12 pillars of global competitiveness

1. India has ascended to 39th rank from last year's 55th on the Global Competitiveness Index (GCI).
Among 138 nations, India recorded the highest growth by jumping 16 places on the index
released by the World Economic Forum (WEF).
The WEF report credits India's overall performance, and particularly higher end skills like good
market efficiency, business sophistication and innovation.
WEF uses reliable publicly accessible data from organisations like the World Bank, and the IMF
to prepare the yearly index. The grade is calculated on the basis of a dozen factors that determine
the level of productivity of a country. They are the 12 pillars of competitiveness.
How is GCI valued?
The 12 pillars of competitiveness are grouped under three sub-indexes according to three main
development phases—basic requirements, efficiency enhancers, and innovation and
sophistication factors. Depending on each country’s stage of development, weightage is added to
the sub-indexes.
The overall competitiveness index of a country is determined from the values of the three sub-
indexes.
Here are the 12 pillars of competitiveness that WEF uses to rank nations according to
productivity and prosperity.
Pillar one:
Institutions
The quality of institutions has a direct link to a nation’s level of competence. Efficient
management of both private and government institutions is the basis of business environment.
Good business ethics and corporate governance guarantee success. Physical security and
independent judiciary provide the fundamental protection of property rights.
Pillar two:
Infrastructure
Electricity, transport and communication are fundamental requirements of running a business.
Quality and quantity infrastructure decides a nation's level of productivity.

2. Pillar three:
Macroeconomic environment
The stability of the economy is significant for the overall competitiveness of a country in today’s
global economy. The economy cannot survive without healthy monetary indicators and
affordable interest rates.
Pillar four:
Health and primary education
Quantity of basic education and state of public health determine the nation's well-being. This
pillar points to the fact that a nation lacking in basic education and health cannot be a productive
nation.
Pillar five:
Higher education and training
High level of education technical skills are crucial for the growth of the economy. Successful
nations investsmore in higher education and skill development. Higher educational facilities and
on-the-job training can only assure growth as a nation moves up the ladder.
Pillar six:
Goods market efficiency
A successful economy has to market its products and services worldwide. Growth depends on
open markets. Domestic and foreign competitiveness demands good marketing efficiency.
Pillar seven:
Labour market efficiency
Productivity depends on the quality of labour. A nation with a large scale of unemployment is an
unhealthy nation. The working environment has to assure meritocracy and gender parity. Job
market has to be efficient and flexible.
Pillar eight:
Financial market development

3. The financial banking system has to support business by channeling the resources saved by its
people. Efficiency, stability, reliability and credibility of the financial system are crucial for the
economy.
Pillar nine:
Technological readiness
In today's world, technological readiness can only ensure quality and quantity of production and
service.
Pillar ten:
Market size
Large markets without barriers allow faster growth. Both domestic and foreign markets are
considered for the market size.
Pillar eleven:
business sophistication
This measures the sophistication in business practices that improve efficiency of production in
goods and services.
Pillar twelve:
Innovation
A high competitiveness needs technological innovation. Advanced countries invest more in
developing technologies. But other nations too can improve their productivity by making
incremental improvements.
ForeignDirectInvestment
A foreign direct investment (FDI) is an investment made by a firm or individual in one country
into business interests located in another country. Generally, FDI takes place when an investor

4. establishes foreign business operations or acquires foreign business assets in a foreign company.
However, FDIs are distinguished from portfolio investments in which an investor merely
purchases equities of foreign-based companies.
 Foreign direct investments (FDI) are investments made by one company into another
located in another country.
 FDIs are actively utilized in open markets rather than closed markets for investors.
 Horizontal, vertical, and conglomerate are types of FDI’s. Horizontal is establishing the
same type of business in another country, while vertical is related but different, and
conglomerate is an unrelated business venture.
 The Bureau of Economic Analysis continuously tracks FDIs into the U.S.
 Apple’s investment in China is an example of an FDI.
How a Foreign Direct Investment Works
Foreign direct investments are commonly made in open economies that offer a skilled workforce
and above-average growth prospects for the investor, as opposed to tightly regulated economies.
Foreign direct investment frequently involves more than just a capital investment. It may include
provisions of management or technology as well. The key feature of foreign direct investment is
that it establishes either effective control of or at least substantial influence over the decision-
making of a foreign business.
The Bureau of Economic Analysis (BEA), which tracks expenditures by foreign direct investors
into U.S. businesses, reported total FDI into U.S. businesses of $253.6 billion in 2018.
Chemicals represented the top industry, with $109 billion in FDI for 2018.
Countries rely on the U.S. using their manufacturing capabilities, where the U.S. provides a large
benefit to their economy when utilized.
Special Considerations
Foreign direct investments can be made in a variety of ways, including the opening of
a subsidiary or associate company in a foreign country, acquiring a controlling interest in an
existing foreign company, or by means of a merger or joint venture with a foreign company.

