Wef india competitiveness report 2009

TheIndia Competitiveness Review 2009

Thierry Geiger, World Economic Forum

Sushant Palakurthi Rao, World Economic Forum

In collaboration with

Confederation of Indian Industry

PricewaterhouseCoopers

The India Competitiveness Review 2009 is publishedby the World Economic Forum within the framework ofthe Global Competitiveness Network.

At the World Economic Forum

Professor Klaus SchwabFounder and Executive Chairman

Robert GreenhillManaging Director and Chief Business Officer

EditorsThierry Geiger, Associate Director, Economist, GlobalCompetitiveness Network; Global Leadership FellowSushant Palakurthi Rao, Director, Head of Asia

Global Competitiveness NetworkJennifer Blanke, Director, Senior Economist, Head ofthe Global Competitiveness NetworkCiara Browne, Associate Director Margareta Drzeniek Hanouz, Director, SeniorEconomistIrene Mia, Director, Senior EconomistCarissa Sahli, Team CoordinatorPearl Samandari, Community ManagerEva Trujillo Herrera, Research Assistant

Asia Regional Agenda TeamFabien Clerc, Community Manager; Global LeadershipFellowAnne-Catherine Gay des Combes, CommunityRelations ManagerBéatrice Laenzlinger, Senior Community RelationsManagerJaeyoung Lee, Community Manager; GlobalLeadership FellowKaren Sim, Community Manager; Global LeadershipFellowChristoph S. Sprung, Senior Community Manager

The editors would like to extend a special thank you tothe following World Economic Forum staff: Janet Hillfor her excellent editing work, Kristina Golubic for hergraphic design and layout, and Kamal Kimaoui whoorganized the production of this review.

World Economic Forum91-93 route de la CapiteCH-1223 Cologny/GenevaSwitzerlandTel.: +41 (0)22 869 1212Fax: +41 (0)22 786 2744E-mail: [email protected]

© 2009 World Economic ForumAll rights reserved. No part of this publication may be reproduced, stored in a retrievalsystem, 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

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

Contents

The India Competitiveness Review 2009 | 1

The India Competitiveness Review 2009 is beingpublished at an important moment for India’seconomic development. India has experienced twodecades of remarkable growth, unleashed by theimplementation of important reforms in the early1990s. This impressive economic performance,coupled with a population of 1.2 billion, leaves nodoubt that India is an important player in the globaleconomy.

Despite these clear strengths, India has not beenspared the fallout of the global economic crisis, withgrowth slowing significantly in 2008 and 2009. Theslowdown underscores the importance of puttinginto place the factors and policies that will ensuresustained economic growth and prosperity for thebenefit of all Indians. As the world slowly emergesfrom the crisis, the time is propitious for India to takestock of its competitive strengths, as well as thoseareas hindering its development. This year alsomarks the 25th anniversary of the World EconomicForum’s engagement in India, providing an excellentopportunity to reflect upon how the country'scompetitiveness has progressed over the period andwhat remains to be achieved.

The India Competitiveness Review builds on themethodology and findings of the World EconomicForum’s Global Competitiveness Report 2009-2010,and aims to further the understanding of the maincompetitiveness challenges ahead for India. Thereview provides a unique platform for discussion anda valuable tool for policy-makers, businessstrategists and other stakeholders to use inidentifying the main hurdles to growth and designingbest policies and practices to fostercompetitiveness. We hope the review will providesupport for any discussion on India’scompetitiveness aimed at generating concreteinsight and priorities for action.

We would like to express our gratitude to thedistinguished experts from the Confederation ofIndian Industry and PricewaterhouseCoopers, whohave contributed excellent papers to the review,casting light on different aspects key to enhancingIndia’s competitiveness. We especially wish to thankthe editors of the review, Thierry Geiger and SushantPalakurthi Rao, for their leadership and commitment.Appreciation also goes to Robert Greenhill, ChiefBusiness Officer at the Forum, and Jennifer Blanke,Head of the Global Competitiveness Network, aswell as her team: Ciara Browne, Margareta DrzeniekHanouz, Irene Mia, Carissa Sahli, Pearl Samandariand Eva Trujillo Herrera. In addition, this reviewwould not have been possible without the hard workand enthusiasm of our network of 150 PartnerInstitutes worldwide who carry out the ExecutiveOpinion Survey, which provides the basis of thisreview.

Klaus SchwabFounder and Executive ChairmanWorld Economic Forum

Preface

2 | The India Competitiveness Review 2009

Assessing India’s Competitiveness: Insightsfrom the Global Competitiveness Index

In the first chapter, Thierry Geiger and SushantPalakurthi Rao, both at the World Economic Forum,use the results of the Global Competitiveness Index(GCI) to carry out an in-depth assessment of India’scompetitiveness landscape.

The GCI provides a methodological framework toassess “the set of institutions, policies and factorsthat determine the level of productivity of a country.” Itcomprises a large number of drivers of competitivenessorganized in 12 categories – the 12 “Pillars” ofcompetitiveness. Countries are expected to movethrough a sequence of development steps to build uptheir competitiveness, starting with the more basicfactors (e.g. institutions, infrastructure, health,education) and moving to more complex ones (e.g.technological readiness, business sophistication,innovation). To mirror this sequence, the GCI classifiescountries into three stages of development (factor-driven, efficiency-driven and innovation-driven) andattributes different weights to each Pillar by function ofthe stage of development. That is, the more advanceda country, the less weight on the basic factors and themore weight on the more complex ones.

