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India Economic Summit2008

  1. 1. India Economic Summit Securing India’s Future Growth New Delhi, India 16-18 November 2008 Report
  2. 2. The views expressed in this publication do not necessarily reflect those of the World Economic Forum. World Economic Forum 91-93 route de la Capite CH-1223 Cologny/Geneva Switzerland Tel.: +41 (0)22 869 1212 Fax: +41 (0)22 786 2744 E-mail: © 2008 World Economic Forum All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, including photocopying and recording, or by any information storage and retrieval system. REF: 201208
  3. 3. Contents Page 3 Preface Page 4 Executive Summary: Securing India’s Future Growth Page 8 Global Shifts Page 12 Managing Risks Page 16 Inclusive Growth Page 20 Future Competitiveness Page 24 Acknowledgements 1 | India Economic Summit
  4. 4. 2 | India Economic Summit
  5. 5. Preface The 24th India Economic Summit, under the theme In this spirit of generating insight and shaping India's Securing India's Future Growth, took place in a agenda, the India Economic Summit programme context of global uncertainty. At the outset of the tapped into the collective intellect, on-the-ground Summit, the impact of the global financial crisis had experience and global insight of its community of experts correcting growth forecasts for 2008-2009 to stakeholders. For the third year in a row, the Summit less than 8% as the current account deficit widened served as an occasion to launch the India@Risk report and exports began to fall. This represented a stark in collaboration with the Confederation of Indian contrast from the simple average growth rate of 9.2% Industry (CII). And, for the fourth consecutive year, the over the last three years. Schwab Foundation for Social Entrepreneurship presented the India Social Entrepreneur of the Year Notwithstanding the global and domestic challenges, Award. We look forward to continuing to build on even these lower forecasts place India among the these successful initiatives in the coming years. world’s fastest growing economies. India's vast domestic consumer market and large pool of highly As you read the key points and data presented in this skilled talent speak to the country's tremendous report, we welcome your thoughts and suggestions as potential to weather changing realities. Its demographic we prepare the programme for the 25th India Economic dividend, with one of the world's youngest populations, Summit, which will take place on 8-10 November 2009. holds the promise to further transform India into a The challenges faced by India – and the world, for that manufacturing and agricultural powerhouse. matter – are more complex, interrelated and intractable than ever before. With 25 years of commitment to In this context, the mood at this year's Summit was not addressing these challenges, we hope that the India characterized by quot;doom and gloomquot; but, rather, a sense Economic Summit will continue to serve as an important of urgency and commitment to ensure that leaders platform for stimulating thought and creative solutions. across India act quickly to capitalize on its competitive advantages. As the first major international gathering We would also like to express our shock and sadness of leaders from business and government following the at the terrorist attacks that took place in Mumbai one G20 Summit in Washington DC, discussions focused week after the Summit, representing a futile attempt to on requirements to step up productivity, upgrade undermine peace, stability and growth in India. Our infrastructure, reform healthcare and education systems thoughts are with the victims, whose tremendous loss and improve the financial architecture. And, although will not be forgotten. deliberations examined these near-term challenges, securing India's future growth was also discussed in terms of the measures required to balance India's Sushant Palakurthi Rao growing energy needs, protect the environment, better Director, Head of Asia regional relations and drive inclusive growth. World Economic Forum 3 | India Economic Summit
  6. 6. Executive Summary: Securing India’s Future Growth “Even if you take growth at 7%, it is 2% The Summit highlighted how much of the agenda for India to grow and prosper remains the same, the less than what we have had but still financial crisis and the terrorist attacks higher than what we had four years notwithstanding. The priorities include the need to ago. This is not an Indian crisis. We are address the lack of adequate infrastructure, the being impacted by a global crisis.” importance of pushing reforms to create an authentic single market, and the critical necessity of investment in education and skills development. Even as Montek S. Ahluwalia, Deputy Chairman, Planning Commission, recession hits developed countries and some India economies in Asia, India is still expected to have relatively strong growth. “This is not the time to have a The 24th India Economic Summit was the second wake,” said Rajat M. Nag, Managing Director-General, World Economic Forum regional meeting since the Asian Development Bank, Manila. It is imperative, he outbreak of the global financial crisis in September added, that India continues to invest in infrastructure, when investment bank Lehman Brothers collapsed, health and education, “rather than panicking and triggering turmoil in international markets. More than forgetting the future.” He warned, however, that it is 650 business, government and civil society leaders crucial that India and other Asian nations pay attention from 35 countries gathered in New Delhi under the to people living at subsistence level; the crisis may theme of “Securing India’s Future Growth” to discuss push them below the poverty line. Inclusive growth is not just the quickly unfolding situation but also the a paramount concern. long-term impact of what has been described as the worst economic slump since the Great Depression. In “What the country needs today is a addition, they discussed the many other risks to India’s continued high growth, including terrorism. focused, single-minded policy on Days later, the terrorist attacks in Mumbai shocked the agriculture, not a fragmented policy.” nation and the world, underscoring the danger to India’s stability and progress from such asymmetric threats. Rajshree Pathy, Chairman and Managing Director, Rajshree Sugars & Chemicals, India 4 | India Economic Summit
