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  • 1. The India Competitiveness Review 2009 Thierry Geiger, World Economic Forum Sushant Palakurthi Rao, World Economic Forum In collaboration with Confederation of Indian Industry PricewaterhouseCoopers
  • 2. The India Competitiveness Review 2009 is published by the World Economic Forum within the framework of the Global Competitiveness Network. At the World Economic Forum Professor Klaus Schwab Founder and Executive Chairman Robert Greenhill Managing Director and Chief Business Officer Editors Thierry Geiger, Associate Director, Economist, Global Competitiveness Network; Global Leadership Fellow Sushant Palakurthi Rao, Director, Head of Asia Global Competitiveness Network Jennifer Blanke, Director, Senior Economist, Head of the Global Competitiveness Network Ciara Browne, Associate Director Margareta Drzeniek Hanouz, Director, Senior Economist Irene Mia, Director, Senior Economist Carissa Sahli, Team Coordinator Pearl Samandari, Community Manager Eva Trujillo Herrera, Research Assistant Asia Regional Agenda Team Fabien Clerc, Community Manager; Global Leadership Fellow Anne-Catherine Gay des Combes, Community Relations Manager Béatrice Laenzlinger, Senior Community Relations Manager Jaeyoung Lee, Community Manager; Global Leadership Fellow Karen Sim, Community Manager; Global Leadership Fellow Christoph S. Sprung, Senior Community Manager The editors would like to extend a special thank you to the following World Economic Forum staff: Janet Hill for her excellent editing work, Kristina Golubic for her graphic design and layout, and Kamal Kimaoui who organized the production of this review. 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: © 2009 World Economic Forum All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, or otherwise, without the prior permission of the World Economic Forum. REF: 201009
  • 3. Contents Preface 2 Executive Summary 3 Assessing India’s Competitiveness: Insights from the Global Competitiveness Index Thierry Geiger and Sushant Palakurthi Rao, World Economic Forum 5 An Evaluation of India’s Economic Reforms Bidisha Ganguly and Tanvi Garg, Confederation of Indian Industry 45 India’s Competitiveness: The View from CEOs N. Ramesh Rajan and Jairaj Purandare, PricewaterhouseCoopers, India 57 Acknowledgements 64 The India Competitiveness Review 2009 | 1
  • 4. Preface The India Competitiveness Review 2009 is being We would like to express our gratitude to the published at an important moment for India’s distinguished experts from the Confederation of economic development. India has experienced two Indian Industry and PricewaterhouseCoopers, who decades of remarkable growth, unleashed by the have contributed excellent papers to the review, implementation of important reforms in the early casting light on different aspects key to enhancing 1990s. This impressive economic performance, India’s competitiveness. We especially wish to thank coupled with a population of 1.2 billion, leaves no the editors of the review, Thierry Geiger and Sushant doubt that India is an important player in the global Palakurthi Rao, for their leadership and commitment. economy. Appreciation also goes to Robert Greenhill, Chief Business Officer at the Forum, and Jennifer Blanke, Despite these clear strengths, India has not been Head of the Global Competitiveness Network, as spared the fallout of the global economic crisis, with well as her team: Ciara Browne, Margareta Drzeniek growth slowing significantly in 2008 and 2009. The Hanouz, Irene Mia, Carissa Sahli, Pearl Samandari slowdown underscores the importance of putting and Eva Trujillo Herrera. In addition, this review into place the factors and policies that will ensure would not have been possible without the hard work sustained economic growth and prosperity for the and enthusiasm of our network of 150 Partner benefit of all Indians. As the world slowly emerges Institutes worldwide who carry out the Executive from the crisis, the time is propitious for India to take Opinion Survey, which provides the basis of this stock of its competitive strengths, as well as those review. areas hindering its development. This year also marks the 25th anniversary of the World Economic Klaus Schwab Forum’s engagement in India, providing an excellent Founder and Executive Chairman opportunity to reflect upon how the country's World Economic Forum competitiveness has progressed over the period and what remains to be achieved. The India Competitiveness Review builds on the methodology and findings of the World Economic Forum’s Global Competitiveness Report 2009-2010, and aims to further the understanding of the main competitiveness challenges ahead for India. The review provides a unique platform for discussion and a valuable tool for policy-makers, business strategists and other stakeholders to use in identifying the main hurdles to growth and designing best policies and practices to foster competitiveness. We hope the review will provide support for any discussion on India’s competitiveness aimed at generating concrete insight and priorities for action. 2 | The India Competitiveness Review 2009
  • 5. Executive Summary Assessing India’s Competitiveness: Insights is of particular importance to the development of the from the Global Competitiveness Index industry and services sectors. The country boasts a developed financial system (16th) with a particularly In the first chapter, Thierry Geiger and Sushant sound banking sector (25th). Another competitive Palakurthi Rao, both at the World Economic Forum, advantage is the size of its market (4th overall). The use the results of the Global Competitiveness Index Indian goods market is also fairly efficient (48th) (GCI) to carry out an in-depth assessment of India’s thanks to fierce competition and despite the competitiveness landscape. presence of important barriers to entry. On a more negative note, the difficulty of hiring and firing The GCI provides a methodological framework to employees makes the labour market rigid (83rd). The assess “the set of institutions, policies and factors country’s technological readiness (83rd) continues to that determine the level of productivity of a country.” It be held back by low penetration rates for comprises a large number of drivers of competitiveness information and communications technologies. organized in 12 categories – the 12 “Pillars” of Firms, however, are generally adept at adopting and competitiveness. Countries are expected to move using the latest technologies. Finally, higher through a sequence of development steps to build up education in India (66th) is of relatively good quality, their competitiveness, starting with the more basic but access to it remains a privilege of the few. factors (e.g. institutions, infrastructure, health, education) and moving to more complex ones (e.g. Compared with the mixed performance in the other two technological readiness, business sophistication, Subindexes, India’s showing in the two most complex innovation). To mirror this sequence, the GCI classifies areas of competitiveness, Business Sophistication countries into three stages of development (factor- (27th) and Innovation (30th), is truly remarkable. This driven, efficiency-driven and innovation-driven) and reflects, to a large extent, the brisk development of attributes different weights to each Pillar by function of India’s private sector and of a few industries in the stage of development. That is, the more advanced particular. Yet, at present, these two categories a country, the less weight on the basic factors and the account for just 5% of the overall GCI score because more weight on the more complex ones. they are not yet the engine of India’s productivity. India ranks 49th out of 133 economies in the GCI To place India’s performance in context, the authors 2009-2010, up one rank from the previous edition. draw parallels with a number of countries and Given India’s present level of development, its country groups. The analysis reveals that India lags competitiveness is factor-driven. What matters most behind almost all comparators in the areas of health for India are the first four Pillars that form the Basic and primary education, labour markets, Requirements Subindex, which together account for technological readiness and macroeconomic 60% of the overall GCI score. It is precisely in this stability. China ranks ahead of India in 10 out of the Subindex that India presents the greatest shortcomings. 12 Pillars – often by a wide margin. However, India The country very much underperforms in the Health possesses a number of competitive advantages in and Primary Education Pillar (101st). The sanitary several Pillars, namely Institutions, Financial Market situation is particularly alarming, with some indicators Sophistication, Market Size, Business Sophistication comparing unfavourably even with the sub-Saharan and Innovation. Africa region. Both the quality and quantity of education are insufficient. India has been running India has come a long way since 1991 to become cavernous deficits, weighing heavily on its one of the world’s fastest growing economies. This performance in the Macroeconomic Stability Pillar is not only remarkable, but also necessary: India (96th). Energy and transport infrastructures are in a needs to continue growing at this pace and, state of disrepair (76th). In this context, India’s rank of possibly, faster to create enough jobs, prevent social 54th for the quality of institutions is encouraging, unrest and raise the living standards of all Indians. To although corruption and security remain major issues. achieve that, the country will have to address in a prompt and decisive manner the many shortcomings India’s performance in the second Subindex, identified in this analysis. Efficiency Enhancers, is better, albeit uneven. This Subindex accounts for 35% of India’s GCI score and The India Competitiveness Review 2009 | 3
  • 6. An Evaluation of India’s Economic Reforms Annual Global CEO Survey, conducted in September 2009. The survey reveals that despite the global In the second chapter, Bidisha Ganguly and Tanvi economic crisis, an optimistic sentiment prevails in Garg from the Confederation of Indian Industry, India. Sixty-two chief executive officers (CEOs) of examine some of the sources of strength for the Indian Iarge Indian companies indicated that their economy, as well as the challenges faced by policy- confidence was high, with 97% either very confident makers in addressing the critical needs for fostering or somewhat confident of their revenue growth more inclusive growth and development; this would prospects over the coming 12 months. Underlying reinforce the country’s productivity and competitiveness. this confidence is the CEOs’ belief that the country’s economy is well on its way to recovery, with nearly The Indian economy has gained strength from the two-thirds expecting recovery by the middle of recent period of comparative macroeconomic stability, 2010. South Asia, China and the United States will characterized by acceleration in growth, a surge in be the most important markets outside of India domestic savings and investment, and healthy corporate during the recovery. performance. The structure of the economy has also undergone considerable change in the last decade, as India’s rise in global competitiveness is widely India has been integrating more into the world economy. associated with its services sector, which is forecast to Going forward, there are several factors favouring India’s represent over 90% of economic growth in 2010. Still, competitiveness. These include the relatively inexpensive 42% of CEOs surveyed believe the country’s and skilled labour force – India’s demographic dividend manufacturing sector has improved its global – the availability of key raw materials and a large and competitiveness since the financial crisis began, with fast growing domestic market. many citing cost competitiveness and productivity gains as drivers. This suggests a diversification of Yet, much remains to be done. Policy-makers need to India’s global capabilities is underway, with manufacturing focus on significantly reducing poverty and improving growth complementing India’s vaunted services living standards. One of the key challenges is to industries. It also points to a different set of competitors provide quality employment to the large number of on the global stage: 34% of Indian CEOs expect people entering the workforce, as well as to those manufacturing powerhouse China to be India’s greatest leaving the agriculture sector. So far and despite brisk competitor in global markets during the recovery, while growth, the benefits in terms of job creation have been only 6% of them named the United States. relatively limited. Much also needs to be done to improve the situation in the areas of health and For this diversification to take place, however, CEOs education. Public spending has been increasing in consistently say the country still needs to develop its these areas through several initiatives, but this needs infrastructure. A shift towards manufacturing will only to be amplified. The third area where the government make the deficit, including in transportation needs to focus is infrastructure, in particular power infrastructure, more acute. What is more, CEOs and transport infrastructure, which face major believe an educated workforce has been vital to shortages made worse by rapid economic growth. India’s past competitiveness, but the country will Upgrading infrastructure will require a considerable need to step up its investment in education – at step-up in private and public investment. every level – to sustain growth. The potential for labour shortages remains in all industries. Lately, the government has been focusing on urgent measures to soften the impact of the global economic A majority of Indian CEOs expressed concern about crisis. Now that India’s economy is recovering from the 19 of the 20 potential threats to growth that were crisis, the authors conclude that it is a good time for policy- surveyed, including exchange rate volatility, a makers to shift focus back on longer-term imperatives. protracted global recession, over-regulation, terrorism and energy costs. Accordingly, more CEOs reported India’s competitiveness: The View from CEOs they are planning to change their risk management functions than other corporate functions. The desire to In the third chapter, N. Ramesh Rajan and Jairaj avoid or mitigate systemic risks is likely to be an Purandare, both at PricewaterhouseCoopers, India, enduring legacy of the global economic crisis. present the findings of PricewaterhouseCoopers’ 13th 4 | The India Competitiveness Review 2009
  • 7. Assessing India’s Competitiveness: Insights from the Global Competitiveness Index Thierry Geiger and Sushant Palakurthi Rao, World Economic Forum From an economic standpoint, the past two decades Introduction have been remarkable for India. In 1991, the Indian government unleashed an unprecedented programme The publication of The India Competitiveness Review of economic reforms that put India on the path of comes at a critical time for India’s economy. The sustained growth (see Figure 1). GDP grew at an severity of the global economic crisis – the worst annualized rate of 6.2% between 1991 and 20082. since the Great Depression – has demonstrated the This contrasts sharply with the three decades that fragility of economic growth among industrialized followed independence in 1947, which had been and developing countries alike. India has not been characterized by inward-looking policies and a spared its fallout. Growth slowed from a brisk 9.4% complex system of socialist economic controls – the in 2007 to 7.4% in 2008, and is expected to fall to infamous license raj – heavy state interventionism 5.4% in 20091. The recent turmoil underscores the and central planning. This system resulted in erratic, importance of not losing sight of long-term lacklustre growth rates, on average 4% per year competitiveness fundamentals amid short-term between 1960 and 1991. The 1990s therefore urgencies. Competitive economies are those that marked a turning point in India’s history. India is now have in place factors driving the productivity one of the fastest growing economies and, with a enhancements on which their present and future population of 1.2 billion, is the world’s second most prosperity are built. populous country. There is no doubt India is an increasingly important player in the global economy. Now that the world appears to be slowly emerging from the crisis, the time is propitious for India to take However, India is not yet one of the world stock of its competitive strengths, as well as those economy’s engines. Its economy is the smallest areas hindering its development. This year marks the among the four emerging market BRIC economies 25th anniversary of the World Economic Forum’s and the world’s 12th largest (see Table 1)3. Further, engagement in India, providing an excellent India systematically lags behind China and many opportunity to reflect on how India’s competitiveness large emerging economies in several measures of has progressed over the period and what remains to economic and social performance. Its GDP per be achieved to ensure a prosperous future. capita is just US$ 1,000, one-third of China’s and Figure 1: India’s GDP and GDP Per Capita Growth Real GDP*, Real GDP*/ $ billion capita, $ 1,000 1,000 800 800 CAGR +6.3%** 600 600 400 400 CAGR +4.0%** 200 200 0 0 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 *Base year is 2000. **Compound annual growth rate Source: World Bank 2009a The India Competitiveness Review 2009 | 5
  • 8. Table 1: Selected Indicators for the BRIC Countries GCI 2009-2010 GDP (US$ billion)* GDP per capita GDP CAGR (%) Population (millions) rank (out of 133) 2008 (US$), 2008 1991-2008** 2008 2050 China 29 4,327 3,259 9.8 1,336 1,409 India 49 1,207 1,017 6.2 1,186 1,658 Brazil 56 1,573 8,295 2.9 194 254 Russian Federation 63 1,677 11,807 1.9 142 108 * Current prices. **1992-2008 for Russian Federation Source: IMF 2009a; UNFPA 2008; World Economic Forum 2009 one-eighth of Brazil’s4. As of 2005, according to the In sum, India has come a long way, but still has World Bank, some 42% of Indians still lived below significant room for improvement to ensure strong the extreme poverty line of US$ 1.25 a day, down and inclusive economic growth in the coming years. from 54% in 1988 (see Figure 2)5. Over the same The country will have to leverage its competitive period, extreme poverty in China dropped from 54% strengths and overcome obstacles to enhanced to 16%. India ranks 134th in the latest Human competitiveness and productivity. The World Development Index (HDI) not only far behind China Economic Forum’s Global Competitiveness Index (92nd), but also the Philippines (105th) and Indonesia (GCI) represents a valuable tool for identifying and (111th)6. Life expectancy in India is just 64 years, 8 measuring the obstacles and drivers of India’s years less than in China, while the infant mortality productivity and competitiveness. It also allows for rate is three times China’s rate. Trade and investment insightful comparative analysis with relevant data also reveal the gap between India and China. In countries and regions. 2007, foreign direct investment (FDI) in India amounted to US$ 23 billion, four times less than into The next section presents an overview of the GCI China, while exports of goods and services amounted methodology and data used to assess the to US$ 239 compared with US$1,340 billion – a competitiveness of nations. The section that follows higher figure than India’s overall GDP – for China7. provides an overview of India’s performance in the Figure 2: Poverty Trends in India and Selected Comparators: Percentage of Population Living on Less Than US$ 1.25 a Day (PPP) % of population India China Pakistan Philippines 100 80 60 56 54 49 42 40 20 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Source: World Bank 2009a 6 | The India Competitiveness Review 2009
  • 9. GCI as well as an analysis of each Pillar. The final Below is a brief description of each Pillar composing section provides some general conclusions about the GCI9. Appendix A provides a detailed structure India’s competitiveness landscape. of the Index. 1st Pillar: Institutions – The quality of public and The Global Competitiveness Index private institutions, including perceived fairness and Framework transparency of public institutions, government efficiency, security level and corporate governance Introduced in 2004, the Global Competitiveness 2nd Pillar: Infrastructure – The quality and extent Index has become one of the most respected and of general and specific basic infrastructure, including broadly used tools to assess competitiveness. roads, railroads, ports, air transport and fixed telephony Developed by Professor Xavier Sala-i-Martin of 3rd Pillar: Macroeconomic Stability – The Columbia University and the World Economic soundness of the macroeconomic environment Forum, the GCI is a highly comprehensive index that 4th Pillar: Health and Primary Education – The captures the microeconomic and macroeconomic general health level of a country’s population and the foundations of national competitiveness. Competitiveness quality of and access to basic education is defined as “the set of institutions, policies and 5th Pillar: Higher Education and Training – The factors that determine the level of productivity of a quality of and access to secondary and university- country.”8 Taking into account the complex nature of level education and effectiveness of on-the-job training competitiveness, the Index identifies 12 Pillars of 6th Pillar: Goods Market Efficiency – The extent Competitiveness (see Figure 3), reflecting the diverse of domestic and foreign competition in a given and interrelated factors that have a bearing on market and the quality of demand conditions national long-term potential for sustained growth. Figure 3: The 12 Pillars of the Global Competitiveness Index BASIC REQUIREMENTS 1. Institutions Key for 2. Infrastructure FACTOR-DRIVEN 3. Macroeconomic Stability economies 4. Health and Primary Education EFFICIENCY ENHANCERS 5. Higher Education and Training Key for 6. Goods Market Efficiency EFFICIENCY-DRIVEN 7. Labor Market Efficiency 8. Financial Market Sophistication economies 9. Technological Readiness 10. Market Size SOPHISTICATION & INNOVATION FACTORS Key for 11. Business Sophistication INNOVATION-DRIVEN 12. Innovation economies Source: World Economic Forum 2009a The India Competitiveness Review 2009 | 7
  • 10. 7th Pillar: Labour Market Efficiency – The flexibility institutions (1st Pillar); well-developed infrastructure of the labour market and the degree to which it (2nd Pillar); good macroeconomic fundamentals (3rd ensures the efficient allocation and use of talent Pillar); and a healthy and literate labour force (4th Pillar) 8th Pillar: Financial Market Sophistication – The are critical for competitiveness at this stage. sophistication and trustworthiness of financial markets 9th Pillar: Technological Readiness – The penetration As countries progress to the efficiency-driven stage, of information and communication technologies (ICT) their competitiveness becomes increasingly based and countries’ capacity to leverage technology and upon well-functioning factor markets and efficient knowledge, notably through FDI, and in their production processes and practices at the firm level. production systems Important elements at this stage include quality 10th Pillar: Market Size – The size of the domestic higher education and training (5th Pillar); efficient and foreign markets available for firms operating in a markets for goods and services (6th Pillar); flexible given country and well-functioning labour markets (7th Pillar); 11th Pillar: Business Sophistication – At the firm sophisticated financial markets (8th Pillar); the ability level, the degree of sophistication of operations and to leverage existing technologies, notably ICT, in the company strategies and the presence and national production system (9th Pillar); and a large development of clusters domestic and/or foreign market allowing for 12th Pillar: Innovation – The national potential to economies of scale (10th Pillar). generate endogenous innovation In the most advanced, innovation-driven stage, countries Underpinning this methodological framework is the are able to sustain higher wages and the associated idea that, although all 12 Pillars matter in standard of living only if their businesses are able to determining competitiveness, each does so to a compete with new and unique products. At this stage, varying extent, depending on each country's specific companies must compete through innovation (12th stage of development. Factors that crucially drive Pillar), producing new and different goods using the national competitiveness evolve as economies move most sophisticated production processes (11th Pillar). along the development path. In this sense, the GCI builds upon well-known theories of stages of Countries are allocated to the different stages of development10 classifying economies into three development according to their level of GDP per capita stages: factor-driven, efficiency-driven and at market exchange rates, used as a proxy for wages. innovation-driven. This criterion is complemented by a second one measuring the extent to which countries are factor driven, In the initial factor-driven stage, countries compete using as a proxy the share of exports of mineral products based on their factor endowments – primarily unskilled in total exports (goods and services); the assumption labour and natural resources – and their economies is that countries that export more than 70% of mineral are centred on commodities and/or basic products (measured using a five-year average) are, to manufactured products. Efficient public and private a large extent, factor driven. Table 2: Weights and Thresholds of the Three Subindexes per Stage of Development Weight (%) of Subindex in overall GCI Sophistication Stage of development GDP per capita Basic Efficiency and innovation Examples of countries in that stage (in US$) requirements enhancers factors Stage 1: Factor driven < 2,000 60 35 5 India, Pakistan, Philippines, Vietnam Transition from stage 1 to 2 2,000-3,000 40-60 35-50 5-10 Indonesia Stage 2: Efficiency driven 3,000-9,000 40 50 10 Brazil, China, Malaysia Transition from stage 2 to 3 9,000-17,000 20-40 50 10-30 Russian Federation Stage 3: Innovation driven > 17,000 20 50 30 Korea Rep., United States Source: World Economic Forum 2009a 8 | The India Competitiveness Review 2009