India ranks 49th out of 133 economies in the GCI2009-2010, up one rank from the previous edition.Given India’s present level of development, itscompetitiveness is factor-driven. What matters mostfor India are the first four Pillars that form the BasicRequirements Subindex, which together account for60% of the overall GCI score. It is precisely in thisSubindex that India presents the greatest shortcomings.The country very much underperforms in the Healthand Primary Education Pillar (101st). The sanitarysituation is particularly alarming, with some indicatorscomparing unfavourably even with the sub-SaharanAfrica region. Both the quality and quantity ofeducation are insufficient. India has been runningcavernous deficits, weighing heavily on itsperformance in the Macroeconomic Stability Pillar(96th). Energy and transport infrastructures are in astate of disrepair (76th). In this context, India’s rank of54th for the quality of institutions is encouraging,although corruption and security remain major issues.

India’s performance in the second Subindex,Efficiency Enhancers, is better, albeit uneven. ThisSubindex accounts for 35% of India’s GCI score and

is of particular importance to the development of theindustry and services sectors. The country boasts adeveloped financial system (16th) with a particularlysound banking sector (25th). Another competitiveadvantage is the size of its market (4th overall). TheIndian goods market is also fairly efficient (48th)thanks to fierce competition and despite thepresence of important barriers to entry. On a morenegative note, the difficulty of hiring and firingemployees makes the labour market rigid (83rd). Thecountry’s technological readiness (83rd) continues tobe held back by low penetration rates forinformation and communications technologies.Firms, however, are generally adept at adopting andusing the latest technologies. Finally, highereducation in India (66th) is of relatively good quality,but access to it remains a privilege of the few.

Compared with the mixed performance in the other twoSubindexes, India’s showing in the two most complexareas of competitiveness, Business Sophistication(27th) and Innovation (30th), is truly remarkable. Thisreflects, to a large extent, the brisk development ofIndia’s private sector and of a few industries inparticular. Yet, at present, these two categoriesaccount for just 5% of the overall GCI score becausethey are not yet the engine of India’s productivity.

To place India’s performance in context, the authorsdraw parallels with a number of countries andcountry groups. The analysis reveals that India lagsbehind almost all comparators in the areas of healthand primary education, labour markets,technological readiness and macroeconomicstability. China ranks ahead of India in 10 out of the12 Pillars – often by a wide margin. However, Indiapossesses a number of competitive advantages inseveral Pillars, namely Institutions, Financial MarketSophistication, Market Size, Business Sophisticationand Innovation.

India has come a long way since 1991 to becomeone of the world’s fastest growing economies. Thisis not only remarkable, but also necessary: Indianeeds to continue growing at this pace and,possibly, faster to create enough jobs, prevent socialunrest and raise the living standards of all Indians. Toachieve that, the country will have to address in aprompt and decisive manner the many shortcomingsidentified in this analysis.

Executive Summary



In the second chapter, Bidisha Ganguly and TanviGarg from the Confederation of Indian Industry,examine some of the sources of strength for the Indianeconomy, as well as the challenges faced by policy-makers in addressing the critical needs for fosteringmore inclusive growth and development; this wouldreinforce the country’s productivity and competitiveness.

The Indian economy has gained strength from therecent period of comparative macroeconomic stability,characterized by acceleration in growth, a surge indomestic savings and investment, and healthy corporateperformance. The structure of the economy has alsoundergone considerable change in the last decade, asIndia has been integrating more into the world economy.Going forward, there are several factors favouring India’scompetitiveness. These include the relatively inexpensiveand skilled labour force – India’s demographic dividend– the availability of key raw materials and a large andfast growing domestic market.

Yet, much remains to be done. Policy-makers need tofocus on significantly reducing poverty and improvingliving standards. One of the key challenges is toprovide quality employment to the large number ofpeople entering the workforce, as well as to thoseleaving the agriculture sector. So far and despite briskgrowth, the benefits in terms of job creation have beenrelatively limited. Much also needs to be done toimprove the situation in the areas of health andeducation. Public spending has been increasing inthese areas through several initiatives, but this needsto be amplified. The third area where the governmentneeds to focus is infrastructure, in particular powerand transport infrastructure, which face majorshortages made worse by rapid economic growth.Upgrading infrastructure will require a considerablestep-up in private and public investment.

Lately, the government has been focusing on urgentmeasures to soften the impact of the global economiccrisis. Now that India’s economy is recovering from thecrisis, the authors conclude that it is a good time for policy-makers to shift focus back on longer-term imperatives.

India’s competitiveness: The View from CEOs

In the third chapter, N. Ramesh Rajan and JairajPurandare, both at PricewaterhouseCoopers, India,present the findings of PricewaterhouseCoopers’ 13th

Annual Global CEO Survey, conducted in September2009. The survey reveals that despite the globaleconomic crisis, an optimistic sentiment prevails inIndia. Sixty-two chief executive officers (CEOs) ofIarge Indian companies indicated that theirconfidence was high, with 97% either very confidentor somewhat confident of their revenue growthprospects over the coming 12 months. Underlyingthis confidence is the CEOs’ belief that the country’seconomy is well on its way to recovery, with nearlytwo-thirds expecting recovery by the middle of2010. South Asia, China and the United States willbe the most important markets outside of Indiaduring the recovery.

India’s rise in global competitiveness is widelyassociated with its services sector, which is forecast torepresent over 90% of economic growth in 2010. Still,42% of CEOs surveyed believe the country’smanufacturing sector has improved its globalcompetitiveness since the financial crisis began, withmany citing cost competitiveness and productivitygains as drivers. This suggests a diversification ofIndia’s global capabilities is underway, with manufacturinggrowth complementing India’s vaunted servicesindustries. It also points to a different set of competitorson the global stage: 34% of Indian CEOs expectmanufacturing powerhouse China to be India’s greatestcompetitor in global markets during the recovery, whileonly 6% of them named the United States.