  7. 7. “We have to look at how the growth issues, given the limited membership of the G7. This was an important message, given the enormity of the process affects every section of society. crisis and the need for global cooperation to address The real India is also 300 million people its impact. To adequately address the economic [living on] less than one dollar a day.” turmoil and other urgent international priorities, “we must have multistakeholder involvement,” stressed Klaus Schwab, Founder and Executive Chairman of Kamal Nath, Minister of Commerce and Industry of India the World Economic Forum. “You cannot solve all global issues on the basis of defending only national The Summit was also the first opportunity for interests and making compromises later. We need participants to hear directly from senior Indian global solutions.” government leaders after the G20 meeting on the financial crisis in Washington DC. Both Finance The India Economic Summit, convened in partnership Minister Palaniappan Chidambaram and Montek S. with the Confederation of Indian Industry (CII), was Ahluwalia, Deputy Chairman, Planning Commission, organized under four sub-themes: Global Shifts, India, stressed that the G20 has become the premier Managing Risks, Inclusive Growth and Future forum for global action on economic and financial Competitiveness. “We should not forget that the system “The G7 has recognized belatedly that of free markets and liberalization they alone don’t have the solutions to enabled billions of people to move out all the problems. The G20 has come to of poverty. The future will be the age of stay as the single most important forum entrepreneurship.” to address the financial and economic issues of the world.” Klaus Schwab, Founder and Executive Chairman, World Economic Forum Palaniappan Chidambaram, Minister of Finance of India 5 | India Economic Summit
  8. 8. Managing Risks “What we have is a few things that went wrong, risk management issues that The global financial crisis and terrorist attacks in major have gone bad.” Indian cities illustrate how India must cope with the multiplicity of risks, both known and unknown. Jeffrey Joerres, Chairman and Chief Executive Officer, • The unfolding global financial crisis and threat of Manpower, USA; Co-Chair of the India Economic Summit terrorism will be major tests of India’s economic and social resilience in the coming months. Global Shifts • The risk picture presented by government officials differed to varying degrees from that painted by The unfolding international financial crisis is likely to business and civil society. This suggests a transform the global economy and accelerate the shift divergence in perception that may undermine India’s of economic power and influence to Asia, particularly effectiveness in managing risks. the high-growth economies of India and China. • Political risk is a another concern as India heads towards a general election at a time when it is • India and other emerging economies are already confronted by multiplying risks generated by the poised to surpass developed markets as a economic crisis and heightened concern for percentage of the world economy. security. • While global growth could moderate to just 2.2%, India’s growth will also slow from 9% to about 7%. “It will get worse for quite a while The problem factors that caused the crisis in the US longer. Unemployment will worsen for are not present in India. the next six months. It is inevitable.” • For India to be a global leader and maintain its high level of growth, business and government must partner to develop skills-based educational programmes Henri A. Termeer, Chairman, President and Chief Executive that entice Indians to stay, or return, home. Officer, Genzyme Corporation, USA; Co-Chair of the India • India’s young politicians are leading a host of Economic Summit changes in the economy and society, from redesigning the education system to the development of new sources of energy. 6 | India Economic Summit
  9. 9. “Competitiveness will be the key driver; Inclusive Growth protectionism will be dangerous if it India lags behind other major emerging markets in the comes in the way of entrepreneurship.” percentage of its population living in poverty. • To foster inclusive growth, business, civil society B. Ramalinga Raju, Founder and Chairman, Satyam Computer and government must collaborate to redesign Services, India; Co-Chair of the India Economic Summit education curricula, democratize and improve healthcare and harness growth industries such as tourism and mobile communications to include a Future Competitiveness broad range of social sectors. • As the Indian economy shifts from domination by agriculture to more services and manufacturing, a India ranks 50th in the World Economic Forum’s latest new generation of rural Indians needs a new set of Global Competitiveness Index. To improve its skills. performance, the country must address the • Malnutrition and the lack of affordable healthcare infrastructure deficit, invest in education and training to remain significant challenges for India. narrow the skills gap, remedy inefficiencies in the • Government alone cannot carry the burden; agriculture sector, improve governance to allow for business needs to be involved. more coherent policies and implement reforms to • New drivers of growth such as mobile telephony create an authentic single market. and tourism could hold the key to spreading the benefits of Indian prosperity more widely. • India needs to better harness its considerable talent pool. • The country has to address its gaping infrastructure “India will continue to be a magnet deficiencies, including its IT networks and the for capital.” connectivity of its population. • Reforms in India are implemented slowly due to a bottom-up approach that often leads to half-baked James H. Quigley, Global Chief Executive Officer, Deloitte, USA; policies. Real implementation requires investment. Co-Chair of the India Economic Summit • To increase its global competitiveness, India must not only create an authentic single market within its borders, but must also tap the synergies it shares with its South Asian neighbours. 7 | India Economic Summit
  10. 10. Global Shifts “From our young sportsmen, our young The unfolding global crisis will bring many changes both within and beyond India. If appropriately met, the businessmen, our young politicians, current challenges present the country with enormous hopefully we are going to have more opportunities to assert itself as a global leader. India than one Barack Obama!” and other emerging economies are already positioned to surpass developed markets as a percentage of the world economy. Closely tied to this economic shift is a Rahul Bajaj, Chairman, Bajaj Auto; Member of Parliament, India rapidly changing labour market and an internal political realignment in India, paralleling developments in the “This is probably the first transformational crisis of our West, in particular the United States. globalized age, and many things will change,” said Klaus Schwab, Founder and Executive Chairman, The International Monetary Fund estimates that global World Economic Forum, during his closing remarks at growth could moderate to just 2.2%. While India will the World Economic Forum’s Annual Meeting of the surely slow down from the 9% of recent years, it still New Champions 2008 last September in Tianjin, outpaces most developed markets. Some observers People’s Republic of China. “The future will be the age worry that India could succumb to the spreading of entrepreneurship,” he added in New Delhi on the crisis. Yet many others see strong investment opening day of the Indian Economic Summit. And opportunities, resulting from more reasonable India, with a vibrant entrepreneurial sector and a valuations. “In every adversity there is an opportunity,” young population, is positioned to lead in that future. said Ghanshyam Dass, Managing Director, NASDAQ, India. The rise of emerging economies In contrast to other credit markets, India’s financial sector is tightly regulated and well capitalized, Share of global GDP (real GDP US$ trillions at 2005 prices and PPP) , particularly as one-third of all bank deposits are 160 CAGR Emerging markets (2007-2030) parked with the government. “The fundamentals that Developed markets 140 led to the global crisis do not exist in India,” declared 120 61% 100 4.6% 80 “I’m very grateful to be sitting here in 57% ` 60 48% this market compared to many others.” 40 41% 39% 38% 2.1% 43% 20 52% 59% 62% 0 L. Brooks Entwistle, Managing Director and Chief Executive 1990 2000 2007 2020F 2030F Office, Goldman Sachs, India Source: Economist Intelligence Unit 8 | India Economic Summit