  • 11. The concept of stages of development is integrated capture quantitative factors, such as inflation rate, into the Index by attributing higher relative weights to public debt and educational enrolment rates, and are those Pillars that are more relevant for a country, collected by international organizations, including the given its particular stage of development. To take International Monetary Fund, the World Bank and various this into account, the Pillars are organized into three United Nations agencies. Internationally collected and Subindexes, each critical to a particular stage of validated data ensure its comparability across countries. development (see Figure 3). The survey data gauge dimensions that are more The Basic Requirements Subindex groups those qualitative in nature or for which no hard data are Pillars most critical for countries in the factor-driven available for a large number of countries, but are stage. The Efficiency Enhancers Subindex includes nonetheless crucial to national competitiveness. those Pillars critical for countries in the efficiency- Survey data are derived from the Executive Opinion driven stage. And the Innovation and Sophistication Survey, a study conducted annually by the World Factors Subindex includes the Pillars critical to Economic Forum in collaboration with a network of countries in the innovation-driven stage. The specific Partner institutes located in each of the economies weights attributed to each subindex in every stage covered by the study. In 2009, the Survey was of development are shown in Table 211. administered to over 13,000 business leaders across 133 economies12. The table shows that India is currently in the factor- driven stage of development. Therefore, its Assessing India’s Competitiveness competitiveness depends critically on the first through fourth Pillars. These four Pillars account for India ranks 49th out of 133 economies in the Global a full 60% of the overall GCI weight. The score of Competitiveness Index 2009-2010, up one rank from India on the other two Subindexes, namely Efficiency the previous edition. Looking further back reveals that, Enhancers and Innovation and Sophistication in recent years, India’s performance has been very Factors, account for 35% and 5%, respectively. stable, with a slight measurable improvement as shown in Figure 4. In 2005, India ranked 46th out of 114 The GCI is composed of a combination of hard and economies. Taking into account only the 114 survey data capturing both quantitative and qualitative economies covered that year, India would rank 44th determinants of national competitiveness. Hard data 13 this year – a small gain of two ranks . Figure 4: India’s Performance in the Earliest and Latest Editions of the GCI Rank Edition 2009-2010 2005-2006 within 2005-06 Score (out of 133) sample (out of 114) 1 2 3 4 5 6 7 49 44 46 2005-2006 Global Competitiveness Index 2009-2010 1 s t P illa r: I n s titu tio n s 54 47 40 2 n d P illa r: I n fra s tru c tu re 76 70 71 3 rd P illa r: Macroeconomic Stability 96 84 93 4th Pillar: Health and Primary Education 101 92 92 5th Pillar: Higher Education and Training 66 61 55 6 th P illa r: Goods Market Efficiency 48 45 33 7 th P illa r: Labour Market Efficiency 83 74 49 8th Pillar: Financial Market Sophistication 16 16 34 9 th P illa r: Technological Readines 83 76 58 1 0 th P illa r: Market Size 4 4 4 11 th P illa r: B u s in e s s So p h is tic a tio n 27 27 26 1 2 th P illa r: I n n o v a tio n 30 30 26 Source: World Economic Forum 2009a The India Competitiveness Review 2009 | 9
  • 12. Table 3 GCI 2009-2010 Results for India and Selected Comparators Table 3.A Overall GCI and Subindexes Global Competitiveness Basic Efficiency Innovation and Index 2009-2010 requirements enhancers sophistication factors Economy Rank Score Rank Score Rank Score Rank Score Malaysia 24 4.87 33 5.12 25 4.76 24 4.43 China 29 4.74 36 5.09 32 4.56 29 4.23 India 49 4.30 79 4.18 35 4.52 28 4.24 Indonesia 54 4.26 70 4.30 50 4.24 40 4.03 Brazil 56 4.23 91 4.04 42 4.41 38 4.08 Russian Federation 63 4.15 64 4.43 52 4.20 73 3.47 Vietnam 75 4.03 92 4.02 61 4.08 55 3.72 Philippines 87 3.90 95 3.94 78 3.91 74 3.45 Pakistan 101 3.58 114 3.53 92 3.69 84 3.39 BRC 56 4.37 64 4.52 42 4.39 38 3.93 Developing Asia (excl. India) 79 4.02 92 4.20 76 3.89 74 3.54 Lower middle income (excl. India) 92 3.84 89.5 4.06 91.5 3.69 92 3.32 OECD 18.5 4.92 23.5 5.28 18.5 4.91 18.5 4.67 Basic 1. Institutions 2. Infrastructure 3. Macroeconomic 4. Health and Table 3.B Basic Requirements Requirements Stability Primary Education Economy Rank Score Rank Score Rank Score Rank Score Rank Score Malaysia 33 5.12 43 4.53 26 5.05 42 5.00 34 5.90 China 36 5.09 48 4.39 46 4.31 8 5.93 45 5.72 Russian Federation 64 4.43 114 3.23 71 3.62 36 5.24 51 5.65 Indonesia 70 4.30 58 4.00 84 3.20 52 4.82 82 5.20 India 79 4.18 54 4.21 76 3.47 96 4.23 101 4.82 Brazil 91 4.04 93 3.50 74 3.50 109 3.93 79 5.24 Vietnam 92 4.02 63 3.93 94 3.00 112 3.86 76 5.28 Philippines 95 3.94 113 3.24 98 2.91 76 4.54 93 5.07 Pakistan 114 3.53 104 3.31 89 3.06 114 3.81 113 3.95 BRC 64 4.52 93 3.70 71 3.81 36 5.03 51 5.54 Developing Asia (excl. India) 92 4.20 73 3.76 89 3.38 76 4.65 82 5.01 Lower middle income (excl. India) 89.5 4.06 97 3.57 80 3.28 78 4.48 86.5 4.92 OECD 23.5 5.28 22.5 4.93 19.5 5.16 41.5 4.98 22 6.05 Table 3.C Efficiency Efficiency 5. Higher Education 6. Goods Market 7. Labour Market 8. Financial Market 9. Technological 10. Market Enhancers Enhancers and Training Efficiency Efficiency Sophistication Readiness Size Economy Rank Score Rank Score Rank Score Rank Score Rank Score Rank Score Rank Score Malaysia 25 4.76 41 4.49 30 4.77 31 4.74 6 5.38 37 4.51 28 4.70 China 32 4.56 61 4.09 42 4.47 32 4.74 81 4.05 79 3.38 2 6.63 India 35 4.52 66 3.96 48 4.42 83 4.23 16 5.10 83 3.33 4 6.07 Brazil 42 4.41 58 4.14 99 3.87 80 4.27 51 4.47 46 4.06 10 5.63 Indonesia 50 4.24 69 3.91 41 4.49 75 4.30 61 4.30 88 3.20 16 5.21 Russian Federation 52 4.20 51 4.30 108 3.75 43 4.67 119 3.27 74 3.45 7 5.78 Vietnam 61 4.08 92 3.54 67 4.20 38 4.70 82 4.05 73 3.45 38 4.55 Philippines 78 3.91 68 3.92 95 3.92 113 3.89 93 3.85 84 3.32 35 4.57 Pakistan 92 3.69 118 2.86 83 4.00 124 3.52 64 4.25 104 2.87 30 4.67 BRC 42 4.39 58 4.17 99 4.03 43 4.56 81 3.93 74 3.63 7 6.01 Developing Asia (excl. India) 76 3.89 69 3.54 83 4.11 75 4.31 71 4.11 85 3.15 38 4.11 Lower middle income (excl. India) 91.5 3.69 94 3.56 85 3.98 97 4.11 94 3.83 93.5 3.09 79 3.57 OECD 18.5 4.91 17.5 5.09 19.5 4.83 28 4.72 27.5 4.75 20.5 5.17 28.5 4.88 Table 3.D Business Sophistication and Innovation and 11. Business 12. Innovation Innovation Factors Sophistication Factors Sophistication Economy Rank Score Rank Score Rank Score Malaysia 24 4.43 24 4.80 24 4.06 India 28 4.24 27 4.76 30 3.73 China 29 4.23 38 4.54 26 3.93 Brazil 38 4.08 32 4.64 43 3.52 Indonesia 40 4.03 40 4.49 39 3.57 Vietnam 55 3.72 70 4.00 44 3.45 Russian Federation 73 3.47 95 3.59 51 3.35 Philippines 74 3.45 65 4.06 99 2.84 Pakistan 84 3.39 81 3.80 79 2.98 BRC 38 3.93 38 4.26 43 3.60 Developing Asia (excl. India) 74 3.54 70 3.96 75 3.12 Lower middle income (excl. India) 92 3.32 88.5 3.75 100 2.90 OECD 18.5 4.67 19 4.99 18.5 4.35 Source: World Economic Forum 2009a 10 | The India Competitiveness Review 2009
  • 13. Tables 3.A to 3.D report the ranks and scores for Compared with the mixed performance in the other India and a number of comparators in the main two Subindexes, India’s performance in the two components of the GCI 2009-2010, while a detailed most complex areas of competitiveness, Business profile of India's performance is presented in Sophistication and Innovation, is remarkable. The Appendix B. Given its present level of development, country ranks 27th for the sophistication of its India’s performance exhibits an unusual pattern. As businesses and 30th for its innovation capacity. This explained above, countries might be expected to reflects, to a large extent, the brisk development of move through a sequence of development steps to India’s private sector and of a few particular build up their competitiveness, starting with the industries (e.g. automotive, information technology more basic factors and moving to more complex (IT), pharmaceuticals). ones. Currently, what matters most for India are the first four Pillars that form the Basic Requirements This is encouraging for several reasons. First, it Subindex, which together account for 60% of the indicates that economic liberalization is bearing fruit, overall score. Interestingly enough, it is in this as the emergence of competitive Indian general area that India presents the greatest multinationals would have been difficult under the shortcomings. The country underperforms in the previous system. Second, business sophistication areas of health and primary education (101st), and innovation will become increasingly important macroeconomic stability (96th) and physical for India and its competitiveness as it moves to more infrastructure (76th). More positive is India's 54th advanced stages of development. Third, there is no rank for the quality of institutions. Although there is doubt that the success stories represent a source of room for improvement in this area, the fact that the inspiration for Indian entrepreneurs. Yet, at present, country can rely on fairly well-functioning institutions these two categories account for just 5% of the can be taken as an encouraging sign. overall GCI score because they are not yet the engine of India’s economic productivity, unlike for the India’s performance in the second Subindex of the United States, Japan or Switzerland. This is because GCI, Efficiency Enhancers, is better, albeit uneven. India can still significantly enhance its productivity This Subindex accounts for 35% of India’s overall through improvements in the more basic areas score in the GCI and is of particular importance to measured by the Index. the development of the industry and services sectors. The country boasts a developed financial In the analysis that follows, India’s performance is system (16th) with a particularly sound banking reviewed in greater detail. To place it in context, we sector (25th). draw parallels with a number of countries: the three other BRIC economies – China, Brazil and Russia – Another competitive advantage is the size of its as well as Indonesia, Malaysia, Pakistan, the market. India ranks fourth behind the United States, Philippines and Vietnam. These particular countries China and Japan on the Market Size Pillar, which have been chosen for their economic significance, combines measures of the size of the internal and their geographical proximity or similar characteristics exports markets. The Indian goods market is also to India, and/or for their particular achievements in fairly efficient (48th), thanks to fierce competition and certain dimensions of the GCI. Aggregate despite the presence of important barriers to entry. performances also provide interesting points of On a more negative note, the difficulty of hiring and reference. We therefore provide the average scores firing employees makes the labour market rather and median ranks of Brazil, Russia and China (BRC), rigid (83rd). The country’s technological readiness the Developing Asia region and the group of lower (83rd) continues to be held back by low penetration middle income countries14. rates for ICT, a problem that is typical of very large developing economies. Firms, however, are generally adept at adopting and using the latest technologies. Finally, higher education in India (66th) is of relatively good quality but access to it remains a privilege of the few as shown by the low enrolment rates. The India Competitiveness Review 2009 | 11
  • 14. Table 4: The GCI Heat Map: Comparison between India and Selected Comparators Table 4.A Difference in Scores Macroeconomic Stability Technological Readiness Goods Market Efficiency Business Sophistication Labor Market Efficiency Count of pillars where Higher Education and Health and Primary India scores higher Financial Market Sophistication Infrastructure Market Size Institutions Innovation Education Training GCI India (score 1-7) 4.30 4.21 3.47 4.23 4.82 3.96 4.42 4.23 5.10 3.33 6.07 4.76 3.73 Score difference with Malaysia -0.57 -0.32 -1.58 -0.77 -1.08 -0.53 -0.36 -0.52 -0.28 -1.18 +1.37 -0.04 -0.33 1 China -0.43 -0.18 -0.84 -1.70 -0.90 -0.12 -0.05 -0.51 +1.05 -0.05 - 0 .5 6 +0.22 -0.20 2 BRC* -0.07 +0.51 -0.34 -0.80 -0.71 -0.21 + 0. 3 9 - 0 .3 3 +1.17 -0.30 +0.05 +0.50 +0.13 6 Indonesia +0.04 +0.21 +0.28 -0.58 -0.38 +0.05 -0.08 -0.07 +0.80 +0.12 +0.85 +0.27 +0.16 8 Brazil +0.08 +0.71 -0.03 +0.30 -0.42 -0.18 +0.54 -0.05 +0.63 -0.73 +0.44 +0.12 +0.21 7 Russian Federation +0.15 +0.98 -0.14 -1.01 -0.83 -0.34 +0.67 -0.45 +1.84 -0.12 +0.29 +1.17 +0.38 6 Vietnam +0.28 +0.28 +0.47 +0.37 -0.46 +0.42 +0.22 -0.47 +1.05 -0.13 +1.51 +0.77 +0.28 9 Developing Asia* +0.28 +0.45 +0.09 -0.42 -0.19 +0.42 +0.31 -0.08 +0.99 +0.17 +1.96 +0.80 +0.61 9 Philippines +0.40 +0.98 +0.56 -0.31 -0.25 +0.04 +0.50 +0.33 +1.25 +0.01 +1.49 +0.70 +0.89 10 Lower middle income* +0.46 +0.64 +0.19 -0.25 -0.10 +0.40 +0.43 +0.11 +1.28 +0.24 +2.50 +1.01 +0.83 10 Pakistan +0.72 +0.90 +0.42 +0.42 +0.87 +1.10 +0.41 +0.71 +0.85 +0.45 +1.40 +0.96 +0.75 12 * Average score Score difference: Key >1 >0.5 >0.1 >-0.1 >-0.5 >-1 India scores higher Compartor scores higher Technological Readiness Goods Market Efficiency Table 4.B Difference in Ranks Business Sophistication Count of pillars where Higher Education and Health and Primary India ranks higher Financial Market Macroeconomic Labour Market Sophistication Infrastructure Market Size Institutions Innovation Education Efficiency Training Stability GCI India (rank out of 133) 49 54 76 96 101 66 48 83 16 83 4 27 30 Rank difference with Malaysia -25 -11 -50 -54 -67 -25 -18 -52 -10 -46 +24 -3 -6 1 China -20 -6 -30 -88 -56 -5 -6 -51 +65 -4 -2 + 11 -4 2 Indonesia +5 +4 +8 -44 -19 +3 -7 -8 + 45 +5 +1 2 +13 +9 8 B r az i l +7 +39 -2 +13 -22 -8 +51 -3 +35 -37 +6 +5 +13 7 BRC* +7 +39 -5 -60 -50 -8 +51 -40 +65 -9 +3 +1 1 +1 3 6 Russian Federation +14 +60 -5 -60 -50 -15 +60 -40 +103 -9 +3 +68 +21 6 Vietnam +2 6 +9 +18 +16 -25 +26 +1 9 - 45 +66 -10 +34 +4 3 +14 9 Developing Asia* +30 +19 +13 -20 -19 +3 +35 -8 +55 +2 +34 +43 +45 9 Philippines +38 +59 +22 -20 -8 +2 +47 +30 +77 +1 +31 +38 +69 10 Lower middle income* +43 +43 +4 -18 -15 +28 +37 +14 +78 +11 +75 +62 +70 10 Pakistan +52 +50 +13 +18 + 12 +52 +35 +41 +48 +21 +26 +54 +49 12 * Median rank Rank difference: Key >20 >10 >5 >-5 >-10 >-20 India ranks higher Comparator ranks higher Note: see text for details Source: World Economic Forum 2009a The GCI heat map presented in Table 4 complements India’s score (4.3, see first row) in the overall GCI Tables 3.A through 3.D, in that it allows for a reading (first column) is 0.6 lower than that of Malaysia but of India’s performance in the GCI in relative terms. It 0.3 better than the average for Developing Asia. provides a sense of the distance – as measured by Similarly, Table 4.B indicates that India does the difference in scores (Table 4.A) and ranks (Table significantly better in terms of business sophistication 4.B) – that separates India from any given (12th column) than all countries except Malaysia. comparator. Blue-shaded cells and grey-shaded cells indicate that India scores or ranks respectively The heat map mirrors India’s atypical competitiveness higher or lower than the comparator, while no pattern described above. On the right side of both shading means there is no significant divergence. tables, cells are overwhelmingly blue, while the The darker the nuance, the greater the difference in patches of dark grey in the centre of the table reveal performance. Table 4.A shows, for instance, that the areas of relative underperformance, namely 12 | The India Competitiveness Review 2009
  • 15. macroeconomic stability, health and primary Notably, the protection of property rights, public ethics education, labour market efficiency and technological standards and the efficiency of public administration readiness. The figure shows that China is stronger in are taken into account, together with the security 10 out of the 12 Pillars. On the other hand, India situation in the country. The Private Institutions systematically outperforms its neighbour Pakistan in Subpillar, in turn, measures the quality of corporate all Pillars and by a margin of 20 ranks or more in ethics and accountability displayed by firms. nine of the 12 Pillars. India ranks 54th in the Institutions Pillar, ahead of most 1st Pillar: Institutions of the comparators and clearly standing out within its region and income group. Only Malaysia (43rd), China A transparent, efficient and reliable institutional (48th) and Korea (53rd) – just barely – do better. India’s environment provides the framework within which all performance is similar in each Subpillar, ranking 55th stakeholders of the society – individuals, businesses and 51st for the quality of public institutions and and the government – are able to interact efficiently private institutions, respectively. and create wealth. Economic activity does not take place in a vacuum. The quality of institutions has a The business community is fairly positive with strong bearing on competitiveness and growth. It respect to government efficiency. India ranks above influences investment decisions and the organization most comparators in the rule of law, particularly of production, and plays a central role in the ways thanks to a relatively well-functioning and societies distribute the benefits and bear the costs independent judiciary. On a less positive note, of development strategies and policies. Given this intellectual property protection is perceived as prominent role, the GCI includes the quality of mediocre (61st). This is an area to be strengthened, institutions within the basic requirements of given the importance of the IT and business process competitiveness, crucial for factor-driven economies outsourcing sector in India (see 12th Pillar below). such as India15. Further, reminiscent of the license raj era, government regulation continues to be perceived as The Institutions Pillar has two components, gauging burdensome. India ranks a low 95th on this indicator the quality of public and private institutions, with a score of 2.9, below the regional average of respectively. The Public Institutions Subpillar 3.3. This signals the need for further reforms to assesses different dimensions related to the quality eliminate red tape. and efficiency of the national institutional environment. Figure 5: The Most Problematic Factors for Doing Business in India % of responses 0 5 10 15 20 25 30 Inadequate supply of infrastructure 24.6 Inefficient government bureaucracy 14.0 Corruption 11.0 Restrictive labour regulations 10.6 Access to financing 9.8 Tax regulations 8.0 Policy instability 6.0 Tax rates 4.0 Poor work ethic in national labour force 3.8 Inadequately educated workforce 2.6 Foreign currency regulations 2.3 Inflation 1.0 Government instability/coups 0.9 Poor public health 0.9 Crime and theft 0.4 Source: World Economic Forum’s Executive Opinion Survey 2009 The India Competitiveness Review 2009 | 13
  • 16. The results also reveal that the business community demonstrate a need for well enforced auditing and has limited trust in its politicians (79th), while accounting standards to better constrain and bureaucratic and administrative corruption, and rent- unmask such behaviour in the future. seeking by a large public sector, continue to restrain its confidence. Indeed, the respondents to the World 2nd Pillar: Infrastructure Economic Forum’s 2009 Executive Opinion Survey selected “bureaucracy” and “corruption”’ as, Well-functioning and extensive infrastructure plays a respectively, the second and third most problematic fundamental role in enhancing the growth prospects of factors for doing business in India after “inadequate an economy. Good infrastructure plays an important infrastructure” (see Figure 5)16. Supporting this role in raising private sector productivity, particularly assessment, Transparency International ranked India the quality of roads, the functioning of roads, 85th out of 180 economies in its 2008 Corruption railroads, ports and air transport, as well as a reliable Perceptions Index17. The government has taken electricity supply and developed telecommunication steps to eliminate some major sources of corruption, network. Widespread quality infrastructure can also for instance, by removing import licenses18. In the greatly reduce income inequality and poverty, fight against corruption, India can rely on its vibrant connecting poor communities to important markets, democracy and press freedom, which help to bring allowing children in remote areas to go to school many such cases to light. and improving health standards by providing potable water, among other benefits. The threat of terrorism is another major concern in that it imposes significant costs on businesses, with India ranks 76th in the Infrastructure Pillar with a India ranked 117th on this measure. Among the score of 3.5 out of 7. China ranks 30 places ahead comparators, Pakistan (131st, third to last) and the at 46th, while Malaysia is in a league of its own in Philippines (124th) appear lower, as do the United 26th place. The entire region suffers from a severe States (121st) and Spain (119th). However, India’s infrastructure deficit, with an average score of 3.4, score of 4.7 (out of 7) remains well above the score even lower than that of India. Since 2003, business of 2.6 of last ranked Colombia. The attacks on leaders responding to the Executive Opinion Survey Mumbai in 2008, the rising tensions in the region, as have consistently ranked “inadequate supply of well as frequent reports of foiled terror plots infrastructure” as the most problematic factor for contribute to a general fear of future attacks and doing business in India (see Figure 5). In fact, in maintain a climate of insecurity. In addition, none of the other comparator countries have corporate interests, especially Western companies, respondents put infrastructure so high and so often are seen to represent a prime target. On a more on their list. positive note, India does not display particularly high levels of other forms of crime and violence. Its score The poor state of India’s infrastructure, and the lack (5.2) is not too far from that of China and – even of it, is among the most serious structural problems more telling – of the OECD average (both 5.4). This holding back the country’s competitiveness and performance sharply contrasts with the rest of the economic development. Without adequate infrastructure, region (average of 4.4), most notably Pakistan (3.2, India will find it difficult to sustain – let alone increase – 119th), but also Brazil (3.3, 118th). its current pace of development. The situation penalizes local businesses and deters foreign investors. Delays As mentioned above, the GCI also assesses the in shipping, power outages, water shortages, quality of private institutions. Although its commuting times, to only name a few of the adverse performance has worsened considerably over the consequences, seriously undermine productivity. past year, India continues to rank at a reasonable 51st place. It is possible that the weaker Looking ahead, infrastructure has also been cited as assessment is related to recent scandals such as one of the main obstacles to the transition from an the accounting fraud perpetrated at Satyam, which agrarian economy to a manufacturing-based shook the confidence of the business community in economy, a transition that will be needed to create India and around the world. This would seem to new jobs for the growing working-age population. 14 | The India Competitiveness Review 2009