5. The threshold for a foreign direct investment that establishes a controlling interest, per guidelines
established by the Organisation of Economic Co-operation and Development (OECD), is a
minimum 10% ownership stake in a foreign-based company. However, that definition is flexible,
as there are instances where effective controlling interest in a firm can be established with less
than 10% of the company's voting shares.
Types of Foreign Direct Investment
Foreign direct investments are commonly categorized as being horizontal, vertical or
conglomerate. A horizontal direct investment refers to the investor establishing the same type of
business operation in a foreign country as it operates in its home country, for example, a cell
phone provider based in the United States opening stores in China.
A vertical investment is one in which different but related business activities from the investor's
main business are established or acquired in a foreign country, such as when a manufacturing
company acquires an interest in a foreign company that supplies parts or raw materials required
for the manufacturing company to make its products.
A conglomerate type of foreign direct investment is one where a company or individual makes a
foreign investment in a business that is unrelated to its existing business in its home country.
Since this type of investment involves entering an industry in which the investor has no previous
experience, it often takes the form of a joint venture with a foreign company already operating in
the industry.
Example of Foreign Direct Investments
Examples of foreign direct investments include mergers, acquisitions, retail, services, logistics,
and manufacturing, among others. Foreign direct investments and the laws governing them can
be pivotal to a company's growth strategy.
In 2017, for example, U.S.-based Apple announced a $507.1 million investment to boost its
research and development work in China, Apple's third-largest market behind the Americas and
Europe. The announced investment relayed CEO Tim Cook's bullishness toward the Chinese
market despite a 12% year-over-year decline in Apple's Greater China revenue in the quarter
preceding the announcement.

6. China's economy has been fueled by an influx of FDI targeting the nation's high-tech
manufacturing and services, which according to China's Ministry of Commerce, grew 11.1% and
20.4% year over year, respectively, in the first half of 2017. Meanwhile, relaxed FDI regulations
in India now allows 100% foreign direct investment in single-brand retail without government
approval. The regulatory decision reportedly facilitates Apple's desire to open a physical store in
the Indian market. Thus far, the firm's iPhones have only been available through third-party
physical and online retailers.
Globalisation
Globalisation refers to the integration of markets in the global economy, leading to the
increased interconnectedness of national economies. Markets where globalisation is particularly
significant include financial markets, such as capital markets, money and credit markets, and
insurance markets, commodity markets, including markets for oil, coffee, tin, and gold, and
product markets, such as markets for motor vehicles and consumer electronics. The globalisation
of sport and entertainment is also a feature of the late 20th and early 21st centuries.
Why has globalisation increased?
The pace of globalisation has increased for a number of reasons:
1. Developments in IT, transport and communications have accelerated the pace of
globalisation over the past 40 years. The internet has enabled fast and 24/7 global
communication, and the use of containerisation has enabled vast quantities of goods and
commodities to be shipped across the world at extremely low cost.
2. More recently, the rise of social media means that national boundaries have, in many
ways become irrelevant as producers use new forms of communication and marketing,
including micro-marketing, to target international consumers. The widespread use of
smartphones has also enabled global shoppers to have easy access to 'virtual' global
markets.

7. 3. The rise of new electronic payments systems,, including e-Wallets, pre-pay and mobile
pay, e-Invoices and mobile pay apps, also facilitate increased global trade.
4. Increasing capital mobility has also acted as a stimulus to globalisation. When capital can
move freely from country to country, it is relatively straightforward for firms to locate
and invest abroad, and repatriate profits.
5. The development of complex financial products, such as derivatives, has enabled global
credit markets to grow rapidly.
6. Increased trade which has become increasingly free, following the collapse of
communism, which has opened up many former communist countries to inward
investment and global trade. Over the last 30 years, trade openness, which is defined as
the ratio of exports and imports to national income, has risen from 25% to around 40%
for industrialised economies, and from 15% to 60% for emerging economies.[1].
7. The emergence of footloose multinational and transnational companies (MNCs and
TNCs) and the rise in the significance of global brands such as Microsoft, Apple, Google,
Sony, and McDonalds, has been central to the emergence of globalisation. The drive to
reduce tax burdens and avoid regulation has also meant the establishment of complex
international business structures.
External Factors Affecting Business Environment
Economic Forces
The economic environment can have a major impact on businesses by affecting patterns of
demand and supply. Companies need to keep a track of relevant economic indicators and
monitor them over time.
Income
Income indicates a customer’s ability to spend on the products sold by the marketer. The rise in
the number of dual income families in several parts of the world, including urban world, has led
to the rise in the incomes for such families. This has resulted in higher demand for lifestyle and
luxury products.

8. This Is What You Need To Know About Tax Deductions
However, marketers should be wary of making generalizations, as customer’s propensity to
spend depends on cultural factors as well. Such products, such as dishwashers, that are
considered in necessities in Western markets, do not even fall into the consideration set of
consumers.
Inflation
Inflation refers to an increase in prices without a corresponding increase in wages, resulting in
lower purchasing power of consumers. When cost of production of products and services is low,
they will be sold at lower prices. Inflation rate is higher when costs of producing products or
services go up, or when there is too much money chasing too few supplies, prompting suppliers
to raise prices and earn higher profits.
High inflation rate decreases real wages, i.e. the customer can buy less goods with his income
because the goods have become costlier. Inflation will reduce the demand for several products
because the customer will ration his income on goods. In inflationary times, customers stock
items to save themselves from further increase in prices and abandon their favorite brands to buy
more economical brands.
When costs of production go up, companies should try to withhold increasing prices for as long
as possible. In the long run, companies will have to look for better methods of production and
cheaper inputs so that cost of production can be brought down.
Recession
Recession is a period of economic activity when income, production, and employment tend to
fall. Demand of products and services are reduced. During recession, companies should improve
existing products and introduce new ones.