  11. 11. “Seven to eight per cent GDP growth is Fundamentally, the crisis will increase India’s relative value within the global economy. And as transnational still a wonderful place to invest capital. principles of transparency and accountability are People would be crazy to walk by this.” hashed out, India should be a part of the conversation. “This economy needs India at the table,” said James H. Quigley, Global Chief Executive Officer, Stephen J. Rohleder, Chief Operating Officer, Accenture, USA Deloitte, USA; Co-Chair of the India Economic Summit. “It’s about the G20, not about the G7 or G8.” K. V. Kamath, Managing Director and Chief Executive Officer, ICICI Bank; President, Confederation of Indian Nominally, India’s chief exports remain textiles and, of Industry (CII), India. L. Brooks Entwistle, Managing course, tea. But of far greater value are the five million Director and Chief Executive Office, Goldman Sachs, Indians working abroad at any given time. This export India, added: “I’m very grateful to be sitting here in of human resources has led to what Jeffrey Joerres, this market compared to many others.” Chairman and Chief Executive Officer, Manpower, USA; Co-Chair of the India Economic Summit, labels Nevertheless, Indian credit markets have suffered, “India’s global brand”. Declared Joerres: “India is the capital flow will slow down for the next 24 months and place for talent.” pessimism lingers. “I strongly believe that we are in the midst of a huge crisis,” said Pramod Bhasin, President And yet, conversely, massive emigration has left the and Chief Executive Officer, Genpact, India. “If you go Indian homeland with a marked talent shortage. An around and talk to people in small-scale enterprises, outmoded educational system means that Indian the story is dismal.” workers are woefully unprepared for the needs of the modern Indian economy. “There are hundreds of But for smart entrepreneurs and savvy investors, India thousands of history graduates who don’t have any remains attractive. “For those companies who’ve employability,” lamented Arbind Singh, Executive worked on their scale and ‘deleveraged’ their balance Director, Nidan, India. Meanwhile, the Indian sheets, it’s a superb time,” said Manish Kejriwal, construction and nursing industries have seen most of Senior Managing Director, Temasek Holdings, India; their best and brightest migrate overseas. Young Global Leader. “Seven to eight percent GDP “In every adversity there is an growth is still a wonderful place to invest capital,” said Stephen J. Rohleder, Chief Operating Officer, opportunity.” Accenture, USA. “People would be crazy to walk by this.” Ghanshyam Dass, Managing Director, NASDAQ, India 9 | India Economic Summit
  12. 12. “For those companies who’ve worked such as Naveen Jindal, Member of Parliament, India; Young Global Leader, and Deepender Singh Hooda, on their scale and ‘deleveraged’ their Member of Parliament, India, are leading change. But balance sheets, it’s a superb time.” for India to break free from bureaucracy and realize its full democratic potential, it will take a broad-based movement. “What makes me a little more confident in Manish Kejriwal, Senior Managing Director, Temasek Holdings, my belief is you guys!” said Hooda. “You guys want India; Young Global Leader change. If enough Indians across all age groups want change, change is going to happen.” For India to be a global leader and maintain its high level of growth, business and government must Like the US presidential polls this year, the Indian partner to develop skills-based educational general elections in 2009 could be a turning point for programmes that entice an indigenous workforce to the nation, although another coalition government is stay, or return, home. expected to emerge. The financial crisis and the impact of the Mumbai terrorist attacks have made the The political shift in the United States has a parallel in outcome of the polls even harder to predict, raising a small but growing realignment within Indian politics. questions about the future direction of domestic and With a median age of 25.1 years, “the time is now for foreign policy. Member of Parliament Abhishek Manu the youth,” said Rahul Bajaj, Chairman, Bajaj Auto; Singhvi, National Spokesperson of the Congress Member of Parliament, India. “From our young Party, and fellow legislator Amar Singh, Member of sportsmen, our young businessmen, our young politicians,” added Bajaj, “hopefully we are going to “There are hundreds of thousands of have more than one Barack Obama!” history graduates who don’t have any employability.” From redesigning the Indian educational system and refocusing on family planning to developing nuclear and hydroelectric power sources, young politicians Arbind Singh, Executive Director, Nidan, India 10 | India Economic Summit
  13. 13. Young Parliamentarians Call for Change in India While the youth vote in the United States carried Barack successive ages of bureaucracy, which resists change. Obama to victory in November’s presidential election, But believe me, we are trying.” Naveen Jindal, Member young Indian parliamentarians at the World Economic of Parliament, India; Young Global Leader, agreed: “In a Forum’s 24th India Economic Summit called on their true sense, I feel that India is not even a democracy, it’s countrymen to pursue the same spirit of change. a bureaucracy,” and administrators, not politicians, have the power. New leadership and new ideas are desperately needed to address critical challenges faced by India. First Part of reasserting control over governance is among these, said Deepender Singh Hooda, Member implementing a new design for the educational system, of Parliament, India, is “the resurgence of divisions which is currently not a topic for political debate in India based on caste, religion and region.” He pointed out as much as it is in Western democracies. that, while India has enjoyed strong economic growth overall, certain sectors of society have been left behind Jindal and Hooda both agreed on the need to and rising