  • 17. Even the most basic manufacturing activities at a In addition to low profitability, the sector remains minimum require a reliable source of electricity and heavily regulated and dominated by public utility decent roads. companies – a drag for investors. Things could get worse, as the demand for electricity is expected to Electricity is perhaps the biggest infrastructure challenge. grow at least as fast as the GDP – and possibly India ranks 106th for the quality of the electricity faster if the share in the economy of the energy- supply, lower than all comparators. A 2006 survey by intensive manufacturing sector increases. the World Bank found that 29% of managers identified electricity as a “major” or “severe” constraint to the Road infrastructure also needs upgrading. India growth of their business19. In 2007, demand ranks 89th for the quality of roads, far behind China outstripped supply by almost 15%20. As Figure 6 (50th) and Pakistan (65th) but ahead of Indonesia shows, electricity production per unit of GDP (94th) and the Philippines (104th). Roads are of increased until 2000 but has been declining steadily paramount importance to India’s development: they since then. The ratio is now close to one kilowatt hour carry 65% of freight and 85% of passenger traffic23. per unit of GDP. For China, the situation is almost the Yet, the 3.4 million kilometre-long network – the reverse and appears much more favourable. world’s second largest and 50% longer than China’s – is in poor condition, with half of it unpaved24. It is also Not only does India suffer from serious electric congested and dangerous. In 2007, 130,000 people under-capacity, but much of its production is lost in perished in car accidents, 60% more than in China transmission and distribution. Figure 6 reveals that, where there are four times as many cars25. Without in 2006, a staggering 25% of India’s electricity infrastructure improvements, the situation is likely to production was lost before reaching destination. get worse, as the government projects an annual Although improving since 2001 when the figure was increase of 12-15% in traffic in the comings years. 29%, it is four times the amount in China (6.3%). Inevitably, this has a negative impact on profitability; India’s port infrastructure is also in need of the government estimated that, in 2007, it did not upgrading. According to a report by Ernst & Young receive any revenue for 34% of the power pumped (2008), Indian ports are operating at more than 90% into the grid because of theft or leakages21, although capacity. The Indian ports sector has lined up a this is admittedly an improvement from 2000, when major capacity overhaul, but low productivity and an OECD study put this figure at 40%22. infrastructure bottlenecks continue to stifle the performance of the country's major ports. Handling capacity is insufficient, turnaround times are too Figure 6: Electricity Production and Losses Production Loses India China kWh per unit of GDP % of losses Indonesia 1.5 30% 1 20% 0.5 10% 0 0% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Source: Authors’ analysis based on World Bank 2009a The India Competitiveness Review 2009 | 15
  • 18. long, procedures too many and human intervention country ranks an impressive 20th overall, one notch too frequent. Indeed, India ranks a low 90th on port behind Malaysia and seven places ahead of China. infrastructure quality, with a score of 3.5 out of 7. The chasm is the widest with the Philippines, which ranks 92nd. The Indian railway network is one of the None of the comparators performs significantly world’s largest, carrying 14 million passengers daily. better, with the notable exception of Malaysia (19th). Railroad remains the primary mode for carrying China comes in at 61st, indicating that its ports also passengers and freight across India’s vast territory. require upgrading. But China has improved much However, the World Bank recognizes that, with tariff faster and its score increased from 3.6 in 2005 to policies that overcharge freight to subsidize passenger 4.3 in the latest edition. Over the same period, India travel, a shift from railways to roads has been observed, has only improved from 3.2 to 3.5. In view of although the country’s high-density rail corridors upgrading port infrastructure and adding capacity, continue to face severe capacity constraints29. the government has stressed the need for more private sector involvement through public-private The dire state of electricity and transport partnerships (PPP) and wishes to confer more infrastructure is in large part attributable to autonomy to India’s major ports26. insufficient investment, which in turn has multiple causes: poor planning, lack of coordination, Air transport is better assessed. At 65th, India is excessive bureaucracy, price controls and cross- ranked higher than all of the comparators, including subsidy mechanisms, as well as corruption. The China (80th) and Brazil (89th). In terms of capacity, problem is accentuated by the pace of economic India (10th) lags behind China (2nd) but outperforms growth. The World Bank estimates that overall the other comparators by a sizeable margin. In demand for transport infrastructure and services has 1994, the state monopoly over commercial aviation risen by around 10% a year since 199030. The was brought to an end. Since then, India has projected rapid urbanization of India is likely to strain witnessed a proliferation of private airlines, including infrastructure even further. Currently, 286 million low-cost airlines. Illustrating this dynamism, Indians, or 28% of the population, live in urban areas Kingfisher, founded just four years ago, is India’s – a small share by regional standards. This figure is largest carrier with a market share of 22.6%27. expected to rise to 576 million, or 41% of the population, by 203031. This massive exodus into There is no doubt that this competition has Indian cities, 10 of which are among the 30 fastest- benefited the economy through the increased growing urban areas in the world32, represents an number of destinations, more frequent services and extraordinary opportunity – dubbed the “urbanization better value for money. The number of seat- bonus” – because urbanization is generally a force kilometres available on flights originating from India for growth, development and modernization. But, if has soared by 50% since 2006 to reach 2.65 billion urbanization is not supported by improved in 200928. India is now the 10th largest market in infrastructure and sanitation, it could very well terms of capacity. Yet, this boom in air traffic is become an urbanization disaster. straining the existing airport facilities. The government has initiated a vast programme of To upgrade infrastructure and keep up with rising modernization of 35 airports, and five of India’s demand, it is estimated that India will need to boost biggest airports – Bangalore, Cochin, Delhi, investment in this sector from 4-5% to about 8- Hyderabad and Mumbai – were privatized. Besides 9%33. The government alone does not have the improving connectivity inside India and partly financial resources to meet this need, given the grim compensating for the lack of ground transport fiscal situation. India benefits from the support of the infrastructure, air transport has a major role to play World Bank and other donors in the form of loans, in the development of tourism, a sector with but it will not be nearly enough to provide the enormous potential beyond what is presently seen. necessary resources. Railroad is the last of the four major modes of Everybody agrees that a significant amount of India’s transportation taken into account by the GCI and by infrastructure financing needs to come from the far the best assessed in the case of India. The private sector through public-private partnerships34. 16 | The India Competitiveness Review 2009
  • 19. By the government’s own account, some 75% of Firms cannot operate efficiently when inflation rates the additional investment – 40% in total – will need are out of hand. In sum, the economy cannot grow to come from the private sector. Since the mid- in a sustainable manner unless the macro 1990s, the private sector has been involved to a environment is stable. Macroeconomic stability is certain extent. The OECD (2007) estimated that included among the basic factors of national already the value of PPPs amounted to 3.5% of competitiveness – key for factor-driven countries like GDP at the end of 2006. The government has put in India, but also a basic requirement for any economy, place a number of incentives to encourage and regardless of its stage of development. The GCI attract private investment such as special loans, relies on five indicators to draw a picture of the guarantees and risk mitigation instruments, tax cuts, macroeconomic situation: the government budget BOT models, and no restriction on FDI in certain balance, public debt, inflation, national savings rate sectors. Yet, much remains to be achieved. and the interest rate spread. Owing to a very weak fiscal position, India appears 3rd Pillar: Macroeconomic Stability in 96th position in the Macroeconomic Stability Pillar, a gap of almost 90 positions with China (8th). Russia The stability of the macroeconomic environment is (36th), Malaysia (42nd), Indonesia (52nd) and the important for business and, therefore, for the overall Philippines (76th) all display better performances. competitiveness of a country. Although it is certainly Among comparator countries, only Brazil (109th), true that macroeconomic stability alone cannot Vietnam (112th) and Pakistan (114th) score lower. increase the productivity of a nation, it is also recognized that macroeconomic disarray harms the As Figure 7 shows, India lags behind all economy. The government cannot provide services comparators in terms of government deficit and efficiently if it has to make high-interest payments on debt, which amounted to 4.9% and 75% of GDP in its debt. Running fiscal deficits limits the 2008, respectively. In 2003, India adopted a rules- government’s future ability to react to business cycles. based fiscal framework, the Fiscal Responsibility and Budget Management Act (FRBMA). The FRBMA set Figure 7: Public Debt and Budget Balance , 2008 80 India 70 Pakistan Philippines 60 Public debt (% of GDP) 50 Vietnam Brazil 40 Malaysia Indonesia 30 20 China Russian 10 Federation 0 -6 -4 -2 0 2 4 6 Budget balance (% of GDP) Source: World Economic Forum 2009a The India Competitiveness Review 2009 | 17
  • 20. a plan to gradually reduce the central government India’s external debt is low, thus limiting exchange deficit through 2009. Although the idea of a rate risk. But such a large domestic debt ratio hurts balanced budget remains remote, the FRBMA has the economy. Government regulations require helped to institute some fiscal discipline35. Further, commercial banks to invest in government bonds – thanks to the economic boom of recent years, the precisely to finance the large deficit – and in other fiscal situation of the central government had been “priority investments”, thereby diverting slightly improving until last year when the crisis hit. investments from the more productive sectors of the Since then, government stimulus measures economy (see the Financial Market Sophistication jeopardized its plans for fiscal adjustment. section below). What is more, the issuance of large Government consumption expenditure increased amounts of debt pushes up India’s interest rates and sharply and contributed 32.5% of real GDP growth depresses the price of government bonds, large in 2008-2009, compared with an average amounts of which are held by banks, thus exposing contribution of 5.9% in the previous five years. As a them to potential capital losses. result, the government now envisages a deficit of 6.8% of GDP for 2009-201036. India’s consolidated The national savings rate has surged since the deficit – that is, including states’ deficits – could beginning of the decade to reach 36% of GDP in reach 10%. Although perhaps seen as necessary in 2008, after years of erratic movement. This upward the short term to address the crisis, this has trend is to a large extent attributable to India’s negative repercussions for the country’s demographic transition. The falling dependency ratio macroeconomic stability going forward. increases savings rates simply because the working population saves more than the dependent population38. Repeated fiscal deficits have caused debt levels to As Figure 9 illustrates, the savings rate is tightly swell, as the funding gap has forced the government linked to investment, which is an important driver of to issue more and more debt. It is estimated that the growth in India and in all developing economies. To government now borrows 34 out of every 100 sustain growth of roughly 8%, India must continue to rupees it spends37. At 75% of GDP, India’s debt ratio save at a similar rate. To finance the investment is among the highest in the world (17th out of 133 required to attain 10% growth, Poddar and Yi (2007) countries). The bulk of India’s public debt is estimate that savings rates would need to rise well denominated in rupees. On a more positive note, above 40% – closer to the rate observed in China. Figure 8: Savings and Investments Gross fixed Investment, contribution (%) to real GDP growth* Gross fixed Investment, % of GDP % of GDP % of GDP growth Gross national savings, % of GDP 60 5 China's 50 savings rate 4 40 3 30 2 20 1 10 0 0 -1 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 * Change in gross fixed investment, as a percentage of real GDP in the previous period Source: Economist Intelligence Unit, CountryData Database 18 | The India Competitiveness Review 2009
  • 21. However, present regulations force banks to channel terms of raising taxes and curtailing expenditures in a large quantity of savings to sectors where order to rein in deficits. This will imply cutting back productivity is low, thereby diminishing the potential subsidies and reforming the tax system. impact of investment on growth39. 4th Pillar: Health and Primary Historically, inflation has been relatively well-contained Education in India due to a strong commitment by the Reserve Bank of India (RBI) and the Ministry of Finance. A healthy workforce is vital to a country’s Between 1999 and 2006, inflation never exceeded competitiveness and productivity. Poor health leads 5%40. Later, however, strong global growth and the to significant costs to businesses, as workers who ensuing global rise in commodity and food prices are not healthy are often absent or operate at lower caused inflation in India to soar. However, peaking at levels of efficiency, thus constraining productivity. In 8.4% in 2008, inflation never got out of control. In addition to health, this Pillar takes into account the the context of the economic crisis, inflation is quantity and quality of basic education received by expected to be close to zero in 2009 before picking the population, which is increasingly important in up again in 2010. At the height of the crisis, the RBI today’s economy. Workers with little formal education loosened monetary policy to provide ample rupee can carry out only simple manual work and find it and US dollar liquidity and ensure a continued flow much more difficult to adapt to more advanced of credit, although in July 2009 the RBI announced it production processes and techniques. Lack of basic had shifted the focus back to inflation targeting41. education can therefore become a constraint on business development, with firms finding it difficult to India’s fiscal situation is alarming and not sustainable move up the value chain by producing more in the long run. The government is in a relatively sophisticated or value-intensive products. weak position to withstand a further deterioration in global economic conditions. Further, India’s cash- As Gupta (2008) points out, the government has strapped government finds it difficult to make come to realize that, to emerge as a global needed investments in education, health and economic superpower, India must invest in its social infrastructure, as discussed elsewhere in this fabric, in particular in education and healthcare. This chapter. As economic growth picks up again, the investment is all the more pressing given that India is government will need to take tough decisions in Figure 9: Selected Health and Sanitation Resource Indicators, 2006 or Latest Year Available India Lower middle income Indonesia China Malaysia 100 80 60 40 India's 20 score 28.0 89.0 6.0 46.6 36.0 0 Improved sanitation Improved water source Physicians per 10,000 Births attended by skilled Health expenditure, total facilities (% of population (% of population with population health staff (% of total) (‰ of GDP) with access) access) Source: Authors’ calculation; World Bank 2009a The India Competitiveness Review 2009 | 19
  • 22. home to one-fifth of the world’s population under 24, The correlation is obvious between the two sets of which makes it the world’s youngest nation. It is also indicators. India systematically trails China and expected to become the most populous by 2035. Malaysia on all measures, and generally compares This undoubtedly represents a huge opportunity, but unfavourably with Indonesia and the lower middle could become a liability if India cannot reverse the income average. In particular, a dismally low worrisome trends in sanitation, health and basic proportion – 28% – of India’s population has access education. to improved sanitation facilities. This is half the average of India’s income group (52%), and lower India ranks 101st for health and primary education, than the sub-Saharan Africa average (31%)42. its lowest rank across the 12 Pillars of the GCI and Further, the incidence of communicable diseases is in contrast with its overall GCI rank. As the heat map disturbingly high. There were 168 cases of in Table 4 shows, India trails all comparators except tuberculosis per 100,000 population in 2007, one of Pakistan (113th). The gap is significant even within the highest rates outside Africa, while there were the region. The median rank of developing Asian 129 malaria cases per 100,000 population in 200843. economies is 82, 19 places higher than India. Equally worrisome, 21% of Indians suffer from malnutrition, 50% more than the lower middle The health component of the Pillar includes basic health income group average (14%) and more than twice indicators, including the incidence of tuberculosis China’s rate (9%). and malaria, HIV/AIDS prevalence, the impact of these diseases on businesses, infant mortality and life It is perhaps not a surprise, therefore, that life expectancy. Taken together, they provide a sense of expectancy in India is just 64 years. This is almost public health situation prevailing in a country. India eight years shorter than in China, and five years ranks 103rd in this component; among shorter than the average for the lower middle comparators, only Pakistan (106th) does worse – income group. Among the 133 countries included in and barely. India compares unfavourably within its the GCI, only in a few Asian countries, including income group and within the region. Pakistan and Cambodia and in some sub-Saharan African nations is life expectancy shorter. India’s precarious situation is, in large part, linked to a lack of infrastructure and skilled staff. Figures 9 India also exhibits shortfalls in basic education, the and 10 report selected health indicators for India second component of the Pillar. The country is at and a number of comparators. More specifically, the 100 mark with a score of 4.0, clustering with Figure 9 presents a selection of measures of health Brazil (94th) and the Philippines (91st), with China resources while Figure 10 illustrates health outputs. (42nd) and Malaysia (24th) in a different league. India Figure 10: Selected Health Status Indicators, 2007 or Latest Year Available India Lower middle income Indonesia China Malaysia 100 India's 80 score 60 54.3 64.7 40 21.0 16.8 20 0 Prevalence of undernourishment Incidence of tuberculosis Infant mortality rate Life expectancy at birth, total (% of population) (per 10,000 population) (per 1,000 live births) (years) Source: Authors’ calculation; World Bank 2009a 20 | The India Competitiveness Review 2009
  • 23. compares unfavourably with the regional (4.1) and but this objective has not yet materialized. Instead, income group (4.0) averages, and surpasses only spending shrunk from 4.4% to the current 3.2%. Pakistan (128th). The net enrolment rate in primary The OECD (2007) reckons that part of the solution education has almost reached 90% in India. In an resides in more private education at all levels. It historical context, this is a remarkable achievement, estimates that already one-fifth of primary school given that the rate was just 79% at the beginning of pupils in rural areas are enrolled in private schools, the decade and is now on a par with the regional with better average class performance. average. This progress follows government efforts to implement free and compulsory education for The performance of India in the 4th Pillar of the GCI children between six and 14 years of age and a ban is a reminder that, despite recent achievements, on child labour44. Yet, because many countries have there is still much to be done to ensure that achieved universal education at the primary level, an development is inclusive and sustainable. In addition enrolment rate of 90% does not compare favourably. to meeting the infrastructure challenge, reaping the benefits of the demographic dividend will also While quantity is improving, the quality remains a require addressing health and education challenges. concern. The business community gives the quality of primary education a mediocre assessment. On a 5th Pillar: Higher Education and scale from 1 (poor) to 7 (excellent), India scores just Training 3.2, corresponding to a rank of 89. This is also reflected in a variety of other indicators. The pupil- Higher Education and Training is the first of the six to-teacher ratio is 40 to 1, indicating that students Pillars that comprise the Efficiency Enhancers do not receive significant personal attention. The Subindex (see Figure 3). Quality higher education ratio is twice that of China, and 25% higher than the and training is crucial for economies that want to lower middle income group average. In the Philippines move up the value chain beyond simple production and Pakistan, the ratio is around 35 to 145. Adding to processes and products. In particular, today’s the infrastructure problem, some research also globalizing economy requires economies to nurture highlights the lack of training of teachers, their low pools of well-educated workers who are able to level of commitment, and the high rate of adapt rapidly to their changing environment. This absenteeism46. Pillar measures secondary and university enrolment rates as well as the quality of education as assessed In this context, it is perhaps not surprising that only by the business community. The extent of staff two-thirds of Indians over 15 are literate47. Despite training is also taken into consideration because of impressive progress – the ratio was 20% in 1950 the importance of vocational and continuous on-the- and less than 50% in 1990 – this remains low by job training – which is neglected in many economies international, and even regional, standards. Among – for ensuring a constant upgrading of workers’ the comparators, only Pakistan has a lower rate skills to the changing needs of an evolving economy. (55%), while China, the Philippines, Indonesia and Vietnam all achieve rates of 90% or higher. But, with India ranks 66th in this Pillar, closely followed by the literacy running at 90% of pupils aged five to 14, adult Philippines (68th) and Indonesia (69th), and with the illiteracy will continue to drop in the years to come48. distance to China (61st) much narrower than in the previous Pillar. Yet, this proximity with comparators Insufficient funding partly explains India’s poor masks differences in the Pillar components: educational outcomes. With total spending on comparators tend to have higher enrolment rates education representing 3.2% of its GDP, India ranks but poorer quality education, while access to higher 94th on this indicator. Although it is a bigger share education in India remains the privilege of a few but than in China (1.9%, 123rd), Indonesia (1.1%, 127th) the quality is perceived as fairly good. This also and Vietnam (2.8%, 103rd), India is characterized by contrasts with the situation in basic education in India a larger education deficit. In 2004, the government where, as described above, enrolment is relatively high pledged to increase expenditure to 6% of GDP as but the education dispensed is of poor quality. part of its National Common Minimum Programme, India’s secondary education gross enrolment rate is The India Competitiveness Review 2009 | 21