For this diversification to take place, however, CEOsconsistently say the country still needs to develop itsinfrastructure. A shift towards manufacturing will onlymake the deficit, including in transportationinfrastructure, more acute. What is more, CEOsbelieve an educated workforce has been vital toIndia’s past competitiveness, but the country willneed to step up its investment in education – atevery level – to sustain growth. The potential forlabour shortages remains in all industries.

A majority of Indian CEOs expressed concern about19 of the 20 potential threats to growth that weresurveyed, including exchange rate volatility, aprotracted global recession, over-regulation, terrorismand energy costs. Accordingly, more CEOs reportedthey are planning to change their risk managementfunctions than other corporate functions. The desire toavoid or mitigate systemic risks is likely to be anenduring legacy of the global economic crisis.


Introduction

The publication of The India Competitiveness Reviewcomes at a critical time for India’s economy. Theseverity of the global economic crisis – the worstsince the Great Depression – has demonstrated thefragility of economic growth among industrializedand developing countries alike. India has not beenspared its fallout. Growth slowed from a brisk 9.4%in 2007 to 7.4% in 2008, and is expected to fall to5.4% in 20091. The recent turmoil underscores theimportance of not losing sight of long-termcompetitiveness fundamentals amid short-termurgencies. Competitive economies are those thathave in place factors driving the productivityenhancements on which their present and futureprosperity are built.

Now that the world appears to be slowly emergingfrom the crisis, the time is propitious for India to takestock of its competitive strengths, as well as thoseareas hindering its development. This year marks the25th anniversary of the World Economic Forum’sengagement in India, providing an excellentopportunity to reflect on how India’s competitivenesshas progressed over the period and what remains tobe achieved to ensure a prosperous future.

From an economic standpoint, the past two decadeshave been remarkable for India. In 1991, the Indiangovernment unleashed an unprecedented programmeof economic reforms that put India on the path ofsustained growth (see Figure 1). GDP grew at anannualized rate of 6.2% between 1991 and 20082.This contrasts sharply with the three decades thatfollowed independence in 1947, which had beencharacterized by inward-looking policies and acomplex system of socialist economic controls – theinfamous license raj – heavy state interventionismand central planning. This system resulted in erratic,lacklustre growth rates, on average 4% per yearbetween 1960 and 1991. The 1990s thereforemarked a turning point in India’s history. India is nowone of the fastest growing economies and, with apopulation of 1.2 billion, is the world’s second mostpopulous country. There is no doubt India is anincreasingly important player in the global economy.

However, India is not yet one of the worldeconomy’s engines. Its economy is the smallestamong the four emerging market BRIC economiesand the world’s 12th largest (see Table 1)3. Further,India systematically lags behind China and manylarge emerging economies in several measures ofeconomic and social performance. Its GDP percapita is just US$ 1,000, one-third of China’s and

Assessing India’s Competitiveness: Insights from the Global Competitiveness Index


Thierry Geiger and Sushant Palakurthi Rao, World Economic Forum

0

200

400

600

800

1,000

0

200

400

600

800

1,000

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

Real GDP*, $ billion

*Base year is 2000. **Compound annual growth rate

Real GDP*/ capita , $

CAGR +6.3%**

CAGR +4.0%**

Source: World Bank 2009a

Figure 1: India’s GDP and GDP Per Capita Growth

one-eighth of Brazil’s4. As of 2005, according to theWorld Bank, some 42% of Indians still lived belowthe extreme poverty line of US$ 1.25 a day, downfrom 54% in 1988 (see Figure 2)5. Over the sameperiod, extreme poverty in China dropped from 54%to 16%. India ranks 134th in the latest HumanDevelopment Index (HDI) not only far behind China(92nd), but also the Philippines (105th) and Indonesia(111th)6. Life expectancy in India is just 64 years, 8years less than in China, while the infant mortalityrate is three times China’s rate. Trade and investmentdata also reveal the gap between India and China. In2007, foreign direct investment (FDI) in Indiaamounted to US$ 23 billion, four times less than intoChina, while exports of goods and services amountedto US$ 239 compared with US$1,340 billion – ahigher figure than India’s overall GDP – for China7.

In sum, India has come a long way, but still hassignificant room for improvement to ensure strongand inclusive economic growth in the coming years.The country will have to leverage its competitivestrengths and overcome obstacles to enhancedcompetitiveness and productivity. The WorldEconomic Forum’s Global Competitiveness Index(GCI) represents a valuable tool for identifying andmeasuring the obstacles and drivers of India’sproductivity and competitiveness. It also allows forinsightful comparative analysis with relevantcountries and regions.

The next section presents an overview of the GCImethodology and data used to assess thecompetitiveness of nations. The section that followsprovides an overview of India’s performance in the


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 1,409India 49 1,207 1,017 6.2 1,186 1,658Brazil 56 1,573 8,295 2.9 194 254Russian Federation 63 1,677 11,807 1.9 142 108

Table 1: Selected Indicators for the BRIC Countries

Source: IMF 2009a; UNFPA 2008; World Economic Forum 2009

* Current prices. **1992-2008 for Russian Federation

56 54 49

42

0

20

40

60

80

100

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

India China Pakistan Philippines % of population

Source: World Bank 2009a

Figure 2: Poverty Trends in India and Selected Comparators: Percentage of Population Living on Less Than US$ 1.25 a Day (PPP)

GCI as well as an analysis of each Pillar. The finalsection provides some general conclusions aboutIndia’s competitiveness landscape.