9. The idea is to reduce production hours, waste, and the cost of materials so that companies can
offer products at lower prices. The most potent way to end a recession cycle is to make it
attractive for customers to buy more.
In recession, business buyers will postpone the purchase of new equipments and materials
because they do not know if there will be demand for their products and services. Sellers should
be willing to extend credit to buyers to get over their reluctance to purchase. Sales of
replacement parts and other services may become an important source of income.
Companies should emphasize their top-of-the-line products and promote product value.
Customers with less to spend will look for demonstrated quality, durability, and capability to
save time and money. High priced, high value items do well during recession.
Companies should understand that though there are specific causes that trigger recession. It is
perpetuated because consumers and businesses become uncertain about future and are reluctant
and scared to buy. Once consumers start buying, businesses will start buying automatically.
Therefore companies selling to consumers should generate confidence in the consumers by
offering them high quality products and services at reasonable prices and also extend credit to
them.
Interest Rate
If interest rate of an economy is high, businesses will borrow capital at a higher rate and they
will set up new businesses only when they are convinced that they can earn at a rate higher than
the interest rate they are paying on the capital. Even in existing businesses operating costs would
go up as their working capital requirements will attract higher interest rates.
Therefore companies will be able to produce products and services at higher costs and will
perforce sell them at higher prices. There will be inflationary tendencies if interest rates are
higher for long periods. Consumers will have strong tendencies to save because of the prospect
of earning higher interest rates from their deposits. High interest rates have detrimental effects on
the economy.

10. Exchange Rate
Exchange rate becomes a very important driver of performance when a company exports its
products and when it imports materials and components for making its products. It is more
profitable to export when the currency of the exporting country is weaker than the currency of
the importing country.
But this advantage is nullified if materials and components are imported from a country whose
currency is stronger. A company will run its most profitable operations when it exports its
product to a country whose currency is stronger, and imports material and components from a
country whose currency is weaker.
Technological Factors
New technologies can be used very effectively to counter inflation and recession. New machines
can reduce production costs. Advances in information technology have made it possible to plan
global supply chains, enabling companies to make better products at lesser cost and distribute
them economically.
Technologies for Nations
Economies which are well off should concentrate more on basic research because they can
remain ahead of other economies only by creating new businesses through inventing new
technologies. They should be ready to relinquish businesses they are currently excelling in,
because other economies will catch up with them and developed economies will not be able to
charge premium prices for their products and services.
Technologies for Product and Services
New products and services are possible because of new technologies. These help to increase
revenues and profits of companies. At different times in history, technologies have created new
businesses like automobile, railways, telephones, computers, etc.

11. Technologies for Business Models
Companies also use new technologies to do business differently and more effectively. For
instance, by using the Internet, Dell is able to earn greater profits by serving only the most
profitable customers. Companies in fragrance and other business have equipped their customers
with design tools so they design their own products and services. Some companies have used the
power of the Internet to create virtual design teams. There are a lot of other ways in which
technologies like the Internet are impacting businesses.
Socio-Cultural Factors
Social factors influence the products people buy, the prices they are willing to pay, the
effectiveness of specific promotions, and how, where, and when people purchase products. But
societies are hardly ever static. They change gradually and some changes will be imperceptible if
not watched closely. Social change is the most difficult variable for marketing managers to
forecast, influence and integrate into marketing plans.
Values
A value is a strongly held and enduring belief. The majority of people living in a society uphold
the values of the society. A person’s values are key determinants of what is important and not
important to him, how he reacts in a particular situation, and how he behaves in social situations.
Values affect the goods that a customer buys and the ways he buys them. Organizations ore
trying hard to become customer oriented. Nowadays, customers do not tolerate ineffective
products and sloppy behavior of marketers. Customers have become inquisitive, discriminating,
and demanding. Companies should learn to expect tough customers.
Time-starved Customers
Today, many customers place value on non-material accomplishments, such as having control
over their lives, and being able to toke a day off when they want. As work-life gets longer and

12. more stressful, people are spending their leisure time recuperating. People will increasingly place
more value on time than money.
Multiple Lifestyles
Today, people lead multiple lifestyles. They choose products and services that meet diverse
needs and interests rather than conform to traditional stereotypes. In the past, a person’s
profession defined his lifestyle. Today, a person can be a teacher and also a gourmet, fitness
enthusiast, and so many other things. Each of these lifestyles is associated with different products
and services and is a potential customer for companies.
Multiple lifestyles increase the complexity of consumers’ buying habits. A person may go on
holidays to exotic holiday locations and may spend a fortune to travel, but may dine in very
ordinary restaurants. He may buy fast food for lunch but may wear the most expensive suits.
Changing Structures of Families
Multiple lifestyles have evolved because people can choose from a growing number of products
and services, and most have the money to exercise more options. The growth of dual-income
families has resulted in increased purchasing power. The phenomenon of working women has
had greater effect on marketing strategies and initiatives of companies than any other social
change. As working women’s earnings grow, so do their expertise, experience, and authority.
Demographic Factors
Demography is the study of people in terms of their age, gender, race, ethnicity, and location.
Demographics are significant because people constitute markets. Demographic characteristics
strongly affect buyer behavior. Fast growth of population accompanied with rising income
means expanding markets. A longer life span means a growing market for products and services
targeted for the elderly.
Adolescents