  • 24. Figure 11: Enrolment Rate by Level of Education, Latest Year Available % of population in corresponding class age Primary enrolment* Secondary enrolment** Tertiary enrolment** 100 89 80 60 55 40 20 12 0 Russian Malaysia Philippines Lower middle China Developing Asia Indonesia India Vietnam Pakistan Federation income * net rate ** gross rate Source: UNESCO; national sources 55%, which is low by international standards. It 6th Pillar: Goods Market Efficiency compares unfavourably against top-ranked Brazil, which has almost achieved universal secondary Countries with efficient goods markets are well education, but also against the Philippines (83%), positioned to produce the right mix of products and Indonesia (73%) and Vietnam (66%), and compared services given supply-and-demand conditions, as with the lower middle income average (61%). As for well as to ensure that these goods can be most tertiary education, only one out of 10 Indians attends effectively traded in the economy. Healthy market college or university. Among the comparators, only competition, both domestic and foreign, is important Vietnam and Pakistan exhibit lower enrolment rates, in driving market efficiency, and thus business while three out of four Russians receive tertiary productivity, by ensuring that the most efficient firms education – one of the highest rates in the world – producing goods demanded by the market are as well as one out of four in China (see Figure 11). those that thrive. The best possible environment for the exchange of goods requires a minimum of By contrast, the quality of higher education is fairly impediments to business activity through good (33rd). In particular, India ranks 37th for the government intervention. For example, extent to which the educational system meets the competitiveness is hindered by distortionary or needs of a competitive economy, 22nd for the quality burdensome taxes and by restrictive and of math and science education and an impressive discriminatory rules on FDI – limiting foreign 15th for the quality of its management schools49. Only ownership – as well as on international trade. Malaysia and China boast similar results, with other comparators typically appearing below the 50 mark. Market efficiency also depends on demand conditions such as customer orientation and buyer Finally, India ranks 33rd in on-the-job training. This sophistication. For cultural reasons, customers in dimension is of particular significance in India given some countries may be more demanding than in the low attainment rate in higher education. Many others. This can create an important competitive companies have put in place internal programmes to advantage, as it forces companies to be more train or retrain employees. This represents one way innovative and customer oriented, and thus fosters for them to address – at least partly – the shortage the discipline necessary for efficiency to be achieved of graduates and the employability issue. Skill in the market. requirements evolve at a rapid pace, especially in IT and the business process outsourcing sector, and the formal educational system strains to keep up with the curriculum, hence the need for on-the-job training to bridge the skills gap50. 22 | The India Competitiveness Review 2009
  • 25. With a score of 4.4, India ranks 48th in the Goods national income (GNI). This is costly compared to Market Efficiency Pillar, in line with its overall rank. As China (8%) and the regional average (27%), Further, shown by the heat map, India, China and Malaysia the minimum capital required to establish a company are in a league of their own. The other two BRIC represents more than 200% of the GNI, compared economies, Russia and Brazil, lag 50 notches with just 27% on average for the South Asia region52. behind them. India owes its relatively strong showing to its competitive market. Intense competition and a The tax regime in India is a further hurdle on growing middle class allow for a situation in which productivity enhancements as it distorts decisions consumers are relatively sophisticated and made by entrepreneurs and foreign investors. The demanding (40th). These favourable demand World Bank estimates that the total taxes paid by a conditions encourage companies to constantly typical firm represent some 72% of its profits. Only improve on product quality and variety. China among the comparators ranks lower, with a rate approaching 80%53. A widening of the tax base Competition in India would be fiercer, and more would make cutting taxes easier for the government. employment created, if starting businesses was made easier (see Figure 12). Various indicators Competition could also be fostered through a further reveal how cumbersome, time-consuming and opening of the domestic market to international costly it is for entrepreneurs to start a business, competition. India ranks 90th, with a score of 4.0 in despite significant improvements in recent years. the foreign competition component of the Pillar. In According to the World Bank, starting a business particular, India’s trade-weighted import tariff rate still takes 30 days on average, down from 71 days in remains high at 11% (placing the country 104th) 2006. This places the country 82nd, well ahead of despite recent reductions, while trade barriers and Brazil (152 days, second longest) and China (40 restrictions still exist in a number of service areas. days). Similarly, starting a business requires 13 Lowering such barriers would benefit the economy procedures in total, placing India at 111th rank51. by ushering in further competition54. This is fewer than China (14 procedures) and Brazil (18 procedures), but more than the regional average India should also take measures to encourage (10.3). In terms of costs, starting a business in India existing firms to enter the formal sector. Prevalence amounts to a staggering 70% of per capita gross of informality is very high in India. Ferrari and Dhingra Figure 12: Starting a Business 2003 2008 India India China South Asia* 450 428 400 350 300 239 250 200 150 89 100 70 53 50 30 11 13 0 Procedures Time Cost Min. capital (number) (days) (% of GNI per capita) (% of GNI per capita) * Average for 2009 Source: World Bank, Doing Business Database The India Competitiveness Review 2009 | 23
  • 26. (2008) estimate the share of the labour force India ranks 83rd in this Pillar. Indeed labor market working in the formal sector at just 6% in 2003, efficiency historically has been a problematic aspect down from 8% in 1990. A survey conducted in 2000 of India’s competitiveness. Although the situation by the Indian Ministry of Statistics found that, out of has been improving slightly, the labour market a total workforce of 397 million, only 28 million remains characterized by high costs and restrictions workers were employed in the organized sector55. on firing workers, which reduces the incentive for The consequences are dire. Firms in the informal companies to hire permanent workers and grow sector typically grow more slowly, have lower their businesses. Figure 13 illustrates the uneven productivity and poorer access to credit, and employ performance of India on the World Bank’s Rigidity of fewer workers. In addition, as mentioned above, a Employment Index, which is included in the GCI. large informal sector significantly limits the tax base. In addition to the difficulty of dismissing employees, the associated cost is high, equivalent to 56 weeks 7th Pillar: Labour Market Efficiency of salary (placing India 85th on this indicator). Thus, although hiring workers is very easy in India (with a The efficiency and flexibility of the labour market are perfect zero on this dimension), the difficulty of firing critical for ensuring that workers are allocated to them afterwards still creates a significant their most efficient use in the economy and provided disincentive. On the positive side, as shown in the with incentives to give their best effort in their jobs. Figure 13, employers enjoy significant discretion in Therefore, labour markets must have the flexibility to setting work hours. In addition, the Executive shift workers from one economic activity to another Opinion Survey finds that businesses have flexibility rapidly and at low cost, and allow for wage fluctuations in setting wages (44th) and that, overall, the without much social disruption. Efficient labour relationship between employers and employees is markets must also ensure a clear relationship between not particularly confrontational (40th). worker incentives and their efforts, as well as the best use of available talent – which includes equity in the The rigidity of India’s labour market constitutes one business environment between women and men. of the major obstacles for a swifter transition towards a more manufacturing-based economy, by slowing the shift of the labour force from agriculture Figure 13: Hiring, Employing and Dismissing Workers, 2009 Index value 100 India China South Asia** 80 70 56 60 40 30 20 20 0 0 Rigidity of employment Difficulty of hiring Rigidity of hours Difficulty of Redundancy costs index* index index redundancy index (weeks of salary) components* * The index and its components are measured on a scale from 0 to 100, with 100 indicating more rigid regulation ** Average Source: World Bank and IFC 2009b 24 | The India Competitiveness Review 2009
  • 27. to other sectors. Poddar and Yi (2007) estimate that drain” or “brain gain” phenomenon, there is no the movement of surplus labour away from low- doubt that India’s good economic fortunes create productivity agriculture to high-productivity industry opportunities, thereby contributing to retaining and and services contributes about one percentage point attracting talented people. to annual GDP growth, as productivity in industry and services is more than four times that in agriculture. 8th Pillar: Financial Market Accelerating this transition, therefore, would be Sophistication expected to boost productivity and growth. The recent economic crisis has highlighted the Excessive rigidity also encourages the development central role of the financial system for economic of the informal economy at the expense of the activity. A sound and efficient financial sector formal sector. Two studies, by the OECD (2007) and channels national savings as well as the investments Ferrari and Dhingra (2008), show that employment from abroad to the most productive uses. It growth has been concentrated mainly in sectors not channels resources to those entrepreneurial or covered by restrictive labour laws. Another investment projects with the highest expected rates consequence is that large firms in the formal sector of return, rather than to the politically connected. A are becoming more capital-intensive despite the thorough and proper assessment of risk is, abundance of cheap labour. Since 1997, the formal therefore, a key ingredient. sector has experienced negative employment growth. Business investment is critical to productivity. Therefore, economies require sophisticated financial In addition to flexibility, efficiency is also a critical markets that can make capital available for private- feature for an optimal allocation of human capital. sector investment from such sources as loans from India ranks 88th in this component of the Pillar, a sound banking sector, well-regulated securities owing to the very low proportion of female workers exchanges, venture capital and other financial in the labour force. There are only 42 female workers products. This has been underscored once again by for every 100 male workers. At 122nd, this is one of the liquidity crunch in developing and developed the lowest ratios among the 133 covered by the countries in recent times. To fulfil all functions, the GCI. Only Pakistan, with 25 female workers per 100 banking sector must be trustworthy and transparent, male workers (131st), and 10 countries in the Middle and – as has been made clear recently – financial East and North Africa region display a lower figure. markets need appropriate regulation to protect This low level of participation is partly explained by investors and the economy at large. the significant differences in terms of educational attainment. For instance, while 77% of males are Financial market sophistication constitutes a clear literate, the figure is just 55% for women – one of strength for India, ranked a high 16th in this Pillar. largest differentials in the world. A study by the Although it is ranked behind Malaysia, the heat map World Economic Forum (2009b) on the gender gap (Table 4) highlights the wide gap between India and in economies around the world ranked India in 127th the other comparators, with the closest contender, place out of 134 countries for the cavernous gap Brazil, ranking 35 places lower, and China behind by that exists between men and women in terms of a full 65 positions. Indeed, this Pillar constitutes one economic participation and opportunity. of the two areas, together with Business Sophistication, in which India performs better than On a more positive note, the brain drain in India is China. Despite the financial crisis, India’s not as severe as in other countries at a similar level performance in the Pillar has improved from the of development. Indeed, at 41st, India is the highest previous edition in both relative and absolute terms ranked among countries in the first stage of (see Figure 14). Indeed, it is this Pillar in which India development (i.e. GDP per capita of less than US$ has improved the most since the first edition of the 2,000), trailing China by two notches. Although it GCI (see Figure 4). may be premature to talk about a “reverse brain The India Competitiveness Review 2009 | 25
  • 28. Figure 14: Financial Market Sophistication: Performance of India and Selected Comparators Score 7 2008-2009 2009-2010 6 5 4 3 Rank 2 16 6 34 16 9 20 64 51 57 61 71 64 78 71 109 81 80 82 78 93 95.5 94 1 Malaysia India United States Brazil Indonesia Pakistan Developing China Vietnam Philippines Lower middle Asia* income* * Average score and median rank Source: World Economic Forum 2009a India’s equity market has been extremely dynamic in entrepreneurs with good ideas and smaller concerns recent years. Between 2005 and 2008, the total are increasingly able to get funding for business market capitalization of companies listed on the development. Indian stock market jumped from US$ 387 billion to US$ 1,811 billion, which is equivalent to 155% of Despite the overall positive and improving picture, GDP56. This phenomenal growth has been areas for improvement remain. One of the major accompanied by improving financial market problems relates to the rules and restrictions on sophistication, as witnessed by the jump in India’s international capital flows, as indicated by India’s low score on this indicator – from 4.8 in 2005-2006 to rank of 73 in this dimension. Further, while the 5.3 in 2009-2010. government’s tight control of the financial system has provided some stability during the financial crisis, it Obtaining finance through the local equity market also distorts decisions on allocation of capital. has become easier in India than almost anywhere else in the world – India is ranked third in this Present regulations on banks and other intermediaries indicator, behind only Hong Kong and Qatar. serve to channel funding directly to the government Although obtaining a loan has been somewhat more and to its priority investments. This results in the public difficult over the past year, India still goes up in the sector, rather than the business sector, absorbing ranking of this indicator (34th, up eight places), as much of the country’s savings. Banks are forced to credit conditions in several other countries have hold 25% of their assets in government bonds. become even tighter. Another sign of the financial Government policies require banks to direct a further sector’s vigour and increased depth is the boost in 36% of their loans to agriculture, household business domestic credit from 53% in 2000 to 70% in 2007. and other “priority” sectors57. Supporting these positive trends, banks in India are generally perceived as being in sound financial Starting from a low base, India’s financial sector has health (25th). In fact, only Brazil (10th) receives a grown rapidly in the past decade. This has better appraisal for its banking sector. contributed to improved productivity and competitiveness by effectively channelling savings Venture capital is also becoming more prevalent, into investment. As India develops, it will need an providing an additional growing channel for increasingly strong financial system – not only a financing, with India placing 23rd on this indicator. thriving equity market – to sustain rapid growth. This suggests that, as well as big corporations, 26 | The India Competitiveness Review 2009
  • 29. and expand the frontiers of knowledge. The latter 9th Pillar: Technological Readiness concept is captured in the Innovation Pillar, which will be discussed below. The agility with which an economy adopts existing technologies to enhance the productivity of its India ranks a low 83rd in the Technological industries is critical for its competitiveness. In today’s Readiness Pillar, essentially as a result of low ICT globalized world, technology has become an penetration in the country. ICT adoption provides a important element for firms to compete and prosper. formidable potential to boost productivity and In particular, ICT have now evolved into “general growth and reduce poverty, especially in developing purpose technology”, given the critical spillovers to countries59. A recent study by the World Bank found the other economic sectors and their role as efficient that a 10 percentage point increase in mobile phone infrastructure for other industries and transactions. penetration leads to a 0.8% increase in GDP per capita of developing countries, while a similar Therefore, ICT access (including the presence of an increase in broadband Internet access has a growth ICT-friendly regulatory framework) and use are effect of 1.4%60. However, because it is easier and included in the Pillar as essential components of cheaper to deploy, mobile telephony is the economies’ overall level of technological readiness. technology being adopted most rapidly in Whether the technology used has or has not been developing countries, with spectacular results. developed within national borders is irrelevant for its effect on competitiveness. The central point is that As Figure 15 shows, India has experienced the firms operating in the country have access to exponential growth in this technology over the past advanced products and blueprints, and the ability to decade, with a compound annual growth rate use them58. (CAGR) of 65% between 1998 and 2008. Between March 2008 and March 2009, India saw an increase It is important to note that the level of technology of 125 million new mobile phone subscriptions. available to firms in a country needs to be There are now three subscriptions for every 10 distinguished from the country’s ability to innovate Figure 15: Telephony Penetration: Trends for India and Selected Comparators 80 India Total (fixed+mobile) penetration Mobile Fixed China Indonesia Philippines 60 Total 40 32 23 18 20 13 9 7 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: Authors’ calculations; ITU 2009 The India Competitiveness Review 2009 | 27
  • 30. people. At this pace, India will achieve universal India ranks fourth in the Market Size Pillar, behind coverage by 2011. However, as impressive as these only the United States, China and Japan. The figures may be, the rate of adoption has not allowed country’s large population of 1.1 billion is a strong India to catch up with the rest of the world. Today, asset for India, representing an enormous pool of among the 133 countries in the GCI sample, only workers and potential consumers. Yet, consumption Bangladesh, Nepal, East Timor and a handful of remains constrained by low incomes. According to African nations report lower mobile phone diffusion. the World Bank, some 40% of Indians still live in extreme poverty (see Figure 2) constraining their Internet use in India is also spreading rapidly, but not purchasing power. as quickly as in some other countries. There are an estimated seven Internet users per 100 population in However, the recent years of rapid economic growth India, compared with 11 in Pakistan and 22 in have begun to change the consumption landscape. China. Broadband access to the Internet remains Real average household disposable income doubled the privilege of a very few in India, with a mere 5 between 1985 and 2005. Assuming annual growth million subscribers, compared with 83 million of 7.3%, Beinhocker et al. (2007) estimate that subscribers in China. Further, computer use remains income will grow at an annual rate of 5.3% until scarce, with less than three personal computers per 2025. They predict that the middle class will 100 population, half the number of China and one- represent 41% of the population (583 million) by third that of the Philippines. 2025, up from 5% in 2005, and that private consumption will grow fourfold. While these technologies have not yet reached every household in India, Indian firms are aggressive An issue that time alone will not resolve is India’s adopters. The country consistently outperforms most fragmented domestic market. Although the comparator countries in this aspect of technological constitution states that trade and commerce readiness. India ranks 30th for firm-level adoption of throughout the country should be free, significant new technologies, and 19th for the extent to which barriers to interstate trade remain. A sales tax is firms harness FDI as a means to transfer technology. levied on moveable goods, and rates vary This will allow India to significantly boost its depending upon the type and nature of goods and productivity and competitiveness, especially as it the state in which a sale takes place, with both the becomes increasingly prevalent throughout the central and state governments potentially imposing country. Greater ICT diffusion is therefore a clear such taxes. In addition, a number of regulatory priority going forward. measures such as the Essential Commodities Act impede the free movement of goods61. Reducing such barriers would further enable India to reap the 10th Pillar: Market Size benefits of its vast domestic market. A large domestic market size plays an important role Finally, following a recovery from the current in enhancing national productivity, as it allows economic crisis, there is potential to increase the companies to benefit from economies of scale in export market. In 2007, India was the world’s 26th their production processes and strategies. biggest exporter with a 1% share in total world Historically, the market available to firms has been exports, compared with 9% for China. India’s trade constrained by national borders. In the era of openness (as measured by the ratio of total trade to globalization, international markets have become a GDP) is relatively modest at 45%, compared with substitute for domestic markets, especially for small 71% in China and 60% in Indonesia. This would countries. The GCI includes a comprehensive imply that room for growth in this area remains. definition of market size by taking into account the size of the domestic and foreign markets, thereby giving credit to economies that are open to foreign trade and compete successfully in international markets. 28 | The India Competitiveness Review 2009
  • 31. important for countries at an advanced stage of 11th Pillar: Business Sophistication development, when the more basic sources of productivity improvements have been exhausted to Business sophistication is conducive to higher a large extent. While this is not yet among the most efficiency in the production of goods and services. critical areas for India’s competitiveness, as discussed This leads to increased productivity, thus enhancing above, it is an area where India performs quite well. a nation’s competitiveness. Business sophistication concerns the quality of a country’s business The Pillar takes into account the quality of national networks as well as the quality of individual firms’ business networks and supporting industries, which operations and strategies. This is particularly are captured using variables on the quantity and Table 5: Global Companies: India’s Presence Fortune Magazine Global 500 All figures in US$ millions Rank* Company Sector Revenues 105 Indian Oil Oil & gas 62,993 258 Tata Steel Industrial metals & mining 32,018 264 Reliance Industries Oil & gas 31,792 289 Bharat Petroleum Oil & gas 29,989 311 Hindustan Petroleum Oil & gas 28,247 363 State Bank of India Banks 24,578 402 Oil and Natural Gas Oil & gas 22,725 * Wal-Mart Stores (United States) tops the ranking with revenues of US$ 378,799 million Financial Times Global 500 Rank* Company Sector Market value 75 Reliance Industries Oil & gas 47,250 120 Oil and Natural Gas Oil & gas 32,870 138 National Thermal Power Electricity 29,286 188 Bharti Airtel Mobile telecommunications 23,414 330 Infosys Technologies Software & computer services 14,950 345 Bharat Heavy Electricals Industrial engineering 14,515 362 ITC Tobacco 13,748 372 State Bank of India Banks 13,346 483 Tata Consultancy Services Software & computer services 10,416 495 Hindustan Unilever Personal goods 10,235 * Exxon Mobil (United States) tops the ranking with value of US$ 336,525 million Number of Rank Company Global 500 companies Market value 1 United States 181 6,154,035 2 China 27 1,367,881 3 United Kingdom 32 1,160,225 4 Japan 49 1,110,744 5 France 23 796,714 6 Germany 20 617,515 7 Canada 27 526,460 8 Switzerland 10 515,636 9 Hong Kong SAR 16 439,192 10 Spain 13 359,001 11 Australia 14 354,540 12 Brazil 9 348,060 13 Italy 7 223,493 14 Russian Federation 6 220,227 15 India 10 210,030 Source: Fortune 2009; Financial Times 2009 The India Competitiveness Review 2009 | 29