inequality is increasing class tensions. consolidate national and state elections into five-year cycles, and Hooda went a step further, saying that Fundamentally, Hooda held, the Indian political system elections at the state and district levels should take needs to evolve. “The difficulty that all of us face when place at the same time. Still, Hooda held out hope: we try to bring a change,” he said, “is the whole “Politics is the art of the impossible,” he said. momentum of our system that has been built over “The fundamentals that led to the global Parliament and General Secretary, Samajwadi Party, India, agreed that there is now a more solid political crisis do not exist in India.” consensus for better Indo-US relations, a key issue of contention in past years. K. V. Kamath, Managing Director and Chief Executive Officer, “Relations between India and the United States are ICICI Bank; President, Confederation of Indian Industry (CII), India unusually close,” said former US Secretary of State Henry A. Kissinger, Chairman of Kissinger Associates, USA. Largely thanks to what he called “the careful, what many other countries have been implementing is thoughtful, precise analysis of Indian policy-makers of necessary to deal with the unfolding financial turmoil. their national interest,” Kissinger predicted that “at this Current policies on infrastructure development would moment, no matter which administration is in office in be continued after the polls, they reckoned. But D. the United States, relations have been very close and Raja, Member of Parliament; National Secretary, are likely to become even closer.” Communist Party of India (CPI), argued that some government initiatives would have to be reviewed. The Even as the elections loom, Singhvi and Singh agreed next government, he said, would need to address the that there is general consensus among Indian persistent problem of bureaucratic inefficiency. Singh politicians that a Keynesian liquidity injection similar to reckoned that state governments have to focus on preventing terrorist attacks. The solution is greater “I strongly believe that we are in the cooperation between the federal and state midst of a huge crisis. If you go around administrations to improve law and order and tighten up the country’s intelligence machinery. and talk to people in small scale enterprises, the story is dismal.” Pramod Bhasin, President and Chief Executive Officer, Genpact, India 11 | India Economic Summit
  14. 14. Managing Risks Like a fast-moving virus, the financial crisis that economies are not present in India. Finance Minister started with the bursting of the real estate bubble in Palaniappan Chidambaram told participants not to the United States has spread globally. Only a couple dwell on the negative. “There are enough people to of months after markets plunged following the spread doom and gloom; don’t join that bandwagon,” collapse of American investment bank Lehman he advised. He reckoned that growth will moderate to Brothers and the eleventh-hour bailout of insurance between 7% and 7.5% but then by the second half of group AIG, economies across the world began to feel the 2009-2010 fiscal year, India would again be the impact. For India, which has had to cope with the coasting at 9%. That was, of course, before the tragic steep rise in food and energy prices, this was yet events in the country’s financial hub. another “sudden” challenge to confront. And just days after the World Economic Forum’s India Economic Chidambaram argued that many of the risks to India’s Summit concluded in New Delhi, another shock to the growth are external. “We are not the cause of the nation occurred when financial centre Mumbai was problem, but we are being invited to be part of the rocked by coordinated terrorist attacks that killed solution.” Yet there was, at this year’s Summit, more nearly 200 people. than a shade of difference discernible between the risk picture painted by the government and that offered by This series of serious jolts has clearly knocked Indians business and civil society participants. Chidambaram off their stride – 9% growth with a China-like 10% in warned that inflation may still be a potential problem, their sights – and undermined the confidence that has while others, such as economist Richard C. Levin, built up in recent years, thanks to India’s strong President, Yale University, USA, suggested that India economic performance as a result of its closer can afford to worry less about inflation and should pay integration with the global economy. It highlights the more attention to stimulating domestic demand. The difficulties that any country, let alone a large economy Finance Minister called on industrialists to lower prices of more than a billion people, has in managing the to defend market share. Rahul Bajaj, Chairman, Bajaj multiplicity of risks – the known and the unknown – that globalization has unleashed. The financial crisis and heightened terrorist threat will Total Energy Consumption be major tests for India’s resilience. Have the years of 18 Total Energy Production robust growth and general stability strengthened the 15 Quadrillion British Thermal Units country’s ability to withstand these economic, social 12 and geopolitical storms? And what of the risks to 9 growth and stability? Can India cope? 6 K. V. Kamath, Managing Director and Chief Executive 3 Officer, ICICI Bank; President, Confederation of Indian 0 1990 1992 1994 1996 1998 2000 2002 2004 Industry (CII), India, insisted that the factors that caused the global financial crisis in the US and other developed Source: Energy Information Administration, United States Department of Energy (2008) 12 | India Economic Summit
  15. 15. “No country positioning itself for a Per capita water availability in India period of rapid economic growth can 4500 cubic meters per capita per annum afford such a haemorrhaging of 4000 3500 human resources.” Forecasted 3000 2500 2000 1500 K. Srinath Reddy, President, Public Health Foundation Water Scarcity Level 1000 (PHFI), India 500 0 25 50 2 7 2 7 2 7 2 7 2 7 96 96 97 97 98 98 99 99 00 00 20 20 -1 -1 -1 -1 -1 -1 -1 -1 -2 -2 58 63 68 73 78 83 88 93 98 03 19 19 19 19 19 19 19 19 19 20 Auto; Member of Parliament, India, begged to differ, saying he has little room to manoeuvre on the pricing Sources: United Nations Food and Agriculture Organization (2008), National Institute of Hydrology, India (2005) of his company’s two-wheelers, with his margins already thin. been slow to urbanize, we have the opportunity to do things right,” said Ajay Shankar, Secretary, Department Not a time for doom and gloom? Pramod Bhasin, of Industrial Policy and Promotion, Ministry of President and Chief Executive Officer, Genpact, India, Commerce and Industry, India. had a different take, reporting that the situation for SMEs is “dismal”. Then there are other threats to Perhaps the starkest difference in the perception of India’s high growth and sustained prosperity, such as risk was over the state of the agricultural sector, in the scourge of chronic disease and malnutrition: 