13. The new-age teens are a marketers’ delight. They do not earn but they are fond of spending, and
most of them have their own budgets. They spend lavishly on clothes, eating out, going out,
latest gadgets, and are very keen to keep up with their friends in terms of possessions and
lifestyles. They do not feel guilty of spending their parents’ money and put real pressure on their
parents to shell out money for them.
They will put their parents in financial inconvenience but they will have their motorbikes and
fanciful mobiles, and will hang out at eating joints, theaters, and malls. They are stylish and
fashion conscious, and submit to peer pressure. They will latch on to the next hot item. They feel
they need to have a life of their own, and it should not be denied to them just because they are
not earning.
Youth
The current youngsters are growing in a more media-influenced, brand-conscious world than
their parents. They respond to advertisements differently and prefer to encounter those
advertisements in different places. Companies have to take their messages to the places where
these youngsters frequent, whether on the Internet, in a cricket stadium, or television. The
advertisements may be comical or may be disarmingly direct.
But the advertisements should never suggest that the advertiser knows these youngsters better
than they know themselves. These youngsters know what they want from their lives and the
products and services they buy. They do not mind information reaching them but they will
reserve their right to make their choices. They hate to be persuaded and influenced. Companies
would do well to leave them alone to make their decisions.
People between 35 to 45
People in the age group of 35 to 45 years are settled in their professions and have toddlers and
growing children at home. They exert themselves in their profession because they realize that
their career is likely to take off at this stage. They put in long hours at office and they have to
juggle endlessly between their responsibilities as spouses and parents, and growing

14. responsibilities at work. They may also have old parents to look after. Parents may be staying
with them or they may be living in different cities.
People between 45 and 60
Some people in this age group are at the peak of their careers while some others are struggling to
keep their jobs. Children become a major priority for people in this age group. Children are ready
to go to colleges and professional schools, and some of these people are willing to make
sacrifices in their careers to avoid unsettling their children. People in this age group spend less as
they save resources to fund the higher education of their children.
People above 60
People in this age group live on a steady income. Some of them live with their grown-up children
and are part of their household. They contribute to the requirement of the joint household and do
not spend much on themselves. The family looks after their requirements. Most of their money is
spent on buying gifts for their children and grandchildren. But quite a few of these people live
alone, and are visited by their children infrequently.
Political Legal Environment
The political-legal environment of a country is influenced by political structures and
organizations, political stability, government’s intervention, constitutional provisions,
government’s attitude, foreign policy, etc. The viability of businesses depends upon their ability
to understand the laws of the land and to abide by them, while not becoming less innovative in
their marketing endeavors due to fear of their infringing some laws.
Natural Environment
Natural environment includes factors such as seasonal variations, climatic differences, soil
conditions and natural terrain.

15. In consumer markets, the natural environment affects companies because of the differences in
the nature of products bought by consumers due to variations in seasons and climate. For
instance, products such as apparel and food get affected due to these factors.
In difficult terrains like hilly areas, it is difficult and expensive to get products to the customers.
It becomes more expensive to build distribution channels for companies whose target markets
are geographically disperse. This increases the price of the product for the customer.
Soil conditions influences the nature of the agricultural produce in a country. This affects the
type of agricultural implements that must be manufactured and marketed.
Composition of Trade and Direction of Trade
Composition of trade means a study of the goods and services of imports and exports of a
country. In other words, it tells about the commodities of imports and the commodities of exports
of a country. Therefore it indicates the structure and level of economic development of a country.
Developing countries export raw materials, agricultural products and intermediate goods;
developed countries export finished goods, machines, equipments and technique.
Direction of trade means a study of the countries to whom the exports are made and from whom
the imports are made.
Composition of Imports of India
Imports of India may be divided into three parts namely capital goods, raw materials and
consumer goods.
Imports of capital goods
Capital goods include metals, machines and equipments, appliances and transport equipments,
and means of communications. These goods are essential for industrial development of the
country. Imports of these goods amounted to Rs.356 crore in 1960-61 which increased to Rs.26,
532 crore in 1997-98.

16. Imports of raw materials and intermediate goods
It includes the imports of cotton, jute, fertilizer, chemicals, crude oil etc. A number of raw
materials and intermediate goods have to be imported during the process of economic
development. If amounted to Rs.527 crore in 1960-61 which increased to Rs.13, 966 crore in
1985-86. Petroleum products include crude oil, petrol and lubricating oil. Imports of these
products have ever been increasing. In 1960-61, imports of these products amounted to Rs.69
crore which increased to Rs.30, 538 crore in 1997-98. Import of petroleum products constitutes
about 23 percent of our total imports. Fertilizers are an important input for agriculture. Chemical
products are an important input for industrial development. The import of these products is
continuously increasing in India. In 1960-61 import of these items amounted to Rs.88 crore only
which increased to Rs.3755 crore in 1997-98.
Imports of consumer goods
It includes the import of food grains, electrical goods, medicines, paper etc., India faced an acute
shortage of food grains till the end of Third Five Year Plan. As a result, India had to import food
grains in large quantities. Import of food grains in 1960-61 was 3748 thousand tonnes (Rs.181
crore). In 1997-98 it was 1399 thousand tones. Now India has achieved self-reliance in food
production.
Direction or sources of imports of India
Sources of imports of India have undergone several important changes during the planning
period. Some important facts are as follows:
At the beginning of economic planning, we were importing from selected countries only. Now
the picture has changed. We import different goods and services from different countries of the
world. At present we get our imports from almost all the countries of the world. For the purchase
of machines and equipments, we depend mainly on OECD (Organization for Economic
Cooperation and Development) countries and East European countries. For the supply of food
grains and petroleum products, we depend on OPEC (Oil Producing and Exporting Countries)
countries. The OECD countries supply largest part of our imports. In 1997-98 out of the total