The Global Competitiveness IndexFramework

Introduced in 2004, the Global CompetitivenessIndex has become one of the most respected andbroadly used tools to assess competitiveness.Developed by Professor Xavier Sala-i-Martin ofColumbia University and the World EconomicForum, the GCI is a highly comprehensive index thatcaptures the microeconomic and macroeconomicfoundations of national competitiveness. Competitivenessis defined as “the set of institutions, policies andfactors that determine the level of productivity of acountry.”8 Taking into account the complex nature ofcompetitiveness, the Index identifies 12 Pillars ofCompetitiveness (see Figure 3), reflecting the diverseand interrelated factors that have a bearing onnational long-term potential for sustained growth.

Below is a brief description of each Pillar composingthe GCI9. Appendix A provides a detailed structureof the Index.

1st Pillar: Institutions – The quality of public andprivate institutions, including perceived fairness andtransparency of public institutions, governmentefficiency, security level and corporate governance2nd Pillar: Infrastructure – The quality and extentof general and specific basic infrastructure, includingroads, railroads, ports, air transport and fixed telephony3rd Pillar: Macroeconomic Stability – Thesoundness of the macroeconomic environment4th Pillar: Health and Primary Education – Thegeneral health level of a country’s population and thequality of and access to basic education5th Pillar: Higher Education and Training – Thequality of and access to secondary and university-level education and effectiveness of on-the-job training6th Pillar: Goods Market Efficiency – The extentof domestic and foreign competition in a givenmarket and the quality of demand conditions


BASIC REQUIREMENTS

1. Institutions 2. Infrastructure 3. Macroeconomic Stability 4. Health and Primary Education

Key for

FACTOR-DRIVEN

economies

EFFICIENCY ENHANCERS

5. Higher Education and Training 6. Goods Market Efficiency 7. Labor Market Efficiency 8. Financial Market Sophistication 9. Technological Readiness 10. Market Size

Key for

EFFICIENCY-DRIVEN

economies

SOPHISTICATION & INNOVATION FACTORS

11. Business Sophistication 12. Innovation

Key for

INNOVATION-DRIVEN

economies

Source: World Economic Forum 2009a

Figure 3: The 12 Pillars of the Global Competitiveness Index

7th Pillar: Labour Market Efficiency – The flexibilityof the labour market and the degree to which itensures the efficient allocation and use of talent8th Pillar: Financial Market Sophistication – Thesophistication and trustworthiness of financial markets9th Pillar: Technological Readiness – The penetrationof information and communication technologies (ICT)and countries’ capacity to leverage technology andknowledge, notably through FDI, and in theirproduction systems10th Pillar: Market Size – The size of the domesticand foreign markets available for firms operating in agiven country11th Pillar: Business Sophistication – At the firmlevel, the degree of sophistication of operations andcompany strategies and the presence anddevelopment of clusters12th Pillar: Innovation – The national potential togenerate endogenous innovation

Underpinning this methodological framework is theidea that, although all 12 Pillars matter indetermining competitiveness, each does so to avarying extent, depending on each country's specificstage of development. Factors that crucially drivenational competitiveness evolve as economies movealong the development path. In this sense, the GCIbuilds upon well-known theories of stages ofdevelopment10 classifying economies into threestages: factor-driven, efficiency-driven andinnovation-driven.

In the initial factor-driven stage, countries competebased on their factor endowments – primarily unskilledlabour and natural resources – and their economiesare centred on commodities and/or basicmanufactured products. Efficient public and private

institutions (1st Pillar); well-developed infrastructure(2nd Pillar); good macroeconomic fundamentals (3rdPillar); and a healthy and literate labour force (4th Pillar)are critical for competitiveness at this stage.

As countries progress to the efficiency-driven stage,their competitiveness becomes increasingly basedupon well-functioning factor markets and efficientproduction processes and practices at the firm level.Important elements at this stage include qualityhigher education and training (5th Pillar); efficientmarkets for goods and services (6th Pillar); flexibleand well-functioning labour markets (7th Pillar);sophisticated financial markets (8th Pillar); the abilityto leverage existing technologies, notably ICT, in thenational production system (9th Pillar); and a largedomestic and/or foreign market allowing foreconomies of scale (10th Pillar).

In the most advanced, innovation-driven stage, countriesare able to sustain higher wages and the associatedstandard of living only if their businesses are able tocompete with new and unique products. At this stage,companies must compete through innovation (12thPillar), producing new and different goods using themost sophisticated production processes (11th Pillar).

Countries are allocated to the different stages ofdevelopment according to their level of GDP per capitaat market exchange rates, used as a proxy for wages.This criterion is complemented by a second onemeasuring the extent to which countries are factor driven,using as a proxy the share of exports of mineral productsin total exports (goods and services); the assumptionis that countries that export more than 70% of mineralproducts (measured using a five-year average) are, toa large extent, factor driven.


SophisticationStage 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, VietnamTransition from stage 1 to 2 2,000-3,000 40-60 35-50 5-10 IndonesiaStage 2: Efficiency driven 3,000-9,000 40 50 10 Brazil, China, MalaysiaTransition from stage 2 to 3 9,000-17,000 20-40 50 10-30 Russian FederationStage 3: Innovation driven > 17,000 20 50 30 Korea Rep., United States

Table 2: Weights and Thresholds of the Three Subindexes per Stage of Development


Weight (%) of Subindex in overall GCI

The concept of stages of development is integratedinto the Index by attributing higher relative weights tothose Pillars that are more relevant for a country,given its particular stage of development. To takethis into account, the Pillars are organized into threeSubindexes, each critical to a particular stage ofdevelopment (see Figure 3).

The Basic Requirements Subindex groups thosePillars most critical for countries in the factor-drivenstage. The Efficiency Enhancers Subindex includesthose Pillars critical for countries in the efficiency-driven stage. And the Innovation and SophisticationFactors Subindex includes the Pillars critical tocountries in the innovation-driven stage. The specificweights attributed to each subindex in every stageof development are shown in Table 211.