40% which two-thirds of India’s workforce is employed. The of Indian children are malnourished and 76% are Finance Minister hailed the robust pace of growth. anaemic by international standards. “No country “We will have a very substantial bumper crop,” he positioning itself for a period of rapid economic growth predicted. Yet in a session on agriculture, the focus can afford such a haemorrhaging of human was on how dysfunctional agriculture is and how resources,” said K. Srinath Reddy, President, Public urgently productivity needs to be increased. “We have Health Foundation of India (PHFI), India. to bridge the gap between farmers and the government,” said Dhruv M. Sawhney, Chairman and Energy security is also likely to be a problem, said Adil Managing Director, Triveni Engineering & Industries, Zainulbhai, Managing Director, India, McKinsey & India. “We need to reach out to the small farmers. Company, India. “If India sustains a growth rate of 7- Improvement in institutional mechanisms and new 8%, there will be a huge energy shortage.” Water forms of private extension services will help increase stress is yet another major concern. Yet India may be productivity.” Not mincing words, Rajshree Pathy, in a better position to deal with these challenges Chairman and Managing Director, Rajshree Sugars & because of its relatively measured pace of growth Chemicals, India, added: “What the country needs compared to China. India’s energy consumption has today is a focused, single-minded policy on been moderate despite its rapid growth. “As we have 13 | India Economic Summit
  16. 16. “We have to bridge the gap between agriculture, not a fragmented policy. We need to have a cohesive policy and commitment by policy-makers farmers and the government. We need that doesn’t change whenever a new government is to reach out to the small farmers.” elected.” Political risk was something of an elephant-in-the- Dhruv M. Sawhney, Chairman and Managing Director, Triveni room throughout the Summit. With general elections Engineering & Industries, India next year and now with the fallout from the Mumbai attacks, the whole risk picture for India will surely shift continuously over the coming months. Managing those multiplying risks – both the ones that have been on India’s radar screen for a long time and those that are only now coming into sharper focus – will be “Why not get inundated by Indian especially challenging for its current and future goods? They might be cheaper!” leaders, as well as for local business and the many global investors who have come to view India as an integral part of their international business strategy. Abdul Razak Dawood, Chairman, Descon, Pakistan 14 | India Economic Summit
  17. 17. India@Risk 2008 Report The turmoil in the global economy will affect India’s markets The report finds that many of the issues facing India in the and growth outlook, according to the World Economic four highlighted areas will require considerable investment on Forum’s India@Risk 2008 report. Prepared in conjunction the part of India’s public and private sectors over the long with the Confederation of Indian Industry (CII), the report term. Decision-makers in government and business will be finds that the risk to India’s economy will be higher if a forced to make trade-offs as to where spending and deeper retrenchment from globalization follows. “This could investments are allocated. However, a tighter environment manifest itself not only through decreased trade but also may also help speed reforms and encourage greater through countries taking tougher stances on global issues efficiency. A great deal of political will and dialogue with such as climate change, resource management and the role different stakeholders will be required, but India’s growth is and reform of international organizations,” said Irene still strong relative to other economies, and its growth will Casanova, Associate Director of the Forum’s Global Risk continue to unfold over decades rather than years. Network and co-author of the report. Launched at the India Economic Summit, the report presents the latest insights into trends, potential consequences and mitigation strategies relevant to key risk areas facing India: • Economic Security: how the global financial crisis is likely to affect India and how the country will manage the current financial turmoil • Energy Security: considering means by which India can improve its energy supply network and become a low carbon economy • Agriculture and Food Security: improving agricultural productivity, addressing the problem of malnutrition and managing water resources • National Security: how India can establish itself as a force for stability in the region and contain and address internal sources of instability 15 | India Economic Summit
  18. 18. Inclusive Growth “I don’t think that the formula in the GDP per capita, PPP (current US$), 2005 Western world has succeeded.” Russia Brazil Kapil Sibal, Minister of Science and Technology and Earth China Sciences of India Indonesia India “We are going to enter a life of contradictions,” said Vietnam Pakistan Bhimrao Ramji Ambedkar, head of the Drafting Bangladesh Committee of the new Indian Constitution, on the eve 0 2,000 4,000 6,000 8,000 10,000 12,000 of its signing in 1949. “In politics we will have equality and in social and economic life we will have inequality.” Source: World Development Indicators, World Bank (2007) Today, despite a strong growth rate that exceeded 9% for the fiscal year 2007-2008, that contrast between rich and poor, and between rural and urban, has become starker. affects every section of society,” said Kamal Nath, Minister of Commerce and Industry of India. “We’ve To be sure, since Ambedkar’s day, there has been a tapped one India; now we need to tap the other India.” significant reduction in the percentage of the Indian population living in absolute poverty. But, overall, India That quality education is key to mobility is axiomatic. lags behind Brazil, Russia and China, three other large India now faces significant challenges in updating an emerging markets that, with India, are popularly educational system mired in bureaucracy so that referred to as the BRICs. “Development needs a students are better prepared for the global paradigm shift,” said Narendra Modi, Chief Minister of marketplace. “It’s not just about education,” said Gujarat, India. “For us in India, poverty and deprivation Manvi Sinha, Resident Editor, New Delhi Television remain the biggest challenge. Since the country is (NDTV), India, “it’s about ‘skilling’ to meet the new growing, the challenge to create conditions in which needs of the new Indian economy.” the poor can participate in the process of development is all the more important.” One-third of all Indians are under the age of 14, and two-thirds live in rural communities. Increasing the To foster inclusive growth, business, civil society and productivity of the agriculture sector is a critical goal. government must collaborate to redesign educational B. S. Yeddyurappa, Chief Minister of Karnataka, India, curricula, democratize and improve healthcare, and outlined a seven-pronged strategy for achieving inclusive harness growth industries such as tourism and mobile growth. The first step: to boost rural growth and communications to include a broad range of social prosperity by increasing agricultural income. His sectors. “We have to look at how the growth process government, he told participants, would concentrate 16 | India Economic Summit