  • 32. quality of local suppliers and the extent of their 12th Pillar: Innovation interaction. When companies and suppliers from a particular sector are interconnected in geographically The final Pillar of competitiveness captures a proximate groups (“clusters”), efficiency is country's innovative potential. Although substantial heightened, greater opportunities for innovation are gains can be obtained by improving institutions, created and barriers to entry for new firms are building infrastructure, reinforcing macroeconomic reduced. Individual firms’ operations and strategies stability or improving human capital, these factors (branding, marketing, the presence of a value chain eventually seem to run into diminishing rates of and the production of unique and sophisticated return. Innovation is particularly important for products) lead to sophisticated and modern economies as they approach the frontiers of business processes. knowledge and the possibility of integrating and adapting exogenous technologies tends to India ranks an impressive 27th in this Pillar, trailing disappear. Malaysia by just three positions and outperforming all the other comparators, including China (see Table At its present stage of development, India can still 4). The country is characterized by well-developed improve its productivity by adopting existing clusters (20th) with a large number of local suppliers technologies or making improvements in other (3rd), which are of reasonable quality, given the areas. Yet, as the country continues to develop, country’s stage of development (41st). The assessment innovation will become an increasingly important of the sophistication of firms’ operations and strategies area of focus and will require a conducive is also good, ranked 35th. Although low-cost labour environment. In particular, this necessitates sufficient remains a competitive advantage, Indian firms are investment in research and development (R&D) nevertheless present across the value chain (26th) and especially by the private sector, the presence of retain some control over the international distribution of high-quality scientific research institutions, extensive their products (44th). Marketing is also becoming more collaboration in research between universities and extensive (33rd) and production processes are industry, and adequate protection of intellectual relatively sophisticated (43rd). property. India’s strong showing in the Pillar might be attributable Although India’s main competitiveness priorities lie to the brisk development of certain key industries. In elsewhere, it should continue nurturing its innovation the area of offshoring – or business processes potential, especially by further strengthening a outsourcing (BPO) – India is arguably the world leader62. supportive environment. India ranks 30th in this Other industries such as IT, telecommunications, Pillar, with a performance similar to that of China retailing, automotive, pharmaceuticals and air (26th) and Malaysia (24th) and considerably better transportation are thriving, with several companies than all other comparators. India does well on most becoming corporate giants, and some asserting indicators, with the notable exception of the extent cross-border leadership in their fields. to which the government places an emphasis on technological attributes in its procurement process. As Table 5 shows, there are now seven Indian companies, mainly oil and gas producers, on Scientific research institutions are assessed by the Fortune magazine’s Global 500 list of the world’s business community as of good quality (25th, score biggest corporations as measured by revenue. of 4.9). The strong reputation of the 15 Indian Similarly, 10 companies are listed on the Financial Institutes of Technologies (IITs) certainly contributes Times list, which uses market value to establish its to this positive assessment. They are considered the ranking. These leaders have undoubtedly best technical schools in India63, with increasing contributed to improving the degree of business international recognition64. sophistication in India, and will continue providing examples to other companies of sophisticated business models as India moves up the development path. 30 | The India Competitiveness Review 2009
  • 33. The 20 National Institutes of Technology (NITs) are (3.6). India’s total spending on R&D in 2004 was also fairly successful, although only a few are equivalent to 0.7% of GDP in 200768. This is low by considered on a par with IITs65. The 12 Indian international standards: China spent twice as much Institutes of Information Technology (IIITs), all (1.4%), the United States 2.6%, and champion Japan established in or after 1997, are also building a 3.3%. The share of India in global R&D spending strong reputation in their field66. Separate from these amounts to 2%, compared with 9.5% for China, networks, the Indian Institute of Science (IISc) which is catching up with Japan (13.5%), and 34.3% located in Bangalore is also recognized as a for the United States69. Equally troublesome for India is prominent research institution. It ranks first among the origin of the funding. UNESCO estimates that Indian universities in Shanghai Jiao Tong University’s the bulk of it, 75%, comes from the public sector, 2008 Academic Ranking of World Universities. while the private sector accounts for 19%70. In China, Malaysia and most of the developed The availability of scientists and engineers is also a countries, the share of private sector in R&D clear strength for the country, with India ranking an spending is typically around 70%. impressive 4th on this indicator, supporting the success of India’s IT and BPO sectors. But, if India Another important driver of innovation is the extent of is to maintain its leadership in this sector and collaboration between academia and the business eventually become an innovation hub, it will need to sector in R&D. While not yet very strong, this collaboration improve both the quantity and quality of higher has improved in India in recent years. India now ranks education or risk facing shortfalls in high-quality 46th with a score of 3.8, up from 3.4 in 2005. graduates. NASSCOM, the Indian National Association of Software and Services Companies, A strong intellectual property (IP) protection system has estimated that, of the 350,000 engineering goes hand in hand with the development of a graduates who emerge each year, 25% are country’s innovation capacity. IP is of particular unemployable without extensive further training, and importance in India, given the country’s status as a half are unemployable67. prime offshoring destination. Firms that outsource business processes may be required to provide The business community signals that, generally access to classified data and information to a BPO speaking, companies could increase spending on company. But IP also matters as much in other R&D. Although India does well in relative terms areas, such as in the growing pharmaceutical (ranked 36th), its score is mediocre on this indicator industry. Looking at India’s performance in this Figure 16: Share (%) of Countries in Total PCT Filings 40.8 2000 2007 Total: 93,243 163,178 31.6 23.2 22.3 +75% 17.6 13.5 11.5 10.3 5.1 4.8 4.4 4.3 3.7 3.4 1.7 0.8 0.7 0.2 United States Japan Germany Korea, Rep. France China United Kingdom India Others 2008 1 2 3 4 5 6 7 19 rank Source: WIPO Statistics Database (September 2009) The India Competitiveness Review 2009 | 31
  • 34. indicator – 61st with a score of 3.6 – the business Despite 20 years of rapid economic growth, much of community assesses that IP protection is not its population remains mired in poverty and poor sufficiently stringent and enforced. health. Basic education is not yet universal and is of mediocre quality, while access to higher education One way to measure a country’s innovation power is remains accessible to only a privileged few. As a by the number of patents granted to its residents. In result, illiteracy is pervasive, particularly among 2008, the US Patent and Trademark Office (USPTO) adults. The good news is that most of the indicators granted a total of 634 utility patents to residents of are moving in the right direction and the government India. This corresponds to 0.5 patents per million has articulated its intention to urgently address these population (58th), on a par with Brazil (59th), but weaknesses. Asked about the priorities for India, about half China’s rate of 0.9 (50th). Malaysia has a Prime Minister Manmohan Singh responded that rate of 5.6, the highest among the comparators, but “the first and foremost priority is […] to get rid of remains far below the rates displayed by innovation chronic poverty, ignorance and disease, which have hubs like Taiwan (279.3), Japan (263.3) and the afflicted millions and millions of our people.”72 United States (250.9), respectively first, second and third. Achieving these development priorities will be facilitated through improvements in other aspects of Figure 16 provides another measure of innovation by India’s business environment. In particular, India reporting selected countries’ share in the total of desperately needs to upgrade its transport and patent filings under the World Intellectual Property electricity infrastructure, the strains on which are Organization (WIPO's) Patent Cooperation Treaty made all the more acute by the economy’s rapid (PCT), for 2000 and 2007, during which time India’s growth. In addition, both the central and state share rose from 0.2% to 0.7%71. During the same governments must urgently address the runaway period, China’s share jumped from 0.8% to 3.7%, fiscal situation; repeated deficits leave the now placing the country on a par with the United government with limited latitude to increase critical Kingdom. Both the USPTO and WIPO statistics social spending. confirm that India has made impressive strides but has not yet established itself as an international Finally, further reforms are needed in the functioning innovation powerhouse. of government institutions, as pervasive red tape and corruption increase transaction costs and discourage business creation and development. In Conclusion addition, obstacles to business creation, combined with rigidities and inefficiencies in the labour market, India’s economic performance over the past two encourage the development of the informal sector at decades has been truly remarkable. Pro-growth, the expense of the formal sector, with all of the outward-looking reforms have reinforced India’s negative consequences this entails. growth potential. In recent years, India has been one of the world’s fastest growing economies. Yet, the On a more positive note, India has many strengths question remains whether India will be able to on which to build a prosperous future. In particular, sustain and, indeed, accelerate its current pace of the sheer size of its domestic market and the growth in the years to come. The GCI provides a growing middle class should boost investment and framework for thinking about this question by consumption. In addition, India’s strong showing in benchmarking India’s competitive landscape against the Financial Market Sophistication Pillar bodes well that of other economies. In this context, the GCI as efficient financial intermediation will play a key role paints a rather mixed picture of India’s in business development. competitiveness. Further, the relatively high degree of business India’s competitiveness is constrained by a number sophistication and a knack for innovation ensure that of structural problems. First and foremost, India India is also investing in those aspects of must strengthen the foundations of competitiveness, competitiveness that will become increasingly on which its long-term growth crucially depends. 32 | The India Competitiveness Review 2009
  • 35. important as the country moves up the value chain. Although there is room for improvement in each of these categories, India generally compares favourably with the comparator countries and, in a few areas, is on par with much more advanced economies. With so many areas for productivity enhancements, India’s potential for efficiency gains is enormous. Coupled with the country’s vibrant democracy and favourable demographic trends, there is much reason for optimism about India’s economic future, as long as the weaknesses underlined in this chapter are efficiently tackled. The India Competitiveness Review 2009 | 33
  • 36. Notes 1 IMF 2009a. 15 In this Pillar-by-Pillar analysis, the discussion of the 2 Calculated compound annual growth rate (CAGR) results is preceded by a short description of the based on IMF 2009a. Pillar and its relevance for national 3 When adjusting for purchasing power differences, competitiveness. For fuller descriptions and a India ranks fourth worldwide, behind the United literature review, see Sala-i-Martin et al. 2009. States, China and Japan. 16 Since 2003, in the context of the Executive 4 Current prices for 2008. Figures from IMF 2009a. Opinion Survey (EOS), the World Economic Forum 5 The poverty line of US$ 1.25 a day (at purchasing has asked the business community what they power parity) is the World Bank’s definition of consider to be the most problematic factors for extreme poverty. 2005 is the most recent year doing business in their country. Respondents are available. All figures from World Bank 2009a. asked to pick from a list of 15 factors the five that 6 UNDP 2009. are most problematic, and to rank them from 1 7 UNCTAD 2008. (most problematic) to 5. The results are then 8 As the definition makes clear, the concept of tabulated and weighted according to the ranking competitiveness underlying the Index includes assigned by respondents. For each factor, the final both static and dynamic components, since score corresponds to its weighted total divided by productivity not only determines countries’ the sum of weighted totals of all factors. capacity to sustain a high level of income, but 17 Note, however, that India's score of 3.2 out of 10 also, through its impact on rates of return to represents a significant improvement from 2004, investment, national growth potential. when India ranked 90th among 145 countries with 9 For more information about the GCI methodology, a score of 2.8. a more detailed description of each Pillar, 18 See Zainulbhai 2007. expanded rankings, country profiles, data tables 19 World Bank 2006. and technical notes for all the indicators, please 20 The Economist 2008. refer to World Economic Forum 2009a. 21 See Zainulbhai 2007. 10 For further details, see Sala-i-Martin et al. 2009. 22 OECD 2007. 11 The weights have been derived from a maximum 23 Figures from the National Highways Authority of likelihood regression. India (NHAI)’s website (accessed on 22 September 12 For more information on the Survey, please refer 2009). to Browne and Geiger 2009. 24 World Bank 2009a. 13 This “constant sample” approach eliminates the 25 The Economist 2008. variations in rankings caused by new countries 26 See Government of India 2009 for more that are included in subsequent editions. information. 14 The Developing Asia region comprises 26 27 Note that the combined share of Jet Airways and developing Asian countries, 14 of which are its subsidiary Jet Lite is 26.4%. Figures are for included in the GCI ranking: Bangladesh, Brunei August 2009 and from India’s Directorate-General Darussalam, Cambodia, China, India, Indonesia, of Civil Aviation. Malaysia, Nepal, Pakistan, Philippines, Sri Lanka, 28 This measure, compiled by the International Air Thailand, East Timor and Vietnam. The lower Transport Association, corresponds to an airline’s middle income group as defined by the World passenger-carrying capacity. It is the product of Bank comprises 55, 31 of which are covered by the number of seats available on all flights the GCI: Albania, Armenia, Azerbaijan, Bolivia, originating from a country during one week and Cameroon, China, Côte d'Ivoire, Ecuador, Egypt, their flight distance in kilometres. El Salvador, Georgia, Guatemala, Guyana, 29 See “India’s Transport Sector” available at Honduras, India, Indonesia, Jordan, Lesotho, Mongolia, Morocco, Nicaragua, Nigeria, Pakistan, 30 See “India’s Transport Sector” available at Paraguay, Philippines, Sri Lanka, Syria, Thailand, East Timor, Tunisia and Ukraine. For the purpose 31 MHUPA and UNDP, 2009. of the analysis, India is excluded when computing 32 See Poddar and Yi, 2007. the average score and the median ranks of groups 33 Estimates vary. See The Economist 2008 and to which it belongs. Zainulbhai 2007. 34 | The India Competitiveness Review 2009
  • 37. 34 See, for example, OECD 2007 and, for a 54 For a brief overview of competition conditions in government opinion, Zainulbhai 2007. India, see OECD 2007. 35 For an in-depth analysis of India’s experience with 55 See World Bank and IFC 2009a. fiscal rules, see IMF 2009b. 56 World Bank 2009a. 36 All cited figures are from RBI 2009. 57 For a comprehensive analysis of India’s financial 37 The Economist 2009a. sector and of its shortcomings, see McKinsey 38 The dependency ratio is equal to the population 2006. aged below 15 and above 64 (the dependent part) 58 For an in-depth analysis of the drivers of ICT divided by the population aged 15 to 64. For more promotion, diffusion and use, see Mia et al. 2009. information on the link between demographics 59 For an overview of the benefits of ICT in general and savings and the impact on Asia’s growth, see on growth, see The Economist 2009b. For a more Sanyal and Folkerts-Landau 2005. specific discussion on mobile telephony, see 39 See McKinsey 2006. Geiger and Mia 2009. 40 All inflation figures from IMF 2009a. 60 See World Bank 2009b. 41 EIU 2009. 61 See Rao 2003. 42 On a much more positive note, access to 62 See A.T. Kearney 2009. improved water is nearly universal at 89%. 63 Dataquest’s 2008 Ranking of India’s Top Technical 43 Figures are from the Directorate of National Vector Schools places IIT Kharagpur in first position, with Borne Disease Control Programme (NVBDCP), the next five places also occupied by IITs. situation as of April 2009. 64 In the Times Higher Education’s 2008 Top 100 of 44 See OECD 2007. Engineering and Innovation Technology 45 World Bank 2009a. Figures are for 2003, the latest Universities, IIT Bombay and IIT Delhi rank 36th year available for all the comparator countries. and 42nd respectively. 46 See Gandhi Kingdon 2007. 65 NIT Calicut and NIT Warangal both appear in the 47 See ADB 2008. top 15 of Dataquest’s ranking. 48 OECD 2007. 66 The IIIT at Hyderabad ranks 7th – and first 49 Interestingly enough Hyderabad-based Indian institution not to be an IIT – in the Dataquest’s School of Business is also ranked in the Financial ranking. Times’ Global MBA Rankings 2009. 67 NASSCOM’s Strategic Review 2008. 50 Nowadays, foreign companies not only outsource 68 R&D Magazine 2008. customer relationship management or sales 69 In 2008, in his address to the Indian Science departments, but also more complex processes Congress, Prime Minister Manmohan Singh such as IT maintenance, software development announced that total spending on R&D would be and accountability. brought to 2% of GDP by the end of the 11th 51 All the Doing Business figures used in the GCI Five-Year Plan, which is in 2012. 2009-2010 are from the 2009 edition of Doing 70 Figures for 2004 from UNESCO’s Institute for Business (see World Bank and IFC 2008). They Statistics (accessed on October 4th). may, therefore, differ from the 2010 edition 71 The PCT offers inventors and industry a means for recently released (see World Bank and IFC obtaining patent protection internationally. By filing 2009b). one “international” patent application under the 52 Cost estimates for India and China are from World PCT, protection of an invention can be sought Bank and IFC 2008. Estimates for South Asia are simultaneously in each of a large number of from World Bank and IFC 2009b. The South Asia countries. region covers Afghanistan, Bangladesh, Bhutan, 72 Gupta 2005. India, Maldives Nepal, Pakistan and Sri Lanka. India is not excluded from the computation of the average, unlike the GCI averages reported elsewhere in the text. 53 The latest Doing Business study reveals the situation has slightly improved. See World Bank and IFC 2009b. The India Competitiveness Review 2009 | 35
  • 38. References ADB (Asian Development Bank). 2008. Key Geiger, T. and I. Mia. 2009. “Mobile Telephony: A Indicators for Asia and the Pacific 2008. August. Critical Enabler of Networked Readiness?” The Manila, Philippines: Asian Development Bank. Global Information Technology Report 2008-2009. Geneva: World Economic Forum. 27-35. A. T. Kearney. 2009. The Shifting Geography of Offshoring. The Global Services Location Index Government of India. 2009. Outcome Budget 2009- 2009. Chicago, IL: A. T. Kearney. 2010. Ministry of Shipping. Available at: Beinhocker, E. D., D. Farrell, and A. S. Zainulbhai. 2007. “Tracking the Growth of India’s Middle Class”. Gupta, R. 2005. “India’s Economic Agenda: An McKinsey Quarterly Online Edition. August. Interview with Manmohan Singh”. McKinsey Quarterly Online Edition. September. Browne, C., T. Geiger. 2009. “The Executive Opinion Survey: Capturing the Views of the Business Gupta, R. 2008. “A Healthier Future for India”. Community”. The Global Competitiveness Report McKinsey Quarterly Online Edition. January. 2009-2010. Geneva: World Economic Forum. 49- 57. IANS (Indo-Asian News Service). 2009. “Shipping Ministry to Boost Port Infrastructure”. 15 September. EIU (Economist Intelligence Unit) . 2009. “India”. Country Report. September. London: EIU. IMF (International Monetary Fund). 2009a. World Economic Outlook Database. October. The Economic Times. 2006. “Brain Drain on Reverse Gear to India”. 8 March. IMF (International Monetary Fund). 2009b. “India: Selected issues”. IMF country Report No. 09/186. The Economist. 2008. “A Special Report on India”. June. Washington DC: IMF. 11 December. London: The Economist Newspaper Limited. ITU (International Telecommunication Union). 2009. ITU World Telecommunication/ICT Indicators 2009 The Economist 2009a. “Hopes Suspended: India’s (June Update). CD-ROM. June. Budget”. 9 July. London: The Economist Newspaper Limited. McKinsey (McKinsey & Company). 2006. Accelerating India’s Growth through Financial The Economist. 2009b. “A Special Report on System Reform. McKinsey Global Institute. May. Telecoms in Emerging Markets”. 26 September. London: The Economist Newspaper Limited. MHUPA (Ministry of Housing and Urban Poverty Alleviation) and UNDP (United Nations Development Ernst & Young. 2008. Transforming Indian Ports into Programme). 2009. India: Urban Poverty Report World Class Facilities. April. 2009. Ferrari, A. and I. S. Dhingra. 2008. India’s Mia, I., S. Dutta, and T. Geiger. 2009. “Gauging the Investment Climate. Washington, D.C.: The World Networked Readiness of Nations: Findings from the Bank. Networked Readiness Index 2008-2009.” The Global Information Technology Report 2008-2009. FT (Financial Times). 2009. The FT 500 Companies Geneva: World Economic Forum. Report. 29th May. OECD (Organisation for Economic Co-operation and Fortune Magazine. 2009. 20 July. Development). 2007. 2007 OECD Economic Survey of India. October. Paris: OECD. Gandhi Kingdon, G. 2007. The Progress of School Education in India. Global Poverty Research Group Pandit, R. V. 2005. “Why Believe in India”. McKinsey Paper. March. Quarterly Online Edition. September. 36 | The India Competitiveness Review 2009
