number 4/2008, P 434-449
13. Manufacturing Excellence and Global Competitiveness- Challenges and
opportunities for Indian industries; P Chandra, P R Shukla, Economic and political
weekly, Feb 1994
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