  19. 19. on developing organic farming, promoting sustainable Reforming the very design of government-led and efficient use of water, expanding employment education remains a critical, yet overlooked, challenge. opportunities for citizens living in rural areas and Naveen Jindal, Member of Parliament, India; Young upgrading rural infrastructure. Global Leader, suggested a type of voucher system wherein instead of government schools providing Infrastructure development across the nation is also subsidized education, students’ families would receive crucial to achieving inclusive growth, especially a sum directly and be given the freedom to choose through employment. But India’s infrastructure has been where to send their children. “The stress is on quality a persistent problem that successive governments have education and accountability,” explained Jindal. failed to address. Infrastructure development, said Member of Parliament N. K. Singh, suffers from According to the World Economic Forum’s India@Risk “chronic diseases” and “new infections.” Meaningful 2008 report, one-quarter of India’s population is reform has long been difficult. Now, the high cost of malnourished and living below the poverty line, and borrowing is a new hurdle to overcome. “Our policy is over one-third have no access to modern medicine. At decisively behind the reality curve,” Singh lamented. the same time, India trails the other BRIC countries in Montek S. Ahluwalia, Deputy Chairman of India’s public health spending, allocating less than 1% of Planning Commission, stressed that fast-tracking GDP to healthcare. infrastructure projects that are already in the pipeline would help economic growth to rebound. India needs to pursue affordable healthcare that does not compromise on quality. “I don’t think that the As the Indian economy continues a gradual yet steady formula in the Western world has succeeded,” said transition away from agriculture to services and Kapil Sibal, Minister of Science and Technology and manufacturing, a new generation of rural Indians needs Earth Sciences of India. “We need to look at a a new set of skills. In 2004, the Confederation of different paradigm, a different formula for healthcare.” Indian Industry (CII) launched the Skills Development Initiative to meet the need: “We have a model which is Early childhood healthcare is particularly critical, as workable,” said Kamath, “now we need to scale it.” malnutrition in childhood leads to permanent India needs to increase manufacturing growth from 9% deficiencies. Health literacy needs to be scaled up, to 13%. Technology is driving only 9% of manufacturing, and trained community health workers need greater said Ashwani Kumar, Minister of State for Industry, support from the government. Ministry of Commerce and Industry, India. “What is needed is training in the use of technology and high But government alone cannot carry the burden. “The technology. It’s clear we need technology to improve,” message is quite clear,” said K. Srinath Reddy, he stressed. President, Public Health Foundation of India (PHFI), 17 | India Economic Summit
  20. 20. “It’s not just about education; it’s about Public Health expenditure, 2005 (% of GDP) ‘skilling’ to meet the new needs of the 4 3.48 3.22 3.13 new Indian economy.” 2.91 3 1.82 2 0.95 1 0 Manvi Sinha, Resident Editor, New Delhi Television (NDTV), India India China Brazil Mexico Russia South Korea Source: World Development Indicators, World Bank (2007) be a surprise as to what people will do. But let’s be India, “Business must leverage health so that health crystal clear that it will have effects we haven’t can leverage business.” India is already a leader in understood on behaviour. I’m not sure if institutions developing drugs to combat pandemics that plague are ready for this upheaval.” the developing world, such as HIV and malaria. “The Indian pharmaceutical industry is a global presence,” India’s receipts from tourism have grown steadily over said Douglas Alexander, Secretary of State for the last few years – and the number of tourists visiting International Development of the United Kingdom, “and I India (5.7 million in 2007) is predicted to grow by 8.8% think the real focus of the discussion should be how to over the next decade: the travel industry can provide set that presence to work for the global public good.” benefits across many sectors of Indian society. Despite global financial woes, at least two segments With 135 new tourist sites coming online in rural India, of the Indian economy remain strong and hold the travel industry should be a focus for economic promise for greater social and economic inclusion: inclusion initiatives. Adequate training in the hospitality mobile communications technology and tourism. industry remains in widespread deficit; and middle and upper income tourists are often discouraged from Mobile technology is already revolutionizing Indian visiting due to a perceived lack of services. agriculture. Naimur Rahman, Director, OneWorld International South Asia, India, described his “We’ve done a great job with Incredible !ndia, but organization’s provision of personalized agricultural about 17 years too early,” said Suhel Seth, Managing advisory services to 100,000 Indian farmers. Partner, Counselage India, India. “We don’t have adequate infrastructure; we don’t have the civic sense “This is more about social-economic liberation than to make our cities clean and tourist-friendly.” technical revolution,” said Ben J. Verwaayen, Chief Executive Officer, Alcatel-Lucent, France. “There will 18 | India Economic Summit