The table shows that India is currently in the factor-driven stage of development. Therefore, itscompetitiveness depends critically on the firstthrough fourth Pillars. These four Pillars account fora full 60% of the overall GCI weight. The score ofIndia on the other two Subindexes, namely EfficiencyEnhancers and Innovation and SophisticationFactors, account for 35% and 5%, respectively.

The GCI is composed of a combination of hard andsurvey data capturing both quantitative and qualitativedeterminants of national competitiveness. Hard data

capture quantitative factors, such as inflation rate,public debt and educational enrolment rates, and arecollected by international organizations, including theInternational Monetary Fund, the World Bank and variousUnited Nations agencies. Internationally collected andvalidated data ensure its comparability across countries.

The survey data gauge dimensions that are morequalitative in nature or for which no hard data areavailable for a large number of countries, but arenonetheless crucial to national competitiveness.Survey data are derived from the Executive OpinionSurvey, a study conducted annually by the WorldEconomic Forum in collaboration with a network ofPartner institutes located in each of the economiescovered by the study. In 2009, the Survey wasadministered to over 13,000 business leadersacross 133 economies12.

Assessing India’s Competitiveness

India ranks 49th out of 133 economies in the GlobalCompetitiveness Index 2009-2010, up one rank fromthe previous edition. Looking further back reveals that,in recent years, India’s performance has been verystable, with a slight measurable improvement as shownin Figure 4. In 2005, India ranked 46th out of 114economies. Taking into account only the 114economies covered that year, India would rank 44ththis year – a small gain of two ranks

13.


Edition 2005-2006

(out of 133)within 2005-06

sample (out of 114)

Global Competitiveness Index 49 44 46

047445snoitutitsnI :ralliP ts1

170767erutcurtsarfnI :ralliP dn2

394869Macroeconomic Stability :ralliP dr3

4th Pillar: Health and Primary Education

5th Pillar: Higher Education and Training

335484Goods Market Efficiency :ralliP ht6

944738Labour Market Efficiency :ralliP ht7

8th Pillar: Financial Market Sophistication

856738Technological Readines :ralliP ht9

444Market Size :ralliP ht01

627272 noitacitsihpoS ssenisuB :ralliP ht11

620303noitavonnI :ralliP ht21

Rank2009-2010

1 2 3 4 5 6 7

Score

2005-2006

2009-2010

101 92 92

66 61 55

16 16 34


Figure 4: India’s Performance in the Earliest and Latest Editions of the GCI


Malaysia 33 5.12 43 4.53 26 5.05 42 5.00 34 5.90China 36 5.09 48 4.39 46 4.31 8 5.93 45 5.72Russian Federation 64 4.43 114 3.23 71 3.62 36 5.24 51 5.65Indonesia 70 4.30 58 4.00 84 3.20 52 4.82 82 5.20India 79 4.18 54 4.21 76 3.47 96 4.23 101 4.82Brazil 91 4.04 93 3.50 74 3.50 109 3.93 79 5.24Vietnam 92 4.02 63 3.93 94 3.00 112 3.86 76 5.28Philippines 95 3.94 113 3.24 98 2.91 76 4.54 93 5.07Pakistan 114 3.53 104 3.31 89 3.06 114 3.81 113 3.95BRC 64 4.52 93 3.70 71 3.81 36 5.03 51 5.54Developing Asia (excl. India) 92 4.20 73 3.76 89 3.38 76 4.65 82 5.01Lower middle income (excl. India) 89.5 4.06 97 3.57 80 3.28 78 4.48 86.5 4.92OECD 23.5 5.28 22.5 4.93 19.5 5.16 41.5 4.98 22 6.05

Rank Score Rank Score Rank Score Rank Score Rank Score

Basic 1. Institutions 2. Infrastructure 3. Macroeconomic 4. Health and Requirements Stability Primary Education

Table 3 GCI 2009-2010 Results for India and Selected Comparators


Malaysia 24 4.87 33 5.12 25 4.76 24 4.43China 29 4.74 36 5.09 32 4.56 29 4.23India 49 4.30 79 4.18 35 4.52 28 4.24Indonesia 54 4.26 70 4.30 50 4.24 40 4.03Brazil 56 4.23 91 4.04 42 4.41 38 4.08Russian Federation 63 4.15 64 4.43 52 4.20 73 3.47Vietnam 75 4.03 92 4.02 61 4.08 55 3.72Philippines 87 3.90 95 3.94 78 3.91 74 3.45Pakistan 101 3.58 114 3.53 92 3.69 84 3.39BRC 56 4.37 64 4.52 42 4.39 38 3.93Developing Asia (excl. India) 79 4.02 92 4.20 76 3.89 74 3.54Lower middle income (excl. India) 92 3.84 89.5 4.06 91.5 3.69 92 3.32OECD 18.5 4.92 23.5 5.28 18.5 4.91 18.5 4.67

Rank Score Rank Score Rank Score Rank Score

Global Competitiveness Basic Efficiency Innovation and Index 2009-2010 requirements enhancers sophistication factors

