indian economy in the process of global competitiveness

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

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BEB PROJECT ASSIGNMENT BY Binit Kumar Agarwalla (u910060)


NDIAN ECONOMY IN THE PROCES

LOBAL COMPETITIVENESS

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1


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.


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


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.


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


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


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.


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.


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


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


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


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


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


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.


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


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.


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


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.


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


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)


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


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.


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

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