  21. 21. “Since India is now growing very fast, the challenge to create conditions in which the poor can participate in the process of development is all the more urgent. We cannot have pockets of wealth and corridors of poverty coexisting.” Narendra Modi, Chief Minister of Gujarat, India “This is more about social-economic liberation than technical revolution. There will be a surprise as to what people will do. But let’s be crystal clear that it will have effects we haven’t understood on behaviour. I’m not sure if institutions are ready for this upheaval.” Ben J. Verwaayen, Chief Executive Officer, Alcatel-Lucent, France Inclusive Growth To make India’s vast workforce partners in the country’s challenge, he noted, is to bring the price of training growth, education and skills training need to be ramped down to a level that rural workers can afford. He said up. As the economy grows, there will be sizeable the NIIT model involves the private sector, the displacement of workers between sectors for which government, NGOs, sundry sponsors and rural workers they will have to be provided the necessary skills, said as stakeholders. Companies provide training Kamal Nath, Minister of Commerce and Industry of scholarships for rural students, who then join these India. And as the economy becomes increasingly companies as workers. The government provides knowledge-oriented, he said, workers will have to be infrastructure – often existing buildings and equipment imparted newer, more complex skills. that have fallen into disuse. Jeffrey Joerres, Chairman and Chief Executive Officer, Regarding what is being done to upgrade India’s Manpower, USA, explained that India should take a government schools, K. V. Kamath, Managing Director multifaceted approach to skills creation by placing and Chief Executive Officer, ICICI Bank; President, emphasis on education and vocational and job training. Confederation of Indian Industry (CII), India, said interventions are being made to provide vocational skills Partnering with the private sector is the way forward, at the right age so that even students who drop out of according to Nath. He endorsed the efforts made by school leave with a certain employable set of skills. He NIIT Group, India, which its chairman, Rajendra S. added that, while rural India is just beginning to engage Pawar, shared at the India Economic Summit. He said with “market India”, tomorrow it will become a driver of the first step is to identify and catalogue the thousands change. In that scenario, it will begin to pay for the skills of skills required and available. The next step is to it needs to acquire. develop a system to upgrade these skills. The third 19 | India Economic Summit
  22. 22. Future Competitiveness “We have seen how a crisis of greater competition and the proliferation of mobile phones, which Deepak Puri, Chairman and Managing confidence is paralytic to economies. Director, Moser Baer, India, predicted would soon be Any crisis of confidence in sharing, made in India. The Indian pharmaceutical industry has trading or collaborating online can established a global footprint. And of course, India has easily become like that.” made an international name for itself in business process outsourcing, particularly with call centres and software development and programming. Matt Bross, Chief Executive Officer, BT Innovate, and Group Chief Technology Officer, BT, United Kingdom Yet India still has a long way to go. For example, “India needs to catch up in global branding,” said At 50th place in the World Economic Forum’s Global Allen Ma, President, BT Asia Pacific, BT, Hong Kong Competitiveness Index for 2008-2009, India ranks just SAR. The question is whether India can foster the above Russia and Malta and below Jordan and Italy. human resources to achieve this and other goals. Summit participants freely offered their views on how “There is amazing, world-class talent here,” Shailesh the country can improve that performance in coming Rao, Managing Director, Google India, India, years. While the unfolding global financial crisis is observed. “The question is: how do you take the expected to drag growth down from 9% to around technological talent of the country and set it up to 7%, it is not expected to alter significantly the agenda take risks that might lead to failure?” Remarking that that India must pursue if it is to enhance productivity. Indian patent applications have declined, Rao argued Among the key priorities: address the infrastructure deficit, that “this isn’t to do with skills but mindset. There invest in education and training to narrow the skills gap, need to be incentives to create new products.” remedy inefficiencies in the agriculture sector, improve governance to allow for more coherent policies and According to many participants, the potential for India implement reforms to create an authentic single market. to harness its considerable talent pool effectively and translate those assets into competitive advantages is To be sure, India has come a long way in recent enormous. As Nandan M. Nilekani, Executive Co- years. Take automobiles: “India has created a sector Chairman, Infosys Technologies, India; Member of the of excellence in the small-car sector, which is world Foundation Board of the World Economic Forum, put class,” reckoned Steven J. Veldhoen, Managing it, “Population is not a burden, but human capital.” Director, Asia, Booz & Company, Japan. The India, for example, is positioned to be a global leader liberalization of telecommunications has resulted in not just in the life sciences but also in healthcare 20 | India Economic Summit
  23. 23. “What is needed is training in the use of delivery, said Hari S. Bhartia, Co-Chairman and Managing Director, Jubilant Organosys, India. “Look at technology and high technology. It’s [Bengaluru]; look at Delhi; look at Hyderabad; look at clear we need technology to improve.” Pune: there are many such clusters which have evolved and you’re starting to see innovation happen.” Ashwani Kumar, Minister of State for Industry, Ministry of Malvinder M. Singh, Chief Executive Officer and Commerce and Industry, India Managing Director, Ranbaxy Laboratories, India; Young Global Leader, agreed: “There has been a significant increase in investment in healthcare. But Especially in mobile telephony and the Internet, India we’re only sitting on the tip of the iceberg and there is could make significant strides forward. “We’re truly a lot more that has to be done.” poised to make a paradigm shift from dial tone to information tone,” said Jai Menon, Director of Innovation, For one thing, India needs to address its gaping Bharti Airtel, India. “We’ve seen an innovation gap of infrastructure deficiency. This includes boosting the 75 years bridged first with PCs, then TV and now very IT capabilities that have allowed its services mobile phones. We’re talking of the inevitable.” The sector to boom. The digital divides that exist need to social impact of addressing the infrastructure gap could narrow. “We have seen how a crisis of confidence is be enormous. In mobile telephony and IT, giving network paralytic to economies,” said Matt Bross, Chief connections to the deprived and disadvantaged would Executive Officer, BT Innovate, and Group Chief empower them in an instant. “We still need to provide Technology Officer, BT, United Kingdom. “Any crisis of a network that touches people and continues to be confidence in sharing, trading or collaborating online affordable,” said Menon. “We believe that the fortune can easily become like that.” lies at the bottom of the pyramid.” Illustrating Indiaís R&D Wor kforce Relative to Other Economies Brazil China India Mexico Russia South Korea Researchers in R&D 59,838 477,647 117,528 151,254 26,800 926,252 R&D Researchers 344 3,319 119 3,187 268 708 per million population Source: World Development Indicators, World Bank (2007) 21 | India Economic Summit