Table 3.A Overall GCI and Subindexes

Economy

Table 3.B Basic RequirementsEconomy

Malaysia 25 4.76 41 4.49 30 4.77 31 4.74 6 5.38 37 4.51 28 4.70China 32 4.56 61 4.09 42 4.47 32 4.74 81 4.05 79 3.38 2 6.63India 35 4.52 66 3.96 48 4.42 83 4.23 16 5.10 83 3.33 4 6.07Brazil 42 4.41 58 4.14 99 3.87 80 4.27 51 4.47 46 4.06 10 5.63Indonesia 50 4.24 69 3.91 41 4.49 75 4.30 61 4.30 88 3.20 16 5.21Russian Federation 52 4.20 51 4.30 108 3.75 43 4.67 119 3.27 74 3.45 7 5.78Vietnam 61 4.08 92 3.54 67 4.20 38 4.70 82 4.05 73 3.45 38 4.55Philippines 78 3.91 68 3.92 95 3.92 113 3.89 93 3.85 84 3.32 35 4.57Pakistan 92 3.69 118 2.86 83 4.00 124 3.52 64 4.25 104 2.87 30 4.67BRC 42 4.39 58 4.17 99 4.03 43 4.56 81 3.93 74 3.63 7 6.01Developing Asia (excl. India) 76 3.89 69 3.54 83 4.11 75 4.31 71 4.11 85 3.15 38 4.11Lower 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 3.57OECD 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

Rank Score Rank Score Rank Score Rank Score Rank Score Rank Score Rank Score

Efficiency 5. Higher Education 6. Goods Market 7. Labour Market 8. Financial Market 9. Technological 10. Market Enhancers and Training Efficiency Efficiency Sophistication Readiness Size

Table 3.C Efficiency EnhancersEconomy

Malaysia 24 4.43 24 4.80 24 4.06India 28 4.24 27 4.76 30 3.73China 29 4.23 38 4.54 26 3.93Brazil 38 4.08 32 4.64 43 3.52Indonesia 40 4.03 40 4.49 39 3.57Vietnam 55 3.72 70 4.00 44 3.45Russian Federation 73 3.47 95 3.59 51 3.35Philippines 74 3.45 65 4.06 99 2.84Pakistan 84 3.39 81 3.80 79 2.98BRC 38 3.93 38 4.26 43 3.60Developing Asia (excl. India) 74 3.54 70 3.96 75 3.12Lower middle income (excl. India) 92 3.32 88.5 3.75 100 2.90OECD 18.5 4.67 19 4.99 18.5 4.35

Rank Score Rank Score Rank Score

Innovation and 11. Business 12. InnovationSophistication Factors Sophistication

Table 3.D Business Sophistication andInnovation FactorsEconomy

Tables 3.A to 3.D report the ranks and scores forIndia and a number of comparators in the maincomponents of the GCI 2009-2010, while a detailedprofile of India's performance is presented inAppendix B. Given its present level of development,India’s performance exhibits an unusual pattern. Asexplained above, countries might be expected tomove through a sequence of development steps tobuild up their competitiveness, starting with themore basic factors and moving to more complexones. Currently, what matters most for India are thefirst four Pillars that form the Basic RequirementsSubindex, which together account for 60% of theoverall score. Interestingly enough, it is in thisgeneral area that India presents the greatestshortcomings. The country underperforms in theareas of health and primary education (101st),macroeconomic stability (96th) and physicalinfrastructure (76th). More positive is India's 54thrank for the quality of institutions. Although there isroom for improvement in this area, the fact that thecountry can rely on fairly well-functioning institutionscan be taken as an encouraging sign.

India’s performance in the second Subindex of theGCI, Efficiency Enhancers, is better, albeit uneven.This Subindex accounts for 35% of India’s overallscore in the GCI and is of particular importance tothe development of the industry and servicessectors. The country boasts a developed financialsystem (16th) with a particularly sound bankingsector (25th).

Another competitive advantage is the size of itsmarket. India ranks fourth behind the United States,China and Japan on the Market Size Pillar, whichcombines measures of the size of the internal andexports markets. The Indian goods market is alsofairly efficient (48th), thanks to fierce competition anddespite the presence of important barriers to entry.On a more negative note, the difficulty of hiring andfiring employees makes the labour market ratherrigid (83rd). The country’s technological readiness(83rd) continues to be held back by low penetrationrates for ICT, a problem that is typical of very largedeveloping economies. Firms, however, are generallyadept at adopting and using the latest technologies.Finally, higher education in India (66th) is of relativelygood quality but access to it remains a privilege ofthe few as shown by the low enrolment rates.

Compared with the mixed performance in the othertwo Subindexes, India’s performance in the twomost complex areas of competitiveness, BusinessSophistication and Innovation, is remarkable. Thecountry ranks 27th for the sophistication of itsbusinesses and 30th for its innovation capacity. Thisreflects, to a large extent, the brisk development ofIndia’s private sector and of a few particularindustries (e.g. automotive, information technology(IT), pharmaceuticals).

This is encouraging for several reasons. First, itindicates that economic liberalization is bearing fruit,as the emergence of competitive Indianmultinationals would have been difficult under theprevious system. Second, business sophisticationand innovation will become increasingly importantfor India and its competitiveness as it moves to moreadvanced stages of development. Third, there is nodoubt that the success stories represent a source ofinspiration for Indian entrepreneurs. Yet, at present,these two categories account for just 5% of theoverall GCI score because they are not yet theengine of India’s economic productivity, unlike for theUnited States, Japan or Switzerland. This is becauseIndia can still significantly enhance its productivitythrough improvements in the more basic areasmeasured by the Index.

In the analysis that follows, India’s performance isreviewed in greater detail. To place it in context, wedraw parallels with a number of countries: the threeother BRIC economies – China, Brazil and Russia –as well as Indonesia, Malaysia, Pakistan, thePhilippines and Vietnam. These particular countrieshave been chosen for their economic significance,their geographical proximity or similar characteristicsto India, and/or for their particular achievements incertain dimensions of the GCI. Aggregateperformances also provide interesting points ofreference. We therefore provide the average scoresand median ranks of Brazil, Russia and China (BRC),the Developing Asia region and the group of lowermiddle income countries14.