  • 39. Poddar, T. and E. Yi. 2007. “India’s Rising Growth The World Bank and IFC (International Finance Potential”. Global Economics Paper no.152. Corporation). 2008. Doing Business 2009. Goldman Sachs. January. Washington DC: The World Bank. Rao, G. 2003. “Fiscal Decentralization in China and The World Bank and IFC (International Finance India: A Comparative Perspective”. Asia-Pacific Corporation). 2009a. Doing Business in India 2009. Development Journal. Vol. 10, No. 1, June. Washington DC: The World Bank. R&D Magazine. 2008. 2009 Global R&D Funding The World Bank and IFC (International Finance Forecast. December. Corporation). 2009b. Doing Business 2010. Washington DC: The World Bank. Reserve Bank of India (RBI). 2009. Macroeconomic and Monetary Developments First Quarter Review World Economic Forum. 2009a. The Global 2009-10. July. Competitiveness Report 2009-2010. Geneva: World Economic Forum. Sala-i-Martin, X., J. Blanke, M. Drzeniek Hanouz, T. Geiger, I. Mia. 2009. “The Global Competitiveness World Economic Forum. 2009b. The Global Gender Index 2009-2010: Contributing to Long-Term Gap Report 2009. Geneva: World Economic Forum. Prosperity amid the Global Economic Crisis World Economic Forum”. The Global Competitiveness Zainulbhai, A. S. 2007. “Clearing the Way for Robust Report 2009-2010. Geneva: World Economic Growth: An Interview with India’s Chief Economic Forum. 3-47. Planner”. McKinsey Quarterly Online Journal. October. Sanyal, S. and D. Folkerts-Landau. “Demographics, Savings and Hyper-Growth”. Deutsche Bank Global Market Research. 5 July. UNCTAD (United Nations Conference on Trade and Development). 2008. World Investment Report 2008: Transnational Corporations and the Infrastructure Challenge. Geneva: United Nations. UNDP (United Nations Development Programme). 2009. Human Development Report 2009. New York: Palgrave Macmillan. UNFPA (United Nations Population Fund). 2008. State of World Population 2008. New York: United Nations. The World Bank. 2006. The Investment Climate in Brazil, India and South Africa: A Contribution to the IBSA Debate. September. The World Bank. 2009a. World Development Indicators 2009. Washington DC: The World Bank. The World Bank 2009b. Information and Communications for Development 2009: Extending Reach and Increasing Impact. The India Competitiveness Review 2009 | 37
  • 40. Appendix A: Structure of the Global Competitiveness Index 2009-2010 This appendix presents the structure of the Global Weight (%) within immediate parent category v Competitiveness Index 2009-2010 (GCI). Basic Requirements The number preceding the period indicates to which Pillar the variable belongs (e.g. variable 1.01 belongs 1st Pillar: Institutions 25% to the 1st Pillar; variable 12.04 belongs to the 12th A. Public Institutions 75% Pillar). 1. Property Rights 20% The hard data indicators used in the GCI are 1.01 Property Rights normalized on a 1 to 7 scale to align them with the 1.02 Intellectual Property Protection1/2 Executive Opinion Survey’s results.a 2. Ethics and Corruption 20% Those variables that are followed by the symbol 1/2 1.03 Diversion of Public Funds enter the GCI in two different places. To avoid 1.04 Public Trust of Politicians double counting, we give them a half-weight in each 3. Undue influence 20% place by dividing their value by 2 when computing the aggregate score for the two categories in which 1.05 Judicial Independence they appear.b 1.06 Favouritism in Decisions of Government Officials The percentage next to each category represents this category’s weight within its immediate parent 4. Government Inefficiency 20% category. The computation of the GCI is based on 1.07 Wastefulness of Government Spending successive aggregations of scores, from the variable 1.08 Burden of Government Regulation level (i.e. the lowest level) up to the overall GCI score 1.09 Efficiency of Legal Framework in Settling (i.e. the highest level) using the weights reported Disputes below. For example, the score a country achieves in the 9th Pillar accounts for 17% of this country’s 1.10 Efficiency of Legal Framework in score in the Efficiency Enhancers Subindex. Similarly, Challenging Regulation the score achieved on the Networks and Supporting 1.11 Transparency of Government Policy- Industries Subpillar accounts for 50% of the score of making the 11th Pillar. Reported percentages are rounded to 5. Security 20% the nearest integer, but exact figures are used in the 1.12 Business Costs of Terrorism calculation of the GCI. 1.13 Business Costs of Crime and Violence Unlike for the lower levels of aggregation, the weight 1.14 Organized Crime put on each of the three Subindexes (Basic 1.15 Reliability of Police Services Requirements, Efficiency Enhancers, and Business Sophistication and Innovation Factors) is not fixed. It B. Private Institutions 25% depends on each country's stage of development, 1. Corporate Ethics 50% as discussed in the text.c In the case of India, 1.16 Ethical Behaviour of Firms currently in the first stage of development, the score 2. Accountability 50% in the Basic Requirements Subindex accounts for 60% of its overall GCI score, while it represents just 1.17 Strength of Auditing and Reporting 20% of the overall GCI score of Australia, a country Standards in the third stage of development. 1.18 Efficacy of Corporate Boards 1.19 Protection of Minority Shareholders’ Interests 38 | The India Competitiveness Review 2009
  • 41. 2nd Pillar: Infrastructure 25% B. Quality of Education 33% A. General infrastructure 50% 5.03 Quality of the Educational System 2.01 Quality of overall infrastructure 5.04 Quality of Math and Science Education B. Specific Infrastructure 50% 5.05 Quality of Management Schools 2.02 Quality of Roads 5.06 Internet Access in Schools 2.03 Quality of Railroad Infrastructure C. On-the-job Training 33% 2.04 Quality of Port Infrastructure 5.07 Local Availability of Specialized Research 2.05 Quality of Air Transport Infrastructure and Training Services 2.06 Available Seat Kilometres (Hard Data) 5.08 Extent of Staff Training 2.07 Quality of Electricity Supply 2.08 Telephone Lines (Hard Data) 6th Pillar: Goods market efficiency 17% A. Competition 67% 3rd Pillar: Macroeconomic Stability 25% 1. Domestic Competition variablef 3.01 Government Budget Balance (Hard Data) 6.01 Intensity of Local Competition 3.02 National Savings Rate (Hard Data) 6.02 Extent of Market Dominance 3.03 Inflation (Hard Data)d 6.03 Effectiveness of Anti-Monopoly Policy 3.04 Interest Rate Spread (Hard Data) 6.04 Extent and Effect of Taxation1/2 3.05 Government Debt (Hard Data) 6.05 Total Tax Rate (Hard Data)1/2 6.06 Number of Procedures Required to Start a Business (Hard Data)g 4th Pillar: Health and Primary Education 25% 6.07 Time Required to Start a Business (Hard A. Health 50% Data)g 4.01 Business Impact of Malariae 6.08 Agricultural Policy Costs 4.02 Malaria Incidence (hard data)e 2. Foreign Competition variablef 4.03 Business Impact of Tuberculosise 6.09 Prevalence of Trade Barriers 4.04 Tuberculosis Incidence (Hard Data)e 6.10 Trade-Weighted Tariff Rate (Hard Data) 4.05 Business Impact of HIV/AIDSe 6.11 Prevalence of Foreign Ownership 4.06 HIV Prevalence (Hard Data) 6.12 Business Impact of Rules on FDI 4.07 Infant Mortality (Hard Data) 6.13 Burden of Customs Procedures 4.08 Life expectancy (Hard Data) 10.04Imports as a Percentage of GDP (Hard B. Primary Education 50% Data) 4.09 Quality of Primary Education B. Quality of Demand Conditions 33% 4.10 Primary Enrolment (Hard Data) 6.14 Degree of Customer Orientation 4.11 Education Expenditure (Hard Data)1/2 6.15 Buyer Sophistication Efficiency Enhancers 7th Pillar: Labour Market Efficiency 17% 5th Pillar: Higher Education and Training 17% A. Flexibility 50% A. Quantity of Education 33% 7.01 Cooperation in Labour-Employer Relations 5.01 Secondary Enrolment (Hard Data) 7.02 Flexibility of Wage Determination 5.02 Tertiary Enrolment (Hard Data) 7.03 Rigidity of Employment (Hard Data) 4.11 Education Expenditure (Hard Data)1/2 7.04 Hiring and Firing Practices 6.04 Extent and Effect of Taxation1/2 The India Competitiveness Review 2009 | 39
  • 42. 6.05 Total Tax Rate (Hard Data)1/2 Innovation and Sophistication Factors 7.05 Firing Costs (Hard Data) 11th Pillar: Business Sophistication 50% B. Efficient Use of Talent 50% A. Networks and Supporting Industries 50% 7.06 Pay and Productivity 11.01 Local Supplier Quantity 7.07 Reliance on Professional Management 1/2 11.02 Local Supplier Quality 7.08 Brain Drain 11.03 State of Cluster Development 7.09 Female Participation in Labour Force (Hard B. Sophistication of Firms' Operations and Data) Strategy 50% 11.04 Nature of Competitive Advantage 8th Pillar: Financial Market Sophistication17% 11.05 Value Chain Breadth A. Efficiency 50% 11.06 Control of International Distribution 8.01 Financial Market Sophistication 11.07 Production Process Sophistication 8.02 Financing through Local Equity Market 11.08 Extent of Marketing 8.03 Ease of Access to Loans 11.09 Willingness to Delegate Authority 8.04 Venture Capital Availability 7.08 Reliance on Professional Management1/2 8.05 Restriction on Capital Flows 8.06 Strength of Investor Protection (Hard Data) 12th Pillar: Innovation 50% B. Trustworthiness and Confidence 50% 12.01 Capacity for Innovation 8.07 Soundness of Banks 12.02 Quality of Scientific Research Institutions 8.08 Regulation of Securities Exchanges 12.03 Company Spending on R&D 8.09 Legal Rights Index (Hard Data) 12.04 University-Industry Research Collaboration 9th Pillar: Technological Readiness 17% 12.05 Government Procurement of Advanced 9.01 Availability of Latest Technologies Technology Products 9.02 Firm-level Technology Absorption 12.06 Availability of Scientists and Engineers 9.03 Laws Relating to ICT 12.07 Utility Patents (Hard Data) 9.04 FDI and Technology Transfer 1.02 Intellectual Property Protection1/2 9.05 Mobile Telephone Subscriptions (Hard Data) 9.06 Internet Users (Hard Data) Notes 9.07 Personal Computers (Hard Data) a The standard formula for converting hard data is the following: 9.08 Broadband Internet Subscribers (Hard Data) (country score - sample minimum) 6x +1 (sample maximum - sample minimum) 10th Pillar: Market Size 17% A. Domestic Market Size 75% The sample minimum and sample maximum are, 10.01Domestic Market Size Index (Hard Data)h respectively, the lowest and highest country B. Foreign Market Size 25% scores in the sample of countries covered by the 10.02 Foreign Market Size Index (Hard Data)i GCI. In some instances, adjustments were made to account for extreme outliers. For those hard data variables for which a higher value indicates a worse outcome (e.g. disease incidence, government debt), we rely on a normalization formula that, in addition to converting the series to a 1 to 7 scale, reverses it, so that 1 and 7 still 40 | The India Competitiveness Review 2009
  • 43. corresponds to the worst and best possible indication of the extent to which competition is outcomes, respectively: distorted. The relative importance of these (country score - sample minimum) distortions depends on the relative size of -6x +7 (sample maximum - sample minimum) domestic versus foreign competition. This interaction between the domestic market and the foreign market is captured by the way we b For those groups of variables that contain one or determine the weights of the two components. several half-weight variables, country scores for Domestic competition is the sum of consumption those groups are computed as follows: (C), investment (I), government spending (G), and (sum of scores on full - weight variables) + 1 x (sum of scores on half - weight variables) exports (X), while foreign competition is equal to 2 imports (M). Thus we assign a weight of (count of full - weight variables) + 1 x (count of half - weight variables) 2 (C+I+G+X)/(C+I+G+X+M) to Domestic competition and a weight of M/(C+I+G+X+M) to Foreign competition. c As described in the chapter, the weights are the following: g Variables 6.06 and 6.07 combine to form one Factor-driven Efficiency- Innovation- single variable. Weights stage (%) driven stage (%) driven stage (%) h The size of the domestic market is constructed Basic requirements 60 40 20 by taking the natural log of the sum of the gross Efficiency enhancers 35 50 50 domestic product valued at PPP plus the total Innovation factors 5 10 30 value (PPP estimates) of imports of goods and services, minus the total value (PPP estimates) of exports of goods and services. Data are then d In order to capture the idea that both high normalized on a 1 to 7 scale. PPP estimates of inflation and deflation are detrimental, inflation imports and exports are obtained by taking the enters the model in a U-shaped manner as product of exports as a percentage of GDP and follows: for values of inflation between 0.5% and GDP valued at PPP. The underlying data are 2.9%, a country receives the highest possible reported in the Data Tables section (see tables score of 7. Outside this range, scores decrease 10.03, 10.04 and 10.05). linearly as they move away from these values. i The size of the foreign market is estimated as the e The impact of malaria, tuberculosis and HIV/AIDS natural log of the total value (PPP estimates) of on competitiveness depends not only on their exports of goods and services, normalized on a 1 respective incidence rates, but also on how costly to 7 scale. PPP estimates of exports are obtained they are for business. Therefore, in order to by taking the product of exports as a percentage estimate the impact of each of the three of GDP and GDP valued at PPP. The underlying diseases, we combine its incidence rate with the data are reported in the Data Tables. Survey question on its perceived cost to businesses. To combine these data we first take the ratio of each country's disease incidence rate relative to the highest incidence rate in the whole sample. The inverse of this ratio is then multiplied by each country's score on the related Survey question. This product is then normalized to a 1 to 7 scale. Note that countries with zero reported incidence receive a 7, regardless their scores on the related Survey question. f The Competition Subpillar is the weighted average of two components: Domestic competition and Foreign competition. In both components, the included variables provide an The India Competitiveness Review 2009 | 41
  • 44. Appendix B: India’s performance on the Global Competitiveness Index 2009–2010 The next two pages provide the details of India’s East Timor, Ecuador, Egypt, El Salvador, Georgia, performance on the Global Competitiveness Index Guatemala, Guyana, Honduras, India, Indonesia, (GCI) 2009-2010. Jordan, Lesotho, Mongolia, Morocco, Nicaragua, Nigeria, Pakistan, Paraguay, Philippines, Sri Lanka, INDICATOR This column contains the title of each Syria, Thailand, Tunisia and Ukraine. For the purpose component and each indicator. Hard data indicators of the analysis, India is excluded when computing are identified by an asterisk. the average scores of these two groups. RANK This column reports India’s position among BEST PERFORMER The two columns under this the 133 economies covered by the GCI. Next to the heading report the score and the name of the best rank, a coloured square indicates whether an performing country. When several countries share indicator constitutes an advantage () or a the first rank, the number of countries is reported in disadvantage () for the country. For India, as for all the second column. economies ranked between rank 11 and 50 in the overall GCI, any individual variables on which India ranks higher than its overall GCI rank (i.e. 49) are considered advantages. Any variables ranked lower are considered disadvantages. SCORE This column reports India’s score. For Executive Opinion Survey data, scores range from 1 (lowest) to 7 (highest). For hard data indicators, identified by an asterisk, the units of measure are indicated in parentheses. EVOLUTION This column shows India’s evolution in the score of each component and indicator. The first symbol indicates whether India’s score in the GCI 2009-2010 has improved (), worsened () or remained unchanged (=) compared with the 2008- 2009 edition. The second symbol indicates whether India’s score in the 2008-2009 edition has improved (), worsened () or remained unchanged (=) compared to the 2007-2008 edition. CHINA DEV ASIA LOW MID INC For the sake of comparison, we report scores of China, as well as average scores of the developing Asia region (DEV ASIA), and lower middle income group (LOW MID INC). The developing Asia region comprises 26 developing Asian nations, 14 of which are included in the GCI: Bangladesh, Brunei Darussalam, Cambodia, China, India, Indonesia, Malaysia, Nepal, Pakistan, Philippines, Sri Lanka, Thailand, East Timor and Vietnam. The lower middle income group as defined by the World Bank comprises 55, 31 of which are covered by the GCI: Albania, Armenia, Azerbaijan, Bolivia, Cameroon, China, Côte d'Ivoire, 42 | The India Competitiveness Review 2009
  • 45. India A Competitive advantage improve/worsen between 2009-2010 and 2008-2009 D Competitive disadvantage improve/worsen between 2008-2009 and 2007-2008 The Global Competitiveness Index in detail INDICATOR RANK SCORE EVOLUTION CHINA DEV ASIA LOW MID INC BEST PERFORMER Global Competitiveness Index 49 4.3 4.7 4.0 3.8 5.6 Switzerland Basic requirements 79 4.2 5.1 4.2 4.1 6.0 Finland Efficiency enhancers 35 4.5 4.6 3.9 3.7 5.7 United States In n o v a t io n a n d s o ph is t ic a t i on f a c t o r s 28 4.2 4.2 3.5 3.3 5.7 United States 1st pillar: Institutions 1.01 Property rights 54 D 4.8 5.2 4.1 3.9 6.5 Switzerland 1.02 Intellectual property protection 61 D 3.6 4.0 3.2 3.0 6.2 Singapore 1.03 Diversion of public funds 58 D 3.6 3.7 3.3 3.1 6.6 New Zealand 1.04 Public trust of politicians 79 D 2.4 4.0 2.9 2.5 6.4 Singapore 1.05 Judicial independence 37 A 5.0 3.9 3.7 3.2 6.7 New Zealand 1.06 Favouritism in decisions of government officials 54 D 3.2 3.8 3.1 2.8 5.8 Sweden 1.07 Wastefulness of government spending 55 D 3.4 3.9 3.5 3.1 6.1 Singapore 1.08 Burden of government regulation 95 D 2.9 3.9 3.3 3.4 5.6 Singapore 1.09 Efficiency of legal framework in settling disputes 37 A 4.4 n/a n/a 4.1 3.6 3.3 6.3 Singapore 1.10 Efficiency of legal framework in challenging regulations 21 A 4.7 n/a n/a 3.9 3.5 3.2 5.8 Sweden 1.11 Transparency of government policy-making 43 A 4.6 4.8 4.0 4.0 6.3 Singapore 1.12 Business costs of terrorism 117 D 4.7 5.7 4.6 5.2 6.8 Austria 1.13 Business costs of crime and violence 50 D 5.2 5.4 4.4 4.3 6.7 Qatar 1.14 Organized crime 63 D 5.5 5.3 4.8 4.7 6.8 Luxembourg 1.15 Reliability of police services 52 D 4.5 4.7 3.8 3.7 6.6 Finland 1.16 Ethical behaviour of firms 57 D 4.1 4.3 3.8 3.7 6.7 New Zealand 1.17 Strength of auditing and reporting standards 27 A 5.5 4.7 4.4 4.2 6.3 New Zealand 1.18 Efficacy of corporate boards 63 D 4.6 4.4 4.4 4.4 5.9 Sweden 1.19 Protection of minority shareholders’ interests 36 A 4.9 4.3 4.3 4.1 6.0 New Zealand 2nd pillar: Infrastructure 2.01 Quality of overall infrastructure 89 D 3.2 4.0 3.5 3.5 6.8 Switzerland 2.02 Quality of roads 89 D 3.1 4.2 3.6 3.3 6.7 Singapore 2.03 Quality of railroad infrastructure 20 A 4.5 4.1 2.8 2.4 6.8 Switzerland 2.04 Quality of port infrastructure 90 D 3.5 4.3 3.8 3.7 6.8 Singapore 2.05 Quality of air transport infrastructure 65 D 4.7 4.3 4.4 4.3 6.9 Singapore 2.06 Available seat kilometres (mio per week) * 10 A 2'645.3 8'056.0 1099.4 487.9 30919.9 United States 2.07 Quality of electricity supply 106 D 3.2 5.0 3.6 3.9 6.9 Denmark 2.08 Telephone lines (per 100 pop.)* 103 D 3.2 27.5 11.4 10.6 64.2 Switzerland 3rd pillar: Macroeconomic stability 3.01 Government budget balance (% of GDP)* 115 D -4.9 -0.7 29.0 12.0 384.0 East Timor 3.02 National savings rate (% of GDP)* 20 A 35.6 51.5 29.1 24.6 61.3 Azerbaijan 3.03 Inflation (%)* 67 D 8.3 5.9 10.7 11.4 1.4 Japan 3.04 Interest rate spread (% points)* 85 D 7.3 3.1 6.1 7.4 0.3 Hungary 3.05 Government debt (% of GDP)* 116 D 75.2 15.9 38.7 38.7 0.0 East Timor 4th pillar: Health and primary education 4.01 Business impact of malaria 100 D 5.1 6.0 5.1 5.0 n/a n/a 4.02 Malaria incidence (cases per 100,000 pop.)* 103 D 951.3 7.6 4586.8 5912.2 0.0 Multiple (67) 4.03 Business impact of tuberculosis 87 D 5.1 5.8 4.9 5.2 7.0 Finland 4.04 Tuberculosis incidence (cases per 100,000 pop.)* 99 D 168.0 = 98.0 195.8 141.8 4.0 Multiple (3) 4.05 Business impact of HIV/AIDS 92 D 4.7 5.8 4.8 4.9 6.7 Norway 4.06 HIV prevalence (% of adult pop.)* 69 D 0.3 = 0.1 0.5 2.0 0.1 Multiple (24) 4.07 Infant mortality (deaths per 1,000 live births)* 108 D 57.0 20.0 31.5 38.0 1.8 Hong Kong SAR 4.08 Life expectancy (years)* 100 D 64.0 74.0 68.2 66.9 83.0 Japan 4.09 Quality of primary education 89 D 3.2 4.7 3.6 3.3 6.7 Finland 4.10 Primary enrolment (net rate, %)* 96 D 88.7 99.5 88.1 88.0 101.7 Costa Rica 4.11 Education expenditure (% of GDP)* 94 D 3.2 1.8 3.3 4.0 11.0 East Timor 5th pillar: Higher education and training 5.01 Secondary enrolment (gross rate, %)* 107 D 54.6 77.3 65.8 70.4 148.6 Australia 5.02 Tertiary enrolment (gross rate, %)* 100 D 11.8 22.9 17.5 24.4 94.7 Korea, Rep. 5.03 Quality of the educational system 37 A 4.4 3.8 3.6 3.3 6.2 Singapore 5.04 Quality of math and science education 22 A 5.0 4.8 3.8 3.6 6.4 Singapore 5.05 Quality of management schools 15 A 5.4 4.0 3.8 3.8 6.1 Switzerland 5.06 Internet access in schools 67 D 3.6 5.4 3.6 3.1 6.6 Iceland 5.07 Local availability of specialized research and training services 32 A 4.7 4.4 3.7 3.6 6.3 Switzerland 5.08 Extent of staff training 34 A 4.5 4.2 3.8 3.7 5.7 Sweden 6th pillar: Goods market efficiency 6.01 Intensity of local competition 12 A 5.8 5.8 4.8 4.6 6.2 Germany 6.02 Extent of market dominance 22 A 5.0 4.9 3.7 3.5 6.0 Germany 6.03 Effectiveness of anti-monopoly policy 25 A 4.9 4.2 3.8 3.5 5.9 Netherlands 6.04 Extent and effect of taxation 29 A 4.2 4.1 3.9 3.6 6.3 Bahrain 6.05 Total tax rate (% of profits)* 118 D 71.5 79.9 41.1 44.2 11.3 Qatar 6.06 Number of procedures required to start a business* 111 D 13.0 = 14.0 10.3 9.1 1.0 Multiple (2) 6.07 Time required to start a business (days)* 82 D 30.0 40.0 54.9 31.1 1.0 New Zealand 6.08 Agricultural policy costs 82 D 3.7 5.1 4.1 3.8 6.1 New Zealand 6.09 Prevalence of trade barriers 79 D 4.4 4.6 4.3 4.2 6.5 Hong Kong SAR 6.10 Tariff barriers* 104 D 0.1 0.1 0.1 0.1 0.0 Multiple (2) 6.11 Prevalence of foreign ownership 65 D 5.0 4.4 4.5 4.7 6.6 Hong Kong SAR 6.12 Business impact of rules on FDI 45 A 5.3 5.6 5.0 4.6 6.7 Singapore 6.13 Burden of customs procedures 71 D 3.9 4.6 3.7 3.6 6.4 Singapore 6.14 Degree of customer orientation 57 D 4.8 4.5 4.6 4.4 6.3 Japan 6.15 Buyer sophistication 33 A 4.0 4.7 3.6 3.3 5.3 Japan The India Competitiveness Review 2009 | 43
  • 46. A Competitive advantage improve/worsen between 2009-2010 and 2008-2009 continued D Competitive disadvantage improve/worsen between 2008-2009 and 2007-2008 The Global Competitiveness Index in detail INDICATOR RANK SCORE EVOLUTION CHINA DEV ASIA LOW MID INC BEST PERFORMER 7th pillar: Labour market efficiency 7.01 Cooperation in labour-employer relations 40 A 4.7 4.5 4.4 4.3 6.3 Singapore 7.02 Flexibility of wage determination 44 A 5.3 5.3 4.9 5.0 6.3 Hong Kong SAR 7.03 Rigidity of employment [0-100 (worst)]* 54 D 30.0 = 27.0 29.8 34.5 0.0 Multiple (3) 7.04 Hiring and firing practices 103 D 3.2 3.8 4.0 4.1 5.9 Singapore 7.05 Firing costs (in weeks of salary)* 85 D 56.0 = 91.0 78.4 62.8 0.0 Multiple (4) 7.06 Pay and productivity 46 A 4.2 4.9 4.2 3.9 5.7 Singapore 7.07 Reliance on professional management 30 A 5.3 4.9 4.3 4.0 6.5 Sweden 7.08 Brain drain 41 A 4.2 4.2 3.5 3.1 6.0 United States 7.09 Female-male participation ratio in labour force* 122 D 0.4 0.9 0.7 0.6 1.2 Mozambique 8th pillar: Financial market sophistication 8.01 Financial market sophistication 32 A 5.3 4.0 3.8 3.7 6.7 Luxembourg 8.02 Financing through local equity market 3 A 5.0 3.9 4.0 3.4 5.3 Hong Kong SAR 8.03 Ease of access to loans 34 A 3.6 2.7 3.1 2.7 5.0 Luxembourg 8.04 Venture capital availability 23 A 3.6 3.2 2.9 2.6 4.6 Hong Kong SAR 8.05 Restriction on capital flows 73 D 4.4 3.1 4.2 4.2 6.5 Hong Kong SAR 8.06 Strength of investor protection [0-10 (best)]* 31 A 6.0 = = 5.0 5.5 4.9 9.7 New Zealand 8.07 Soundness of banks 25 A 5.9 5.2 5.0 5.0 6.7 Canada 8.08 Regulation of securities exchanges 11 A 5.6 4.0 4.1 3.9 5.9 Sweden 8.09 Legal rights index [0-10 (best)]* 18 A 8.0 6.0 5.6 4.7 10.0 Multiple (4) 9th pillar: Technological readiness 9.01 Availability of latest technologies 39 A 5.5 4.3 4.5 4.4 6.8 Iceland 9.02 Firm-level technology absorption 30 A 5.5 5.1 4.6 4.5 6.5 Iceland 9.03 Laws relating to ICT 39 A 4.5 4.2 3.5 3.3 6.0 Singapore 9.04 FDI and technology transfer 19 A 5.4 4.7 4.6 4.5 6.3 Ireland 9.05 Mobile telephone subscriptions (per 100 pop.)* 116 D 29.2 47.4 58.5 66.8 207.8 United Arab Emirates 9.06 Internet users (per 100 pop.)* 104 D 6.9 22.3 16.2 12.5 86.8 Netherlands 9.07 Personal computers (per 100 pop.)* 96 D 3.2 5.6 5.9 5.2 94.6 Canada 9.08 Broadband Internet subscribers (per 100 pop.)* 91 D 0.4 6.2 1.4 1.0 37.3 Sweden 10th pillar: Market size 10.01 Domestic market size index* 4 A 6.0 6.5 3.9 3.3 7.0 United States 10.02 Foreign market size index* 4 A 6.2 7.0 4.7 4.3 7.0 China 11th pillar: Business sophistication 11.01 Local supplier quantity 3 A 5.9 5.6 4.7 4.5 6.3 Japan 11.02 Local supplier quality 41 A 5.0 4.8 4.2 4.1 6.3 Austria 11.03 State of cluster development 20 A 4.6 4.7 3.9 3.2 5.5 Japan 11.04 Nature of competitive advantage 67 D 3.4 3.5 3.4 3.2 6.4 Germany 11.05 Value chain breadth 26 A 4.4 3.9 3.5 3.4 6.2 Germany 11.06 Control of international distribution 44 A 4.3 4.3 3.9 3.9 5.5 Germany 11.07 Production process sophistication 43 A 4.3 3.9 3.3 3.3 6.4 Japan 11.08 Extent of marketing 33 A 4.9 4.6 3.9 3.8 6.4 United States 11.09 Willingness to delegate authority 36 A 4.3 3.9 3.7 3.5 6.2 Sweden 12th pillar: Innovation 12.01 Capacity for innovation 35 A 3.6 4.2 3.1 2.9 5.9 Japan 12.02 Quality of scientific research institutions 25 A 4.9 4.4 3.5 3.2 6.2 Switzerland 12.03 Company spending on R&D 36 A 3.6 4.2 3.2 2.8 6.0 Switzerland 12.04 University-industry collaboration in R&D 46 A 3.8 4.6 3.4 3.0 5.9 United States 12.05 Government procurement of advanced technology products 68 D 3.6 4.4 3.6 3.4 5.5 Singapore 12.06 Availability of scientists and engineers 4 A 5.6 4.6 3.9 3.9 6.0 Finland 12.07 Utility patents (per mio pop.)* 58 D 0.5 0.9 0.6 0.1 279.3 Taiwan, China 44 | The India Competitiveness Review 2009