17. imports of Rs.1,51,553 crore, the imports of Rs.75,593 crore were made (49.9%) from these
countries. Other important suppliers of our imports are USA, Belgium, Germany, Japan and
Britain.
Composition of exports of India
Exports of India may be divided into two parts I) Exports of traditional items and ii) Exports of
non-traditional items.
Exports of traditional items
It includes the exports of tea, coffee, jute, jute products, iron ore, species, animal skin, cotton,
fish, fish products, mineral products etc. At the beginning of the planning era, their items
contributed about 80 percent of our total exports. Gradually, the contribution of these items is
declining and that of non-traditional items is increasing. At present the contribution of traditional
items is about 18.8% in our total exports.
Non-traditional items
It includes the export of sugar, engineering goods, chemicals, iron and steel electrical goods,
leather products, gems and jewellery. There is a significant change in the pattern of exports of
India during recent years. India has started to export a number of non-traditional items to a
number of countries of the world. Contribution of these items is gradually increasing in total
exports of India and shows a declining trend during some years also. Some facts to illustrate the
changes are given below:
Agriculture and allied products which constituted 20.4 percent of total exports in 1996-97,
decreased to 18.8 percent in 1999-2000. ii) Ores and minerals which constituted 3.5 percent of
total exports in 1996-97, decreased to 3 percent in 1999-2000. iii) Manufactured good which
contributed 73.4 percent of total exports in 1996-97, increased to 75.7 percent in 1999-2000. iv)
Crude and petroleum products constituted 1.4 percent of total exports in 1996-97 but decreased
to 1.0 percent in 1999-2000. v) With regard to other items of exports which constituted 1.2
percent in 1996-97 increased to 1.3 percent in 1999-2000.

18. Direction of exports of India
During the planning era, several important charges have taken place in the destination of exports
of India. At present, we deal with about 180
countries including many developed countries. Our major exports are directed towards the
following countries:
OECD countries (Belgium, France Germany, U.K. North America, Canada, USA, Australia and
Japan). Our exports which constituted percent of the total exports in 1990-91 increased to 55.7
percent in 1999-2000.
OPEC countries (Iran, Iraq, Kuwait, Saudi Arabia etc.). Our exports which constituted 5.6
percent of the total exports in 1990-91 increased to 10.0 percent in 1999-2000.
Eastern Europe (GDR, Romania, Russia etc.). Our exports which constituted 17.9 percent in
1990-91 decreased to 3.1 percent in 1999-2000.
Other LDC's (Africa, Asia, Latin America). Our exports constitute 16.8 per cent in 1990-91,
increased to 28.2 percent in 1999-2000.
To sum up, during the last five decades, significant changes have been observed in the volume,
composition and direction of India's trade. Most of these changes have been in consonance with
the development needs of the economy.
What is corporate governance?
Corporate governance is a set of rules, practices and processes used to direct and control a
company. It involves balancing the interests of a company’s stakeholders such as management,
shareholders, suppliers, customers, financiers, government and the community. Moreover, it is
essential for the success and sustainability of the business over a period of time. When the set of
rules and processes which form the governance mechanism of a firm are ineffective or fail, it can

19. have disastrous consequences for a business. Several large organisations such Enron, Satyam,
Cadbury, Wal-Mart & Xerox were severely impacted due to corporate governance failures.
Corporate Governance Failures
It doesn’t happen overnight and there are several warning signs which a firm must take note of in
order to avoid such failures. Some of the governance issues faced by the firms which eventually
lead to corporate governance failures are –
Ineffective governance mechanisms, for example, lack of board committees or committees
consisting of few or a single member.
Non-independent board and audit committee members, for example where a CEO fulfilled
multiple roles in various committees
Management, who deliberately undermines the role of the various governance structures by
circumventing the internal controls and making misrepresentations to auditors and the Board.
Inadequately qualified members, for example, audit committee members not having appropriate
accounting and financial qualifications or experience to analyse key business transactions, family
members holding board positions without appropriate knowledge or qualifications.
Ignorance by regulators, auditors, analysts etc of the financial results and red flags.
Many small businesses in India have been hit hard by the global pandemic. MSMEs are unsure if
they can survive the multiple crises that keep on coming. COVID-19 has brought with it an
increased risk of corruption not only in the public health sector but also in the private sector.
Corporate governance failures have resulted in flashy business tycoons Vijay Mallya and Lalit
Modi absconding from India and the arrest of corporate heavyweights like Rana Kapoor, Chanda
Kochhar and the Singh brothers.
Recovering to a business environment of fairness and integrity won’t be possible without
standing #unitedagainstcorruption. The holy grail of corporate governance is not infallible.
Investors have found this out the hard way when massive corporations like Jet Airways, DHFL,

20. YES Bank, IL&FS, Kingfisher Airlines collapsed. GST and the insolvency law have been
blamed, yet failure to comply with corporate governance rules and not sticking to legislation
cannot be ruled out as the reasons.
Corrupt business practices
Corporate takeovers and mergers call for capital restructuring, which is a prime time for
corruption. If there is no independent director on the Board, there is a chance that members
might not comply strictly with the laws. The company’s takeover could be driven by a board
member having vested interests in the acquisition. Rather than maximising value for the
shareholders, such a move would defeat the purpose of the whole exercise and that person in
question would pocket the gains.
Some companies have been known to meddle with the account books, showing book profits that
haven’t yet translated into cash. This is misleading for auditors and other parties looking at the
account books of the organisation.
Corporate governance failures in India
Here’s a look at how corrupt business practices led to some of the biggest corporate governance
failures in India.
Tata-Mistry fallout
Cyrus Mistry was a director of Tata Sons Ltd. since 2006. The majority of shareholding was held
by trusts of the Tata family. This was to ensure that the control remains with the family even
when Cyrus Mistry joined. The Board frequently disagreed with the decisions of Mistry and
ousted him during one such meeting. Mistry alleged that there was dominant control by the
nominee directors of the trust, including Ratan Tata, who were the “shadow directors” of Tata
Sons Ltd.
Mistry said that he was never provided with a free hand by the promoters to manage the
company and that the promoters were stubborn regarding their own projects. He also alleged that
there was no independence in the working of the independent directors. Nusli Wadia, who was