  24. 24. “We don’t need backpackers; we “We believe that fortune lies at the need spenders.” bottom of the pyramid.” Vijay Mallya, Group Chairman, UB Group, India Jai Menon, Director of Innovation, Bharti Airtel, India While India may be poised for a major competitiveness Finally, to increase its global competitiveness, India boost through IT, policy-makers could prove to be the needs to unlock the economic synergies that it has spanner in the works. Reforms – especially in India’s long shared with its neighbours in South Asia but sometimes chaotic democratic space – can come which have for geopolitical reasons remained slowly. “In India, things happen when ideas take root,” untapped. While the recent terrorist attacks are likely Nilekani explained. “Change is slow, for we follow an to hinder further rapprochement between New Delhi arduous bottom-up approach. Half-done reforms lead and Islamabad, the undeniable logic of closer to more inequality.” And, of course, real implementation cooperation and integration remains, especially in requires investment. Funding is never easily available – addressing security and law and order. About US$ 4 and with the unfolding global financial crisis, that will billion in illicit trade already occurs between India and not improve. Pakistan. If normalization occurred, trade could very quickly reach US$ 11 billion, according to estimates. Consider the tourism industry, where India has not been highly competitive despite its obvious advantages as a “If things get going, it could work like a charm,” said destination. India attracts just one-tenth the tourists Adi B. Godrej, Chairman, The Godrej Group, Godrej that flock to China and one-quarter of the visitors that Industries, India, pointing out that a common market the Ukraine and Turkey receive. “We’re punching well between India, Nepal and Bhutan is working very well. below our weight,” said Naazneen Karmali, Editor and “Why should anyone have to move goods from Bureau Chief, Forbes Magazine, India. Not enough Karachi to Lahore and Mumbai to Delhi [when the investment has gone into building the facilities to distances between Mumbai and Karachi and between accommodate a huge influx of tourists and not Delhi and Lahore are so much shorter]?” Godrej would enough has been done to train the workers needed to like to have a presence in Pakistan, but with relations cater to them. While India has long been a magnet for between New Delhi and Islamabad as they are, low-end travellers, it has yet failed to develop cannot do so now. significantly the lucrative high end of the market. “We don’t need backpackers; we need spenders,” said Vijay Mallya, Group Chairman, UB Group, India. 22 | India Economic Summit
  25. 25. Building on Economic Synergies in South Asia South Asian countries have enormous incentive to open The potential for Indo-Pakistan trade, for example, is economic relations with each other as the region is US$ 11 billion but, at the moment, trade worth up to growing even at a time of global economic meltdown, US$ 4 billion is taking place illegally via smuggling. He and the size of the market is greater than China’s. noted that non-tariff barriers remain quite high, although both sides could make a start either by allowing all Pakistan has offered to create an economic union with goods in any particular sector or any agreed-upon value India to increase trade with its neighbour – which is chain. currently minimal. Pakistan’s President Asif Ali Zardari indicated that an EU-style economic zone could help South Asia must improve logistics in order to trade boost his country’s economy. Zardari’s overture came more, according to Amadou Diallo, Chief Executive just two days before the terror attacks in the Indian city Officer, DHL Global Forwarding, Singapore. As of now, of Mumbai, which have strained relations between he said, more time is spent at borders than in Islamabad and New Delhi. transporting goods to their destination. During an India Economic Summit session on trade, Abdul Razak Dawood, Chairman, Descon, Pakistan, pointed out that inter-South Asia trade is only 4%, as compared to trade in ASEAN (45%) and the EU (80%). 23 | India Economic Summit
  26. 26. Acknowledgements The World Economic Forum would like to thank the officers and staff of the Confederation of Indian Industry (CII) for their partnership in the India Economic Summit. The World Economic Forum wishes to recognize the support of the following companies as Partners of the India Economic Summit: Strategic Partners Accenture FedEx American International Group (AIG) Forbes Apax Partners KPMG Audi McKinsey & Company Avaya Manpower Bahrain Economic Development Board Merrill Lynch Basic Element METRO Group Bombardier Morgan Stanley Booz & Company Nike BT The Olayan Group CA PepsiCo Cisco Systems Reliance Industries Clifford Chance Satyam Computer Services Deloitte Travelport Deutsche Bank UBS Deutsche Post World Net Volkswagen Summit Supporters Abu Dhabi Investment House Department of Industrial Policy and Promotion, Ministry of Commerce and Industry of India Financial Technologies India Gulf Finance House NDTV Profit Rakindo Developers Service Provider Taj Palace Hotel 24 | India Economic Summit
  27. 27. 25 | India Economic Summit
  28. 28. Contributors Børge Brende is Managing Director, in charge of Governments, Regional Activities and Constituents at the World Economic Forum. Sushant Palakurthi Rao is Director, Head of Asia at the Forum. The India Economic Summit was under his direct responsibility with Samantha Gianora, Senior Event Manager and Summit Coordinator, and Christoph S. Sprung, Senior Manager, India and South Asia. Samantha Tonkin, Senior Media Manager, World Economic Forum, worked with Alejandro Reyes and E. Benjamin Skinner, report writers tasked by the World Economic Forum to produce this report. The World Economic Forum would like to express its appreciation to the summary writers for their work at the Summit. Session summaries are available at: Editing: Janet Hill, Senior Manager, Editing Layout: Kristina Golubic, Graphic Designer Design and Layout: Kamal Kimaoui, Associate Director, Production and Design Photographs: Norbert Schiller and Dana Smillie Special thanks to Accenture for their help in preparing data and statistics underpinning this report. 26 | India Economic Summit
  29. 29. This publication is also available in electronic form on the World Economic Forum website at the following address: India Economic Summit Web report: (HTML) The electronic version of this report allows access to a richer level of content from the meeting, including photographs and session summaries. The report is also available as a PDF: Other specific information on the India Economic Summit, New Delhi, India 16-18 November 2008, can be found at the following links: Photographs can be found at the following link: 27 | India Economic Summit
  30. 30. The World Economic Forum is an independent international organization committed to improving the state of the world by engaging leaders in partnerships to shape global, regional and industry agendas. Incorporated as a foundation in 1971, and based in Geneva, Switzerland, the World Economic Forum is impartial and not-for-profit; it is tied to no political, partisan or national interests. (