The GCI heat map presented in Table 4 complementsTables 3.A through 3.D, in that it allows for a readingof India’s performance in the GCI in relative terms. Itprovides a sense of the distance – as measured bythe difference in scores (Table 4.A) and ranks (Table4.B) – that separates India from any givencomparator. Blue-shaded cells and grey-shadedcells indicate that India scores or ranks respectivelyhigher or lower than the comparator, while noshading means there is no significant divergence.The darker the nuance, the greater the difference inperformance. Table 4.A shows, for instance, that

India’s score (4.3, see first row) in the overall GCI(first column) is 0.6 lower than that of Malaysia but0.3 better than the average for Developing Asia.Similarly, Table 4.B indicates that India doessignificantly better in terms of business sophistication(12th column) than all countries except Malaysia.

The heat map mirrors India’s atypical competitivenesspattern described above. On the right side of bothtables, cells are overwhelmingly blue, while thepatches of dark grey in the centre of the table revealthe areas of relative underperformance, namely


Table 4: The GCI Heat Map: Comparison between India and Selected ComparatorsGC

I

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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 3.73Score difference with

Table 4.B Difference in Ranks

Table 4.A Difference in Scores

GCI

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India (rank out of 133) 49 54 76 96 101 66 48 83 16 83 4 27 30Rank difference with

Score difference: Key >1 >0.5 >0.1 >-0.1 >-0.5 >-1rehgih serocs rotrapmoCrehgih serocs aidnI

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 -0.33 102.0-22.0+65.0-50.0-50.1+15.0-50.0-21.0-09.0-07.1-48.0-81.0-34.0-anihC 231.0+05.0+50.0+03.0-71.1+33.0-93.0+12.0-17.0-08.0-43.0-15.0+70.0-*CRB 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 +0.16 812.0+21.0+44.0+37.0-36.0+50.0-45.0+81.0-24.0-03.0+30.0-17.0+80.0+lizarB 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 6Vietnam +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 9Developing 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 9Philippines +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 10Lower 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 10Pakistan +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

Rank difference: Key >20 >10 >5 >-5 >-10 >-20rehgih sknar rotarapmoCrehgih sknar aidnI

6-3-42+64-01-25-81-52-76-45-05-11-52-aisyalaM 14-11+2-4-56+15-6-5-65-88-03-6-02-anihC 29+31+21+5+54+8-7-3+91-44-8+4+5+aisenodnI 831+5+6+73-53+3-15+8-22-31+2-93+7+lizarB 731+11+3+9-56+04-15+8-05-06-5-93+7+*CRB 6

Russian Federation +14 +60 -5 -60 -50 -15 +60 -40 +103 -9 +3 +68 +21 641+34+43+01-66+54-91+62+52-61+81+9+62+manteiV 9

Developing Asia* +30 +19 +13 -20 -19 +3 +35 -8 +55 +2 +34 +43 +45 9Philippines +38 +59 +22 -20 -8 +2 +47 +30 +77 +1 +31 +38 +69 10Lower middle income* +43 +43 +4 -18 -15 +28 +37 +14 +78 +11 +75 +62 +70 10

94+45+62+12+84+14+53+25+21+81+31+05+25+natsikaP 12* Median rank

Note: see text for detailsSource: World Economic Forum 2009a

macroeconomic stability, health and primaryeducation, labour market efficiency and technologicalreadiness. The figure shows that China is stronger in10 out of the 12 Pillars. On the other hand, Indiasystematically outperforms its neighbour Pakistan inall Pillars and by a margin of 20 ranks or more innine of the 12 Pillars.

1st Pillar: Institutions

A transparent, efficient and reliable institutionalenvironment provides the framework within which allstakeholders of the society – individuals, businessesand the government – are able to interact efficientlyand create wealth. Economic activity does not takeplace in a vacuum. The quality of institutions has astrong bearing on competitiveness and growth. Itinfluences investment decisions and the organizationof production, and plays a central role in the wayssocieties distribute the benefits and bear the costsof development strategies and policies. Given thisprominent role, the GCI includes the quality ofinstitutions within the basic requirements ofcompetitiveness, crucial for factor-driven economiessuch as India15.

The Institutions Pillar has two components, gaugingthe quality of public and private institutions,respectively. The Public Institutions Subpillarassesses different dimensions related to the qualityand efficiency of the national institutional environment.

Notably, the protection of property rights, public ethicsstandards and the efficiency of public administrationare taken into account, together with the securitysituation in the country. The Private InstitutionsSubpillar, in turn, measures the quality of corporateethics and accountability displayed by firms.

India ranks 54th in the Institutions Pillar, ahead of mostof the comparators and clearly standing out within itsregion and income group. Only Malaysia (43rd), China(48th) and Korea (53rd) – just barely – do better. India’sperformance is similar in each Subpillar, ranking 55thand 51st for the quality of public institutions andprivate institutions, respectively.

The business community is fairly positive withrespect to government efficiency. India ranks abovemost comparators in the rule of law, particularlythanks to a relatively well-functioning andindependent judiciary. On a less positive note,intellectual property protection is perceived asmediocre (61st). This is an area to be strengthened,given the importance of the IT and business processoutsourcing sector in India (see 12th Pillar below).Further, reminiscent of the license raj era,government regulation continues to be perceived asburdensome. India ranks a low 95th on this indicatorwith a score of 2.9, below the regional average of3.3. This signals the need for further reforms toeliminate red tape.