21. an independent director was also fired for standing up for Cyrus Mistry to maintain his
chairmanship in group companies. This shows the clear abuse of power by the promoters.
ICICI Bank-Videocon bribery case
The Enforcement Directorate had apprehended Deepak Kochhar in September 2020 after it filed
a criminal case for money laundering basis an FIR registered by the Central Bureau of
Investigation (CBI) against the Kochhars, Videocon’s Dhoot, and others.
The federal probe agency alleged that Rs. 64 crore out of a loan amount of Rs. 300 crore
sanctioned by a panel of ICICI Bank headed by Chanda Kochhar (wife of Deepak Kochhar) to
Videocon International Electronics Limited was wired to Nupower Renewables Pvt Ltd (NRPL)
by Videocon Industries on September 8, 2009. The money was transferred a day after the
disbursement of the loan. NRPL, earlier known as Nupower Renewables Limited (NRL), is
owned by Deepak Kochhar.
PNB-Nirav Modi Scam
The Punjab National Bank (PNB), one of the country’s largest public-sector lenders, found itself
in the middle of a Rs. 11,400 crore transaction fraud case in February 2018. The bank had
detected and informed the Bombay Stock Exchange about some “fraudulent and unauthorised
transactions” in one of its branches in Mumbai to the tune of $1771.69 million (approx). The
CBI then received two complaints from PNB against billionaire diamantaire Nirav Modi and a
jewellery company alleging fraudulent transactions worth about Rs. 11,400 crore. This was in
addition to the Rs. 280 crore fraud case that Nirav Modi was already under investigation for,
again filed by PNB. Modi is facing two sets of criminal proceedings. The Central Bureau of
Investigation case relates to the large-scale fraud upon PNB through the fraudulent obtaining of
“Letters of Understanding”, while the Enforcement Directorate is investigating the laundering of
the proceeds of that fraud.
The Satyam scandal
Satyam was a public-listed company and ironically enjoying a good reputation, even winning the
Golden Peacock Global Award for corporate governance at one point. However, the company
colluded with auditors in fraudulent accounting practices to mislead the investors, regulators,

22. board and other stakeholders. The scandal was unravelled when the company’s Chairman
Ramalinga Raju confessed about the misrepresentation in the accounting practices and thereafter
regulators like SEBI stepped in and started taking action.
The issue started with Satyam’s attempt to invest Rs. 7,000 crores in Maytas Properties and
Maytas Infrastructure. These firms were owned by the family members of Raju. The investments
were cleared by the board on 16th December 2008 but were opposed by the investors. The
accounts of the firm were manipulated by assets like cash and bank deposits being overstated,
debts being understated. As a result, the investors filed various lawsuits against Satyam.
Following the Maytas deal and subsequent lawsuits, the decision of Satyam board was reversed.
The World Bank banned Satyam for 8 years to conduct any kind of business while four
independent directors resigned.
The Satyam case sparked a reaction from various corners of corporate India, calling for urgent
change in policy measures. Several agencies like CII (Confederation of Indian Industries),
National Association of Software and Services committee, SEBI Committee on disclosure and
accounting standards etc. started looking into the policy changes regarding the Audit Committee,
Shareholder Rights, Whistle-blower policy etc. These committees prepared various kinds of
suggestions which were later dealt with by the legislature.
Malvinder and Shivinder Singh
The now infamous Singh brothers Shivinder and Malvinder, who were under the scanner of the
Economic Offence Wing (EoW) of the Delhi police for a fraudulent loan from Laxmi Vilas
Bank, are accused of siphoning nearly $2 billion from their corporate empire that spanned across
listed companies including pharma major Ranbaxy, hospital chain Fortis Healthcare and
financial services company Religare Enterprises Ltd (REL).
Malvinder and Shivinder have been accused of diverting the money of Religare Finvest Limited
(RFL), an REL subsidiary. The broad allegations are that Malvinder and Shivinder, along with
other officials of REL, took loans in the name of RFL and diverted the money to other
companies. This caused the company losses of Rs. 2,387 crore! These allegations against
Malvinder and Shivinder Singh are just the tip of the iceberg. According to a Business Today