  • 47. An Evaluation of India’s Economic Reforms Bidisha Ganguly and Tanvi Garg, Confederation of Indian Industry India has been on the path of slow and steady reforms international poverty line actually increased from 407 since the mid-1980s. Initially, the reforms aimed to million to 456 million between 1983 and 20051, and undo the layers of controls on business activity India’s social indicators on health and literacy do not imposed in the post-independence period. This led compare well with many other countries. to an increase in competitive forces and a burst in economic activity, especially in the private sector. In this article, some of the sources of strength for the Indian economy are examined, as well as the Major economic reforms were undertaken during the challenges faced by policy-makers in addressing the 1990s. The rupee was devalued in 1991 and was critical need for fostering more inclusive growth and made convertible on the current account in 1994. development, which would reinforce the country’s Meanwhile, industry deregulation was completed, productivity and competitiveness potential. while public sector monopoly was restricted to a few sectors. Foreign direct investment was permitted India’s strong growth and competitiveness in key under automatic approval in many sectors. Financial sectors are a source of strength. However, there are markets were liberalized with the entry of foreign several areas where much remains to be done, institutional investors into India’s equity markets. especially to lift the living standards of a vast majority of the people. Policy-makers need to focus on three The most visible progress has been made in opening key areas: creating employment, improving social various sectors to competition, and a choice of development and improving infrastructure. products is now available to the consumer. Success stories can be seen in areas as diverse as automobiles, Recent Key Drivers of India’s Rapid telecommunications, aviation, banking and other Growth financial services, such as mutual funds and insurance. The Indian economy has gained strength from the However, significant challenges remain, with India recent period of comparative macroeconomic ranked 49th out of 133 countries in the World stability, but this remains an area for further Economic Forum’s Global Competitiveness Index, improvement, with India ranked 96th out of 133 behind such comparators as Malaysia (ranked 24th) countries in this area. and China (ranked 29th). Millions of Indians continue to earn livelihoods that are not adequate for a There has been a significant acceleration in growth decent living standard. According to the World since the turn of the century. While GDP growth in Bank, the number of Indians living below the the 1980s and the 1990s averaged 5.9% and 5.8%, Figure 1: India's Income Growth* % 10 Gross National Product (at factor cost) Per capita Net National Product 8 6 4 2 0 First Plan Third Plan Fourth Plan Sixth Plan Eighth Plan Tenth Plan 1951-56 1961-66 1969-74 1980-85 1992-97 2002-07 *1999-2000 prices Source: Ministry of Finance The India Competitiveness Review 2009 | 45
  • 48. Figure 2: Increasing Investments and Savings % of GDP 50 Gross Domestic Savings Gross Capital Formation 40 30 20 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 Source: Ministry of Finance respectively, the average growth during the past five The growth in capital formation in recent years has years has been 8.5% (see Figure 1). This has been been amply supported by a rise in the savings rate accompanied by advances in social indicators as (see Figure 2). The gross domestic savings as a well. percentage of GDP at current market prices stood at 37.7% in 2007-2008, as compared to 29.8% in A notable feature of the recent acceleration in 2003-2004. This improvement has been driven by growth is the rising trend in domestic investments an increase in all categories – household, corporate and savings. Gross capital formation (GCF), which and public sector savings. was 25.2% of the GDP in 2002-2003, increased to 39.1% in 2007-2008. The rise in the rate of Robust Corporate Performance investment is due to various factors, especially the improvement in the investment climate coupled with Corporate sector performance has contributed an optimistic outlook for the growth prospects for immensely to Indian’s growth performance (see the Indian economy. Figure 3). Sustained growth in profits and a gradual Figure 3: Performance of Corporate Sector: Net Sales Growth (%) % 40 36 28 27 27 30 25 22 22 20 20 17 16 20 15 10 0 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Manufacturing Services other than financial services Source: CMIE 46 | The India Competitiveness Review 2009
  • 49. Figure 4: Performance of Corporate Sector: Net Profit Margin (%) 20 15 yoy change, % 10 5 0 March/07 June/07 Sept./07 Dec./07 March/08 June/08 Sept./08 Dec./08 March/09 Juin/09 All Industry Services Manufacturing Source: CMIE increase in productivity and capital efficiency have of investment. If robust corporate performance and enabled the Indian corporate sector to cut costs and consistent bottom-line growth continues, it will be globally competitive. Analysis of the financial support the continued trend of investment-led results of a large sample of companies drawn from growth. the CMIE Prowess database shows that their top line has been growing at a robust rate of more than Globalization of the Indian Economy 20% over the last five years2. The structure of the Indian economy has undergone Recently, corporate India witnessed extremely considerable change in the last decade, during challenging times during the worst financial and which India's integration into the world economy has economic crisis since the Great Depression. been remarkably rapid. However, many Indian companies have shown great resilience by not only surviving the downturn, but Based on the common measure of globalization, the also by taking the challenges as significant share of trade to GDP increased to 60.5% in 2008- opportunities to innovate, consolidate and move 2009 from 37.6% in 2003-2004 (see Figure 5). With towards a more efficient corporate structure. an enabling policy framework and concerted efforts by the government to facilitate a favourable The quarterly results available for a smaller sample of environment for international trade, exports have 515 companies (307 manufacturing companies and more than tripled between 2001-2002 and 2008- 208 from the service sector) reveal that, as a result 2009. of a decline in the cost of raw materials, power and fuel, and a moderation in the growth of interest The rapid growth of the economy also made India expenses, their net profit recovered in the quarter an attractive destination for foreign capital inflows. In ending June 2009. As a result, their net profit margin a recent UNCTAD study, Assessing the Impact of improved from 3.8% in the quarter ending December the Current Financial and Economic Crisis on Global 2008 to 11.2% in the June 2009 quarter (see Figure 4). FDI Flows, it was found that India achieved a growth rate of 85.1% in foreign direct investment flows in The challenge for corporate India is to sustain plans 2008, the highest increase across all countries (see for capacity expansion even in the aftermath of the Box 1). financial crisis, which has led to some postponement The India Competitiveness Review 2009 | 47
  • 50. Figure 5: Trade (% of GDP) 70.0 Exports Invisible earnings (gross) 60.0 Imports Invisible payments (gross) Total 50.0 40.0 30.0 20.0 10.0 0.0 1990-91 1993-94 1996-97 1999-00 2002-03 2005-06 2008-09 Source: CMIE Box 1: Foreign Direct Investment According to a study by UNCTAD, India achieved a growth rate of 85.1% in foreign direct investment (FDI) inflows in 2008 – the highest globally. Total flows increased from US$ 25.1 billion in 2007 to US$ 46.5 billion in 2008. This is despite a 14.5% decline in global FDI inflows from US$ 1,940.9 billion in 2007 to US$ 1,658.5 billion in 2008. India also ranked ninth in global FDI inflows in 2008. Rank in 2008 Countries 2007 2008 Growth Rate (%) 1 United States 232.8 320.9 37.8 2 France 158.0 126.1 -20.2 3 United Kingdom 196.4 96.8 -50.7 4 Belgium 70.0 94.2 34.6 5 China 83.5 92.4 10.6 6 Russian Federation 52.5 70.3 34.0 7 Spain 68.8 65.5 -4.8 8 Hong Kong SAR 59.9 63.0 5.2 9 India 25.1 46.5 85.1 10 Brazil 34.6 45.1 30.3 11 Sweden 22.1 40.4 83.1 World 1,940.9 1,658.5 -14.5 Source: UNCTAD 2009 According to UNCTAD’s World Investment Prospects Survey 2008-2010, China is perceived to be the top investment destination, followed by India, the United States, Russia and Brazil. Similarly, AT Kearney’s 2007 FDI Confidence Index shows China, India and the United States as the most preferred locations, in that order. For long-term prospects, the Japan Bank of International Cooperation (JBIC) survey of Japanese manufacturing transnational corporations (TNCs) shows India replacing China as the most promising country for business operations of Japanese TNCs. Robust economic growth, an improved investment environment and opening of critical sectors (e.g. telecommunications, civil aviation, refineries, construction) facilitated FDI inflows into India. 48 | The India Competitiveness Review 2009
  • 51. This availability provides a significant advantage to Factors Favouring India’s Productivity any producer seeking to convert these materials into higher value-added products to serve adjacent markets. Cost-effective and Skilled Manpower Huge Domestic Market India's labour cost advantage is well understood. Wage levels in India are among the lowest in the India’s market size is a competitive advantage. world. India has one of the largest pools of English Domestic consumption has played a significant role speaking, high-quality and skilled manpower. Indian in India’s economic growth. The share of universities churn out engineers, MBAs, PhDs, consumption in India’s GDP is much higher than in among others, in large numbers, although, given the other emerging economies. Rising incomes in India large population, university enrolment rates remain result in increased consumption, which in turn very low by international standards. provides a boost to demand and creates further employment opportunities, thus stimulating the GDP India produces 400,000 engineers a year, nearly 16 times and income growth. Thailand’s 25,000. This skilled workforce has helped reduce process and redesign costs. For example, in the According to a study by the McKinsey Global pharmaceutical sector, the cost of producing bulk Institute in 2007, the size of the Indian consumer drugs has declined by 60%, and a KPMG study in market was estimated at US$ 370 billion in 2005. 2005 estimated that India’s drug producing costs The study concludes that, as incomes and are one-twentieth that of US companies. population grow, the market could quadruple in size by 2025, becoming the fifth-largest consumer Availability of Raw Materials market in the world. Under this scenario, 291 million people will escape poverty, and the middle class will India has a significant advantage in some industries comprise 583 million at the end of two decades. due to its natural resources and raw materials. For example, India has one of the richest sources of iron ore, which is a key ingredient for Indian steel Demographic Dividend companies. In addition, India has advantages upstream (e.g. bauxite), which lead to increased According to a CII study, India accounts for 16% of competitiveness in alumina. In sectors such as textiles, the world’s population and is expected to become India has a significant raw material advantage. the world’s most populous country by 20503. About Figure 6: % of Population Aged 65 and Older % of total population 27.4 30 23.3 22.0 20.8 20.2 18.3 18.1 20 14.8 13.7 13.4 12.9 12.4 11.0 7.3 7.0 6.8 10 6.3 4.3 0 2000 2025 (Projected) 2050 (Projected) Source: United Nations 2008 The India Competitiveness Review 2009 | 49
  • 52. 265 million people will enter the working-age cohort Increase Employment Opportunities in the next 20 years. By 2020, the average age in India will be 29 years, compared to 37 in China and Generating greater employment and moving towards 48 in Japan. India’s age-dependency ratio will have better-quality employment stand among India’s declined from 0.6 to 0.4 (see Figure 6). greatest challenges today. The manufacturing and services sectors need to absorb the large number of India’s demographic dividend will have several new entrants into the labour force, as well as the implications for the global economy: surplus labour from agriculture (see Figure 7). These • Greater demand for goods and services sectors need to create a sufficient volume of high- produced overseas quality jobs to achieve the objective of inclusive • Shift in labour-intensive value addition as the growth. India’s economic policy-makers need to re- workforces in other countries decrease orient themselves to evaluate their performance by • Bigger contribution from India in research and key parameters in job creation. Although a large development and innovation upswing in the economy’s growth rate has taken place, the benefits in terms of employment Towards More Inclusive Growth generation have been relatively limited. The sections above describe the positive aspects of In India, the shift of labour from agriculture to India’s economic prospects. Yet, challenges remain manufacturing and services, and from the to ensure that this growth is sustainable and living unorganized to the organized sector, has been standards of India’s large population rapidly improve. painfully slow. Agriculture – where productivity is low – continues to employ about 50% of the labour force. The current government has often stated that its Employment opportunities in non-agriculture sectors, priority is to foster inclusive growth and has instituted which enjoy higher productivity, are not able to many programmes to that end. Key among the adequately absorb the surplus labour from agriculture. programmes aimed at fostering more inclusive growth is the National Rural Employment Guarantee The manufacturing sector is a key to providing large- Scheme (see Box 2), aimed at guaranteeing scale employment to a labour force being displaced employment at a minimum wage to rural labourers. by a shrinking agricultural sector, given that the skill While the programme has been successful in sets of this segment of the population are likely to keeping people out of poverty, more sustainable be relatively limited. The share of manufacturing in drivers of employment need to be generated. India’s GDP, at 16.3%, compares poorly with other Figure 7: Employment in Rural and Urban India (Financial Year 2004-2005) Million population 500 Unemployed Workforce 400 35 300 25 200 385 278 100 10 107 0 Total Rural Urban Source: Planning Commission 2008 50 | The India Competitiveness Review 2009
  • 53. Table 1: India’s Performance on the UNDP’s Human Development Index 2009 Human Life Adult Literacy Combined Gross Development Expectancy at Rate (% age Enrolment Ratio GDP Per Capita Country Index (Value) Birth (Years) 15 and above) in Education (%) (PPP US$) Poland 0.880 (41) 75.5 (45) 99.3 (15) 87.7 (39) 15,987 (53) Brazil 0.813 (75) 72.2 (81) 90.0 (71) 87.2 (40) 9,567 (79) Russian Federation 0.817 (71) 66.2 (118) 99.5 (11) 81.9 (51) 14,690 (55) Turkey 0.806 (79) 71.7 (86) 88.7 (77) 71.1 (105) 12,955 (63) Thailand 0.783 (87) 68.7 (107) 94.1 (52) 78.0 (68) 8,135 (82) China 0.772 (92) 72.9 (72) 93.3 (56) 68.7 (112) 5,383 (102) Sri Lanka 0.759 (102) 74.0 (59) 90.8 (66) 68.7 (113) 4,243 (116) Indonesia 0.734 (111) 70.5 (99) 92.0 (61) 68.2 (115) 3,712 (121) Vietnam 0.725 (116) 74.3 (54) 90.3 (69) 62.3 (126) 2,600 (129) Egypt 0.703 (123) 69.9 (102) 66.4 (119) 76.4 (79) 5,349 (103) India 0.612 (134) 63.4 (128) 66.0 (120) 61.0 (134) 2,753 (128) Figures in parentheses indicate ranking among 182 countries Source: UNDP 2009 Asian countries such as China (43.1%), Korea (24.7%), Indonesia (28.0%), Malaysia (29.8%) and Thailand (35.1%)4. Improve Social Development Human development indicators demonstrate the need for significant improvement. According to the most recent Human Development Index calculated by UNDP, India ranks 134 out of 182 countries. An improvement in health and literacy standards would also greatly improve the productivity of the workforce (see Table 1). In consonance with the commitment to ensure faster social development and achieve an inclusive pattern of growth, the government continues to focus on several initiatives and programmes towards that end. Recent trends show that government spending on social services is consistently increasing. The India Competitiveness Review 2009 | 51
  • 54. Box 2: Major Government Initiatives in the Social Sector Recent government initiatives to achieve inclusive growth and faster social sector development and remove economic and social disparities include: National Rural Employment Guarantee Scheme (NREGS) Launched in 2006 in 200 of the most backward districts in the first phase, NREGS has expanded to 330 districts in the second phase. Under NREGS, over 40 million households were provided employment in 2008- 2009. This is a significant jump over the 33.9 million households covered under the scheme during 2007- 2008. Bharat Nirman Launched in 2005-2006 to build infrastructure and basic amenities in rural areas, this programme has six components: rural housing, irrigation potential, drinking water, rural roads, electrification and rural telephony. Midday Meal Scheme Launched in 1995, this scheme aims to boost universalization of primary education by increasing enrolment, retention and attendance while contributing to the nutrition of students in primary classes. Rajiv Gandhi National Drinking Water Mission Renamed in 1991, this mission was introduced as one of five Societal Missions in 1986 and originally called the National Drinking Water Mission. It aims to provide an adequate and safe supply of drinking water. National Rural Health Mission Launched in 2005, the mission provides accessible, affordable and accountable quality health services to the poorest households in the remotest rural regions. Jawaharlal Nehru National Urban Renewal Mission (JNNURM) For a seven-year period starting from 2005-2006, JNNURM has two main components – the Basic Services to the Urban Poor (BSUP) Programme and Integrated Housing and Slum Development Programme (IHSDP). BSUP was launched to assist cities and towns in taking up housing and infrastructural facilities for the urban poor in 63 selected cities in the country. Invest in Infrastructure The Indian government recognizes this imperative. The 11th Five-Year Plan (2007-2012) has detailed With the rapid growth of the economy in recent plans for raising the level of investment in years, the importance and urgency of removing infrastructure (see Table 2). The Plan measures the infrastructure constraints have increased. amount of investment needed if India’s investment in Government spending on infrastructure has lagged infrastructure were to rise from 5% of GDP currently behind other economies, such as China, and the to 9% by the terminal year of the Plan. Assuming economy has consistently faced shortages in critical that GDP growth is maintained at 9% every year, this areas, such as power and transport infrastructure. It translates to an investment of 20,000 billion rupees, is also apparent that the lack of adequate or about US$ 500 billion over the entire five-year infrastructure has hurt the poor the most, as the period. available infrastructure has been rationed in favour of those who are able to pay. It is a matter of concern that over 50% of rural households have no electricity. 52 | The India Competitiveness Review 2009
  • 55. Table 2: Investment Estimate for Infrastructure support. The inflow of foreign direct investment to Sector (US$ billion) the infrastructure sector increased more than fivefold in 2007-2008, compared with the previous year, and 10th Plan 11th Plan was maintained during 2008-2009 (see Table 3). Sector (2002-2007) (2007-2012) Energy 70.5 150.4 Combating the Impact of the Global Roads and Bridges 31.7 76.1 Financial Crisis Telecommunication 22.5 65.1 Railways 20.3 62.2 The global financial meltdown and the economic Irrigation 32.1 53.1 recession that ensued were not without Water Supply and Sanitation 15.6 48.6 consequences to the Indian economy. According to Ports 1.3 18.0 the Economic Survey, economic growth decelerated Storage and Gas 4.4 10.5 in 2008-2009 to 6.7%. This represents a decline of Airports 2.1 8.5 2.1% from the average growth rate of 8.8% in the Total 200.5 492.4 previous five years (2003-2004 to 2007-2008). Source: Planning Commission 2008 The slowdown in GDP growth is more clearly visible from the growth rates over successive quarters of 2008-2009 (see Figure 8). In the first two quarters of The government has made an effort to facilitate the 2008-2009, the growth in GDP was 7.8% and 7.7%, entry of private enterprise into this sector through respectively. The growth rate fell to 5.8% in the third changes in the legal framework. A role for private and fourth quarters of 2008-2009 (compared to sector participation has also been facilitated by 9.3% and 8.6% in the third and fourth quarters of technological change that allows unbundling of 2007-2008, respectively). infrastructure, so the public and private sectors can take up the components most suited to their capacities. The fallout of the global financial crisis on the Indian economy has been palpable in the industry and Government continues to invest significant sums in trade sectors, and has also permeated the services areas where private participation is minimal or not sector. Although economic growth clearly became forthcoming. Public-private partnerships (PPPs) are more moderate, the Indian economy – with more gaining in importance and benefiting from government than 6.0% growth in 2008-2009, according to the Table 3: FDI Flows to Infrastructure (US$ million) Sector 2005-2006 2006-2007 2007-2008 2008-2009 Power 87.1 157.5 968.0 984.8 Non-conventional Energy 0.1 2.1 43.2 85.3 Petroleum and Natural Gas 14.2 89.4 1,426.8 412.3 Telecommunications 623.6 477.7 1,261.5 2,558.4 Information and Broadcasting 56.0 43.6 321.5 762.3 Air Transport 10.3 92.1 99.1 35.2 Sea Transport 53.6 72.5 128.4 50.2 Ports 0.5 0.0 918.2 493.2 Railway-related Components 14.7 25.8 12.4 18.0 Total 859.9 960.7 5,178.8 5,399.6 Source: Ministry of Finance 2009 The India Competitiveness Review 2009 | 53
  • 56. Figure 8: Quarterly Estimates of GDP Growth year on year change, % 10 8 6 4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2007-08 2007-08 2007-08 2007-08 2008-09 2008-09 2008-09 2008-09 2009-10 Source: Ministry of Finance 2009 Economic Survey – remained one of the best To counter the negative fallout of the global performing economies. India’s financially sound and economic slowdown on the domestic economy, the well-capitalized banking system, comfortable foreign government provided a substantial tax relief as well exchange reserves position and robust domestic as increased expenditure on public projects to demand, led by the rural economy, have acted as create employment and public assets. Box 3 shock absorbers amid the crisis. provides more details on the government’s response. Box 3: Policy Response to the Financial Crisis • The Reserve Bank of India (RBI) aggressively lowered policy rates between October 2008 and April 2009. The reverse-repo and repo rates were reduced from 6.0% and 9.0% to 3.25% and 4.75%, respectively, in successive policy announcements. The cash reserve ratio was reduced from 9.0% to 5.0%. These reductions have helped improve liquidity in the system. • Other measures have been taken to improve liquidity and provide refinancing to sectors such as housing, SMEs and exports. • Overall fiscal stimulus of nearly 3.5% of GDP, including: - Expenditure of 200 billion rupees on critical rural infrastructure and social security schemes, e.g. road building, employment guarantees, housing - Reduction in ad valorem CENVAT rate by 6% for top bracket and 4% for others - Reduction of 2% in service tax rate - Greater access to finance for non-banking financial companies (NBFCs) through provision of special line of credit - Increase in guarantee cover for micro and small enterprises - Special monthly meetings of state-level bankers’ committees to oversee the resolution of credit issues of micro, small and medium enterprises by banks 54 | The India Competitiveness Review 2009