23. report from 2018, the brothers inexplicably managed to squander a whopping Rs. 22,500 crore
over just one decade.
In a complaint Malvinder accused his younger brother, Shivinder, the Dhillon family and Sunil
Godhwani (former head of REL) of criminal conspiracy, cheating and fraud for allegedly
siphoning off thousands of crores from RHC Holdings, the group’s holding company that once
promoted Fortis Hospitals and Religare. Meanwhile, SEBI has accused the Singh brothers of
diverting Rs. 403 crores from Fortis Healthcare to RHC.
Dewan Housing Finance Limited (DHFL)
The DHFL scandal was the biggest corporate fraud of 2019, and is still under investigation. It is
a classic case of meddling with the books – that we mentioned earlier – getting the company into
trouble. In this case, the “Bandra Books” were at the centre of the massive corporate fraud
which is still under investigation. The supposed Bandra branch for which a parallel set of books
exist, does not exist in reality. It was a completely made up entity for the corrupt business
practices to thrive.
A forensic report declared: “out of the Rs. 23,815 crores shown as disbursed to Bandra Book
entities in the accounts of the Company, only Rs. 11,755.79 crores was actually disbursed” to 91
entities, but was portrayed as comprising 2,60,315 home loan accounts. In fact, when the auditor
“verified some of these “91 entities”, it was found that 34 of them had invested part of the loan
amount back into companies linked with DHFL. According to SEBI, if the fake income in the
Bandra books is taken out, DHFL has been making losses for years on end. The fraud has
allowed DHFL to raise a whipping Rs. 24,000 crores through public issue of debt securities.
YES Bank
In the absence of a credible revival plan, and in the interest of YES Bank’s depositors, the RBI
(Reserve Bank of India) took control of YES Bank in March 2020. The story of YES Bank is
nothing short of a John Grisham novel. It was founded as an NBFC (non-bank financial
company) in 1999, and became a full-fledged bank in 2003. Its board members battled constantly
for the top spot, with Former Managing Director and CEO Rana Kapoor being popular for

24. propping up the market by agreeing to disburse loans to corporate borrowers rejected by other
banks. The bank would charge a huge upfront fee and most borrowers were defaulters at will.
The financial position of Yes Bank has undergone a steady decline largely due to inability of the
bank to raise capital to address potential loan losses and resultant downgrades, triggering
invocation of bond covenants by investors, and withdrawal of deposits. The bank has also
experienced serious governance issues and practices in recent years which have led to its steady
decline. The RBI was in constant engagement with the bank’s management to find ways to
strengthen its balance sheet and liquidity. The bank management had indicated to the RBI that it
was in talks with various investors and they were likely to be successful.
RBI was also engaged with a few private equity firms for exploring opportunities to infuse
capital as per the filing in stock exchange dated February 12, 2020. These investors did hold
discussions with senior officials of RBI but for various reasons eventually did not infuse any
capital. Since a bank and market-led revival is a preferred option over a regulatory restructuring,
the RBI made all efforts to facilitate such a process and gave adequate opportunity to YES
Bank’s management to draw up a credible revival plan, which did not materialise. In the
meantime, the bank was facing regular outflow of liquidity. It wasn’t long before the bank
collapsed and RBI was forced to apply to the Central Government for imposing a moratorium on
YES Bank.
Cafe Coffee Day
The coffee chain Cafe Coffee Day (which loyalists called CCD) had over 1750 outlets across the
nation at one point in time. It was India’s biggest coffee chain in the 2000s. Proprieter V.
Siddhartha came from a prestigious family with a 140-year history of growing coffee beans. A
chat with a German coffee maker inspired him to launch Cafe Coffee Day as a rival to Starbucks
right when the cafe culture had begun to brew among young people. The chain went public in
2015 and it looked like things could only get better, what with rumours of Coca Cola planning to
invest a whopping 2,500 crores into the company.
However, things took a turn in September 2017 when the Income Tax (I-T) department
conducted raids at over 20 locations linked to Siddhartha. He was reportedly heavily in debt. His
Coffee Day Enterprises Ltd had seen net loss widening to Rs. 67.71 crore in the fiscal year ended

25. March 31, 2018 from Rs. 22.28 crore loss in the previous year. This despite revenues climbing to
122.32 crores. He disappeared suddenly one evening in 2019.
A letter by him to the CCD Board claimed that he was being pressured by “one of the private
equity partners” forcing him to buy back shares, a transaction he had partially completed six
months ago by borrowing a large sum of money from “a friend”. His dead body was found 36
hours after he went missing in Mangaluru. It was apparently a case of suicide.
Evidence points to Siddhartha having taken on debt in his private capacity to buy land and invest
in long gestation projects, and angry lenders hounding him for quick returns. While the 2000s
decade saw the rise of Cafe Coffee Day, the period also saw debt piling up. The company needed
funds for both operations and capex. In 2010, Standard Chartered Private Equity (Mauritius) II
Ltd, KKR Mauritius PE Investments II Ltd, and Arduino Holdings Ltd (which later transferred
the debentures to NLS Mauritius LLC) invested close to $149 million. Compulsorily convertible
preference shares held by Standard Chartered Private Equity (Mauritius) II Ltd and the
compulsory convertible debenture held by KKR Mauritius PE Investments II Ltd and NLS
Mauritius LLC was converted into equity shares at the time of listing. By June 2015, the
consolidated debt was a whopping Rs. 2,700 crore, a knot the board couldn’t wriggle out of.
Jet Airways
Jet Airways was India’s second largest airline until the year 2018 with 13.8% market share. It
saw its last flight on 18th April 2019 after running out of funds to carry out operations and left
more than 15,000 employees in the lurch. The company’s dues to banks are around Rs. 8,500
crores. Jet Airways owes another Rs. 25,000 crores in arrears to lessors, employees and other
firms. Corporate governance failures by its Chairman Naresh Goyal are the culprits. The
downfall of Jet Airways follows a string of other failed airlines including Kingfisher, Sahara and
Deccan, pointing to bad corporate governance in the airline sector.
The Goyal family owned the majority share in the airline and Naresh Goyal was the Chairman of
the board. A promoter-led board is often at the danger of creating a spineless board, often serving
at the wish and command of the promoter-chairman. Two independent directors, Vikram Mehta
Singh and Ranjan Mathai, resigned from the Board in November 2018. The decision by the
board to not accept an investment offer by the Tata Group was financially imprudent as a deal