  • 57. Although there are indications that the economy may have weathered the worst of the downturn due, in part, to the resilience of the economy and various monetary and fiscal measures taken by the government, the recovery process remains fragile. Further, the stimulus package, while arguably necessary in the short run, has aggravated the deficit and debt positions of the country, making government investments in many areas more difficult going forward. Policy measures that evenly address the short- and long-term challenges would help achieve tangible progress and ensure that the outlook for the Indian economy remains firmly positive. The India Competitiveness Review 2009 | 55
  • 58. Notes 1 The poverty line of US$ 1.25 a day (at purchasing power parity) is the World Bank’s definition of extreme poverty. The year 2005 is the most recent available. Figures are from World Bank 2009. 2 Sample size is determined by the number of companies whose results are available in the database for the latest year; in this case, the sample consists of over 3,000 companies. 3 CII (2008) 4 Country at a Glance tables, World Bank, available online at; data shown refers to 2006. References Confederation of Indian Industry (CII). 2008. National Planning Commission, Government of India, 2008. Conference and Annual Session theme paper: Eleventh Five-Year Plan (2007-2012). Building People, Building India. UNCTAD (United Nations Conference on Trade and Confederation of Indian Industry (CII). 2009. State of Development). 2009. Assessing the Impact of the the Economy. July. Current Financial and Economic Crisis on Global FDI Flows. April. CII and Boston Consulting Group. 2005. Advantage – The India Manufacturing Opportunity. UNCTAD (United Nations Conference on Trade and Development). 2008. World Investment Prospects CMIE (Centre for Monitoring Indian Economy). Survey (2008-2010) Prowess. Database of large and medium Indian firms. UNDP (United Nations Development Programme). 2009. Human Development Report 2009. KPMG. 2005. Destination ... India. United Nations. 2008. World Population Prospects – McKinsey Global Institute. 2007. Tapping into the 2008 revision. Indian Consumer Market. The World Bank. 2009. World Development Ministry of Finance, Government of India. 2008. Indicators 2009. Economic Survey 2007-2008. Ministry of Finance, Government of India. 2009. Economic Survey 2008-2009. 56 | The India Competitiveness Review 2009
  • 59. India’s Competitiveness: The View from CEOs N. Ramesh Rajan and Jairaj Purandare, PricewaterhouseCoopers, India Over the past two decades, India’s economic regulated banking industry, conservative capital reforms have bolstered its leading companies into requirements and an economy less dependent on global powerhouses, giving the world a glimpse of exports than many others in the developing world. the nation’s economic potential. But it is one thing to That hope gave way to reality in late 2008 as the have achieved success when the global economy is broader effects of the slump hit home and growth stable and steadily growing. It is quite another when slowed. the global economy turns sharply downwards and volatility emerges in every market. Still, a more optimistic sentiment prevails in India as it joins other Asian countries in recovery. In The PricewaterhouseCoopers 13th Annual Global PricewaterhouseCoopers’ survey of 62 chief CEO Survey assessed the perspectives of India’s executive officers of Iarge Indian companies, chief executive officers (CEOs) at this distinctive conducted in September 2009, confidence was point in time, during the worst global economic high: 63% were very confident of their revenue conditions in 75 years, to provide a new window into growth prospects over the next 12 months and 34% India’s competitiveness in a globalized world. India's were somewhat confident. To be sure, these figures business leaders have a unique outlook on the suggest a moderate fall in confidence compared nation's past and future competitiveness. And their with past years: In 2008, 70% of CEOs were very view points towards a resilient economy that is confident in their 12-month prospects, and 90% poised to diversify its base and continue its past were very confident in 2007 (see Figure 1). successes, despite the risks both at home and abroad. Indian CEOs’ optimism extends to the country’s broader economy as well, with nearly two-thirds expecting recovery, defined as stable and steady Confidence in Recovery growth, by the middle of 2010. Indeed, more than one-third of CEOs believe their industry and the When the world tumbled into economic crisis, there country’s economy have already recovered or will was initially a sense in India that the country was have by the end of this year (see Figure 2). decoupled from the global malaise, thanks to a Figure 1: Indian CEOs remain confident, though their confidence is now more measured Survey question: How would you assess your level of confidence in prospects for the revenue growth of your company over the next 12 months? Are you…? Not very confident 2009 3% 34% 63% Somewhat confident (n=62) Very confident Note: 0% responded “Not confident at all” 2008 in each survey year 7% 23% 70% (n=30) 2007 3% 7% 90% (n=30) 0 25 50 75 100% % of Indian CEO Survey respondents Source: PricewaterhouseCoopers 13th Annual Global CEO Survey 2009 The India Competitiveness Review 2009 | 57
  • 60. Figure 2: Almost two-thirds of CEOs believe India's economy will have recovered by July 2010 Survey question: When do you expect recovery to set in for your industry/economy?* 40% 37% 34% 30 Survey respondents 31% 31% % of Indian CEO 20 23% India’s 19% Industry economy 10 11% 5% 0 Already recovered or In the first In the second In 2011 recovery expected before half of 2010 half of 2010 the end of 2009 *(n=62) Source: PricewaterhouseCoopers 13th Annual Global CEO Survey (2009) Nurturing Green Shoots new product development, at 19%, and new geographic markets, at 10%, as significant Government policies are likely to support this prospects for growth. But Indian companies are confident outlook, despite concerns about India’s committed to going it alone; only 8% named growing fiscal deficit and the prospect of higher mergers and acquisitions as growth opportunities, inflation. Ensuring an economic recovery is more and just 3% saw growth coming from new joint important now than checking inflation, India's ventures or strategic alliances. Planning Commission said at a press conference in October 20091. "We need to ensure economic Seventy-seven per cent of respondents expected to recovery that provides jobs. It's more important to finance the coming year’s growth through internally provide jobs than trying to lower inflation," Montek generated cash flow. But 26% said they would tap Singh Ahluwalia, Deputy Chairman of the Planning the rebounding equity markets for their capital Commission, told reporters. “General inflation is not a needs, and an equivalent number would rely on big problem yet. It is well below the comfort level,” bank lending, while 24% planned to access the debt Ahluwalia added. markets and 21% said they would look to private equity or venture capital. Just 2% said they would The Reserve Bank of India expects the country's seek investment from sovereign wealth funds. Indian inflation rate (based on the wholesale price index) to government officials have said that further reforms to be around 5% by the end of March 2010. With the lift restrictions on foreign investment in key industries downside risks to the economy from scanty would be considered only in the context of the monsoon rainfall reduced, interest rates likely to global slump and the subsequent protectionist remain low and expectations for consistent rhetoric and tariff proposals in various countries economic policy-making – including the continuation around the world. of tax cuts and lower interest rates – economic growth is forecast at 5.4% this year and 6.4% in When the economic recovery arrives, Indian chief 2010, according to IMF estimates2. executives expect their most important markets outside of India to be South Asia, at 18%, and In that environment, Indian companies will grow China, 16%, equal to the United States (see Figure primarily from better penetration of existing markets, 3). Over the past 10 years, the shares of Indian according to the CEOs surveyed, with 58% seeing exports going to South Asia, China and the Middle that as the main opportunity to grow their East have grown, while the United States and businesses in the next 12 months. Leaders also saw Europe shares have shrunk. In that same period, 58 | The India Competitiveness Review 2009
  • 61. Figure 3: South Asia and China are important Figure 4: India's global competition is coming from markets for Indian companies, while Europe is a China and Europe lower priority Survey question: Which of these will be your most important Survey question: Where do you expect your greatest market outside of India when economic recovery arrives?* international (non-Indian-based) competition in global markets to come from, whenever economic recovery arrives?* Don’t know/ Refused Don’t know/ 10% South Asia 18% Refused 15% None 11% China 34% None 15% Other 8% China 16% Russian Other Federation 2% 3% Middle East European 3% Union 6% Japan 5% European United States United Union Middle East 16% States South 11% Asia 15% 6% 6% *(n=62) *(n=62) Source: PricewaterhouseCoopers 13th Annual Global CEO Survey 2009 Source: PricewaterhouseCoopers 13th Annual Global CEO Survey 2009 India’s share of total world exports has grown from has improved its global competitiveness (see Figure just over 0.6% in 1998 to nearly 1.5% through the 6). Confidence in the manufacturing sector could first five months of 20093. explain why China, the world’s leading manufacturer, is seen as India’s largest global competitor. And, it suggests that India’s economy is evolving away from Global Competitiveness the services-led growth that fuelled its past successes, a path that could take advantage of a Indian chief executives expect their greatest broader spectrum of India’s diverse potential labour international competition in global markets during force. Many CEOs cited cost competitiveness and the recovery to come from China, 34%, and the productivity gains as current drivers for European Union, 15%. None of the executives in the manufacturing improvement. survey named either of their other two cohorts among the BRIC countries as their main Several manufacturing industries hold promise. competition, perhaps due to Russia’s heavy Despite longstanding worries about the country’s identification with oil and gas and Brazil’s geographic inadequate infrastructure, some experts expect India distance. And the United States, headquarters for to play a major role in automobile manufacturing, 140 of the Fortune Global 500, was only named by particularly for small cars, prompted in part by the 6% of Indian CEOs as their greatest international response to Tata Motor's Nano, a fuel-efficient four- competitor (see Figure 4). passenger city car that sells for as little as 100,000 rupees (US$ 2,050) plus tax. Nanos first started to India’s remarkable economic rise has famously been appear on India’s roads in July, and Tata says it will driven by its services sector, which represented over ship the first 100,000 by the end of 2010. Small cars 60% of economic growth in 2007 and is forecast to comprised nearly three-fourths of the 1.22 million represent over 90% of economic growth in 2009 cars sold in India in the year ended 31 March 2009, and 2010 (see Figure 5). Still, since the financial according to the Indian edition of the Wall Street crisis began, 42% of Indian chief executives Journal, which has led Toyota, Ford, General surveyed believe the country’s manufacturing sector Motors, Nissan, Volkswagen and other global The India Competitiveness Review 2009 | 59
  • 62. Figure 5: India's services sector is forecast to deliver 90% of the country's economic growth in 2009 and 2010 8% 6.2% 6.2% 6 5.7% 5.7% 5.4% Contribution to GDP growth Services 4 2.9% 2.5% Industry 2 1.5% 0.8% 0.8% 0.6% Agriculture 0.3% 0.3% 0.0% 0 0.1% 2006 2007 2008 2009F 2010F Source: Indian Central Statistical Organisation; Indian Office of the Economic Adviser; PricewaterhouseCoopers forecasts (July 2009) automakers to either make small cars in India or The global economic downturn slowed the growth announce plans to do so to tap this growing of India’s technology and business services industry market4. The manufacture of pharmaceuticals is but, beyond the crisis, the industry faces a changing another industry that experts believe could be a environment, including increased competition from future growth sector. other countries, and talent and infrastructure constraints that will likely reduce the country’s On the other hand, only 27% of Indian CEOs said dominant 50% market share. The revenues of India’s the country’s services sector had improved its global business and technology services companies soared competitiveness during the crisis, with another 47% to US$ 58 billion at the end of 2008 (including about saying the sector’s competitiveness remained the US$ 46 billion in exports), from US$ 4 billion in same. Twenty-one per cent said it had declined. 19985. In 2005, India’s National Association of Software and Services Companies (NASSCOM) Figure 6: CEOs are optimistic about the manufacturing sector's competitiveness Survey question: Do you think that India's manufacturing/services sector has declined, stayed the same or improved in terms of global competitiveness since the financial crisis began?* Services 21% 47% 27% Manufacturing 24% 31% 42% 0 25 50 75 100% % of Indian CEO Survey respondents Declined *(n=62) Stayed the same Note: Responses of Don't know/Refused excluded Improved Source: PricewaterhouseCoopers 13th Annual Global CEO Survey 2009 60 | The India Competitiveness Review 2009
  • 63. Figure 7: Talent and technology factors have contributed to India's competitiveness; infrastructure needs remain unmet Survey questions: Which characteristics have contributed the most to make the Indian economy competitive over the past 10 years? In which areas will India most need to improve in order to remain competitive over the coming 10 years?* Strong infrastructure 97% 2% Stable and deep domestic 31% capital markets Need to improve in 16% the coming 10 years 29% Contributed over the Efficient markets for goods past 10 years 19% Innovation 45% 21% Sophistication of business 16% leadership and organizations 26% Stable economic policy-making 48% and institutions 37% 18% Technological readiness 47% 5% Entrepreneurial base 56% Adequate supply of educated 6% and healthy workers 74% 0 25 50 75 100% *(n=62) % of Indian CEO Survey respondents Source: PricewaterhouseCoopers 13th Annual Global CEO Survey 2009 suggested that export revenues could reach US$ 60 billion a year by 2010, but the global downturn will Many Risks Remain probably delay the achievement of this goal6. Among risks associated with the economic crisis, According to the CEOs surveyed, credit for India’s Indian CEOs are most concerned by exchange rate past competitiveness goes to its supply of educated volatility, not surprising in a period when the rupee workers, a strong entrepreneurial base and its has see-sawed from 48 to the US dollar to 39 and technological readiness (see Figure 7). But back again. A protracted global recession and over- educational achievement and technology adoption regulation are serious risk factors that were named are hardly uniform throughout India, with many areas by most of those surveyed, but chief executives also lagging the leaders in both. While the Indian cited other worries, including the lack of stability in Institutes of Technology and other top universities capital markets, protectionist tendencies of national produce thousands of engineering and science governments and inflation (see Figure 8). graduates each year, many of the best and brightest emigrate, and relatively few of India’s millions qualify The attacks in Mumbai last November are vivid memories to attend. India’s leading companies, many of whose that will keep security high on the agenda of business CEOs were interviewed for this survey, have adopted leaders. Among risks not directly related to the economic information technology as aggressively as their crisis, terrorism was highest at 76%. As to be expected, Western counterparts, but smaller firms risk falling the inadequacy of basic infrastructure and energy behind the curve. The workforce depth and costs, named by 74% and 73% of CEOs, respectively, technology access situations may hinder the also remained high on the list of potential threats. transition away from an agrarian economy – agriculture represents 16% of India's economy but Given the solid majorities who indicated concern still over half of employment – and may very soon over the risks surveyed, it is no surprise that more constrain thriving sectors like IT and heavy industry. CEOs are planning to change their risk management The India Competitiveness Review 2009 | 61
  • 64. Figure 8: CEOs named exchange rate volatility and a protracted global recession as the biggest risks related to the economic crisis Survey question: From the list of potential threats to your growth prospects related to or emerging from the current economic crisis, how concerned you are, if at all, about…* Permanent shift in consumer spending and behaviours 56% Inability to finance growth 63% Macroeconomic imbalances (e.g. trade or fiscal) 63% Financially stressed suppliers 66% Inflation 66% Protectionist tendencies of national governments 68% Lack of stability in capital markets 69% Over-regulation 74% Protracted global recession 79% Exchange rate volatility 82% 40 50 60 70 80% % of Indian CEO Survey respondents answering somewhat or extremely concerned *(n=62) Source: PricewaterhouseCoopers 13th Annual Global CEO Survey (2009) functions, as compared with other corporate to play a role. Further, Indian chief executives want functions (see Figure 9). In this process, CEOs their government to drive the convergence of global reported that they are reassessing their risk tax and regulatory frameworks. They believe the tolerance; preparing for systemic risks and low- government has been effective in helping to create a probability, high-impact events; and integrating risk skilled workforce in the past, but the country will management capabilities into business units. need to step up its investment in education to sustain heady growth. Chief executives consistently say that India still needs to develop its infrastructure and foster stable The Economic Times cheered an August report of economic institutions and domestic capital markets, 10.4% growth for the Index of Industrial Production areas in which the government would be expected – which measures manufacturing, mining and Figure 9: CEOs are planning major changes to their risk management function Survey question: Thinking about [issue or function], do you anticipate making changes?* Managing risk 6% 40% 53% Investment decisions 8% 63% 27% Strategies for managing talent 11% 68% 21% Organizational structure (including M&A) 13% 68% 18% Capital structure 23% 61% 16% Corporate reputation 19% 66% 13% and rebuilding trust Engagement with your board of directors 15% 73% 11% 0 No change 25 50 75 100% Some change *(n=62) Major change % of Indian CEO Survey respondents Source: PricewaterhouseCoopers 13th Annual Global CEO Survey (2009) 62 | The India Competitiveness Review 2009
  • 65. electricity – as the strongest proof yet that a robust Survey Methodology recovery is underway7. But, on a cautionary note, the paper also pointed out that eight out of 17 sub- This chapter was written by groups in the index reported negative or low growth. PricewaterhouseCoopers based on the results of The drought and subsequent floods in the southern the PricewaterhouseCoopers 13th Annual Global states could erode the buying power of a significant CEO Survey. For the survey, over 1,000 portion of the population, and sectors such as interviews with CEOs were conducted in 52 construction and automobiles are still, to a large countries beginning in early September 2009. In extent, driven by low interest rates. India, 62 interviews were conducted, from a range of different industries. The majority of As India grows more innovative, and more competitive interviews were conducted by telephone. The up and down the value chain, the country’s CEOs research was coordinated by the have good reason to be optimistic in their outlooks. PricewaterhouseCoopers International Survey But they are also realistic about India’s deep needs Unit, Belfast, Northern Ireland, in cooperation and look to the government to support the with project managers and a global advisory development of a more robust infrastructure, provide board of PricewaterhouseCoopers partners. broader and deeper education, and write more liberal policies to foster access to capital. There are choppy waters to navigate, CEOs say, but India remains on a course to sustainable growth. Notes 1 WSJI 2009b. 4 WSJ 2009. 2 IMF 2009. 5 WSJI 2009a. 3 Trade figures are from IMF Direction of Trade 6 NASSCOM and McKinsey 2005. Statistics website, accessed 6 October 2009. 7 The Economic Times 2009. References The Economic Times. 2009. "Industrial Output the Global IT and BPO Industries. Cheers". 13 October. Wall Street Journal. 2009. "Toyota to Make Engines IMF (International Monetary Fund). 2009. World in India". 5 October. Economic Outlook. October. Wall Street Journal India. 2009a. "Indian Tech NASSCOM (National Association of Software and Outsourcers Aim to Widen Contracts". 6 October. Services Companies) and McKinsey & Co. (McKinsey). 2005. Extending India's Leadership of Wall Street Journal India. 2009b. 7 October. The India Competitiveness Review 2009 | 63
  • 66. Acknowledgements The World Economic Forum would like to thank the Confederation of Indian Industry and PricewaterhouseCoopers for their support and contribution to this review. The Confederation of Indian Industry (CII) works to PricewaterhouseCoopers provides industry-focused create and sustain an environment conducive to the assurance, tax and advisory services to build public growth of industry in India, partnering industry and trust and enhance value for its clients and their government alike through advisory and consultative stakeholders. More than 163,000 people in 151 processes. countries across its network share their thinking, experience and solutions to develop fresh CII is a non-government, not-for-profit, industry-led perspectives and practical advice. and industry managed organization, playing a proactive role in India's development process. PricewaterhouseCoopers pushes itself – and its Founded 114 years ago, it is India's premier clients – to think harder, to understand the business association, with a direct membership of consequences of every action and to consider new over 7,500 organizations from the private as well as perspectives. Its goal is to deliver a distinctive public sectors, including SMEs and MNCs, and an experience to its clients and people around the indirect membership of over 83,000 companies from world. around 380 national and regional sectoral associations. PricewaterhouseCoopers is committed to serving as a force for integrity, good sense and wise solutions CII catalyses change by working closely with to the problems facing businesses and the capital government on policy issues, enhancing efficiency, markets. Transparency and good standards of competitiveness and expanding business corporate governance – both in its clients' opportunities for industry through a range of businesses and its own – are central to its ability to specialized services and global linkages. It also achieve those objectives. provides a platform for sectoral consensus building and networking. Major emphasis is laid on projecting PricewaterhouseCoopers is also dedicated to the a positive image of business, assisting industry to pursuit of responsible leadership. In today's identify and execute corporate citizenship business environment, this means taking an active programmes. Partnerships with over 120 NGOs role in building a sustainable business – one that across the country carry forward its initiatives in creates long-term value for clients, people and the integrated and inclusive development, which include stakeholder community within which it operates. health, education, livelihood, diversity management, skill development and water, to name a few. Its member firm in India – PricewaterhouseCoopers Pvt. Ltd – has offices in Ahmedabad, Bangalore, Bhubaneshwar, Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai and Pune. Complementing its depth of industry expertise and breadth of skills is its sound knowledge of the local business environment in India. PricewaterhouseCoopers is committed to working with its clients in India and beyond to deliver the solutions that help them take on the challenges of the ever-changing business environment. 64 | The India Competitiveness Review 2009
  • 67. 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. (