26. would have infused capital and saved the airline. It also looks as though the decision was made
with the sole interest of the promoter than the consideration of the stakeholders as well as the
employees.
International Anti-Corruption Day 2020 is another chance for India Inc to pledge being united
against corruption.
Current state of growth and investment in India
Introduction
Over the years, India has emerged as one of the fastest growing economies in the world and an
attractive investment destination driven by economic reforms and a large consumption base.
India’s real gross domestic product (GDP) at current prices stood at Rs. 195.86 lakh crore (US$
2.71 trillion) in FY21, as per the second advance estimates (SAE) for 2020-21. Simultaneously,
the per capita income at current prices was estimated at Rs. Rs. 127,768 (US$ 1,765.43) in FY21.
In a country like India, the seven major infrastructural factors that are most significant in
accelerating the pace of economic development are: energy, transport, irrigation, finance,
communication, education, and health. The first five refer to economic infrastructural facilities,
while the latter two relate to social infrastructure. India has the second largest road network in
the world, spanning a total of 5.5 million kilometres (kms).
With a generation of 1,561 terawatt-hour (TWh), India is the third largest producer and the third
largest consumer of electricity in the world. As of February 2021, India had a total installed
power-generation capacity of 379,130.41 MW, of which 96,186.93 MW was contributed by
central utilities, 103,628.39 MW (state utilities) and 179,315.10 MW (private utilities).
The Indian banking system consists of 20 public sector banks, 22 private sector banks, 44 foreign
banks, 44 regional rural banks, 1,542 urban cooperative banks and 94,384 rural cooperative
banks in addition to cooperative credit institutions. As of September 2020, the ATM industry in
India increased to ~2.5 lakh ATMs. Debit cards in India doubled to 86 crore in September 2020,
of which ~30% (i.e., 30 crore) are RuPay cards issued to the PM Jan Dhan Yojana accounts.

27. A host of factors has enabled this growth, which includes a highly developed financial system,
infrastructure requirement and proactive Government initiatives. Domestic and foreign
investment has made an impact on the country’s growth.
Recent Developments/Investments
In March 2021, the Ministry of Electronics and IT (MeitY) invited applications for the second
round of large-scale electronics manufacturing under the production-linked incentive (PLI)
scheme. The application window for the scheme has been opened until March 31, 2021, which
could be further extended in accordance with the guidelines issued by the MeitY (Ministry of
Electronics and IT).
In March 2021, the Ministry of Electronics and Information Technology (MeitY) has requested
expressions of interest (EoIs) from organisations interested in establishing
LCD/OLED/AMOLED/QLED-based display fabrication units in India.
India’s overall exports from April 2020 to February 2021 were estimated at US$ 439.64 billion,
a 10.14% YoY decrease. Overall imports from April 2020 to February 2021 were estimated at
US$ 447.44 billion (a 20.83% YoY decrease).
As of March 10, 2021, foreign portfolio investment inflows into equities stood at US$ 36 billion
in FY21.
The Private Equity - Venture Capital (PE-VC) sector recorded investments worth US$ 47.6
billion across 921 deals in 2020. This growth was mainly attributed to fundraising by Jio
Platforms and Reliance Retail (i.e., investments worth US$ 17.3 billion, accounting for 36% of
all PE/VC investments in 2020).
In February 2021, gross tax revenue stood at Rs. 113,143 crore (US$ 15.58 billion).
In 2020, merger and acquisition (M&A) activities increased by 33% to US$ 36.9 billion.
To enhance funding for infrastructure and real estate, the finance bill proposed amendments
(under the Union Budget 2021-22) to allow foreign portfolio investors (FPIs) to participate in
debt financing of emerging investment vehicles such as REITs and InvITs.

28. The Securities and Exchange Board of India (SEBI) directed stamp duty on alternative
investment funds (AIFs), effective from July 1, 2020.
In November 2020, assets managed by mutual funds reached Rs. 29.83 trillion (US$ 407.52
billion).
In December 2020, Coal India announced to invest Rs. 3,370 crore (US$ 460.39 million) to
develop 21 railway sidings to transport coal.
Road Ahead
India is presently known as one of the most important players in the global economic landscape.
The country is on a fast pace growth and is expected to become a US$ 5 trillion economy by
2022. Going by the estimates of Government of India, the country will need investment of US$
4.5 trillion to build sustainable infrastructure by 2040. The Union Budget 2021-22 highlights a
34.5% increase in capital expenditure—Rs. 142,151 crore (US$ 19.58 billion)—compared with
BE 2020-21 to boost economic growth through infrastructure development. Increased
government investment is expected to attract private investments, coupled with the government's
key Production-linked Incentive Scheme providing significant support.
A positive agricultural outlook remains a significant lever for revitalising rural demand and
accelerating consumption. The Mahatma Gandhi National Rural Employment Guarantee Scheme
(MGNREGS) has generated 350 crore individual days of jobs as of February 28, 2021, a
substantial increase of 41.6% over FY20. The agricultural sector's growth will be supported even
further by the Union Budget 2021-22, driven by increased investments in rural infrastructure,
highways and agriculture infrastructure, as well as a strong drive for fisheries and seaweed
production, and increased credit flow to allied industries.
India's real GDP growth for FY22 is projected at 11%, according to the Economic Survey 2020-
21. The WEO January 2021 forecasts an 11.5% increase in FY22 and a 6.8% rise in FY23.
According to the IMF, India is also expected to emerge as the fastest-growing economy in the
next two years.