24.6 14.0

11.0 10.6

9.8 8.0

6.0 4.0

3.8 2.6

2.3 1.0 0.9 0.9

0.4

0 5 10 15 20 25 30

Inadequate supply of infrastructure Inefficient government bureaucracy

Corruption Restrictive labour regulations

Access to financing Tax regulations

Policy instability Tax rates

Poor work ethic in national labour force Inadequately educated workforce

Foreign currency regulations Inflation

Government instability/coups Poor public health

Crime and theft

% of responses

Source: World Economic Forum’s Executive Opinion Survey 2009

Figure 5: The Most Problematic Factors for Doing Business in India

The results also reveal that the business communityhas limited trust in its politicians (79th), whilebureaucratic and administrative corruption, and rent-seeking by a large public sector, continue to restrainits confidence. Indeed, the respondents to the WorldEconomic Forum’s 2009 Executive Opinion Surveyselected “bureaucracy” and “corruption”’ as,respectively, the second and third most problematicfactors for doing business in India after “inadequateinfrastructure” (see Figure 5)16. Supporting thisassessment, Transparency International ranked India85th out of 180 economies in its 2008 CorruptionPerceptions Index17. The government has takensteps to eliminate some major sources of corruption,for instance, by removing import licenses18. In thefight against corruption, India can rely on its vibrantdemocracy and press freedom, which help to bringmany such cases to light.

The threat of terrorism is another major concern inthat it imposes significant costs on businesses, withIndia ranked 117th on this measure. Among thecomparators, Pakistan (131st, third to last) and thePhilippines (124th) appear lower, as do the UnitedStates (121st) and Spain (119th). However, India’sscore of 4.7 (out of 7) remains well above the scoreof 2.6 of last ranked Colombia. The attacks onMumbai in 2008, the rising tensions in the region, aswell as frequent reports of foiled terror plotscontribute to a general fear of future attacks andmaintain a climate of insecurity. In addition,corporate interests, especially Western companies,are seen to represent a prime target. On a morepositive note, India does not display particularly highlevels of other forms of crime and violence. Its score(5.2) is not too far from that of China and – evenmore telling – of the OECD average (both 5.4). Thisperformance sharply contrasts with the rest of theregion (average of 4.4), most notably Pakistan (3.2,119th), but also Brazil (3.3, 118th).

As mentioned above, the GCI also assesses thequality of private institutions. Although itsperformance has worsened considerably over thepast year, India continues to rank at a reasonable51st place. It is possible that the weakerassessment is related to recent scandals such asthe accounting fraud perpetrated at Satyam, whichshook the confidence of the business community inIndia and around the world. This would seem to

demonstrate a need for well enforced auditing andaccounting standards to better constrain andunmask such behaviour in the future.

2nd Pillar: Infrastructure

Well-functioning and extensive infrastructure plays afundamental role in enhancing the growth prospects ofan economy. Good infrastructure plays an importantrole in raising private sector productivity, particularlythe quality of roads, the functioning of roads,railroads, ports and air transport, as well as a reliableelectricity supply and developed telecommunicationnetwork. Widespread quality infrastructure can alsogreatly reduce income inequality and poverty,connecting poor communities to important markets,allowing children in remote areas to go to schooland improving health standards by providing potablewater, among other benefits.

India ranks 76th in the Infrastructure Pillar with ascore of 3.5 out of 7. China ranks 30 places aheadat 46th, while Malaysia is in a league of its own in26th place. The entire region suffers from a severeinfrastructure deficit, with an average score of 3.4,even lower than that of India. Since 2003, businessleaders responding to the Executive Opinion Surveyhave consistently ranked “inadequate supply ofinfrastructure” as the most problematic factor fordoing business in India (see Figure 5). In fact, innone of the other comparator countries haverespondents put infrastructure so high and so oftenon their list.

The poor state of India’s infrastructure, and the lackof it, is among the most serious structural problemsholding back the country’s competitiveness andeconomic development. Without adequate infrastructure,India will find it difficult to sustain – let alone increase –its current pace of development. The situation penalizeslocal businesses and deters foreign investors. Delaysin shipping, power outages, water shortages,commuting times, to only name a few of the adverseconsequences, seriously undermine productivity.

Looking ahead, infrastructure has also been cited asone of the main obstacles to the transition from anagrarian economy to a manufacturing-basedeconomy, a transition that will be needed to createnew jobs for the growing working-age population.


Even the most basic manufacturing activities at aminimum require a reliable source of electricity anddecent roads.

Electricity is perhaps the biggest infrastructure challenge.India ranks 106th for the quality of the electricitysupply, lower than all comparators. A 2006 survey bythe World Bank found that 29% of managers identifiedelectricity as a “major” or “severe” constraint to thegrowth of their business19. In 2007, demandoutstripped supply by almost 15%20. As Figure 6shows, electricity production per unit of GDPincreased until 2000 but has been declining steadilysince then. The ratio is now close to one kilowatt hourper unit of GDP. For China, the situation is almost thereverse and appears much more favourable.

Not only does India suffer from serious electricunder-capacity, but much of its production is lost intransmission and distribution. Figure 6 reveals that,in 2006, a staggering 25% of India’s electricityproduction was lost before reaching destination.Although improving since 2001 when the figure was29%, it is four times the amount in China (6.3%).Inevitably, this has a negative impact on profitability;the government estimated that, in 2007, it did notreceive any revenue for 34% of the power pumpedinto the grid because of theft or leakages21, althoughthis is admittedly an improvement from 2000, whenan OECD study put this figure at 40%22.

In addition to low profitability, the sector remainsheavily regulated and dominated by public utilitycompanies – a drag for investors. Things could getworse, as the demand for electricity is expected togrow at least as fast as the GDP – and possiblyfaster if the share in the economy of the energy-intensive manufacturing sector increases.

Road infrastructure also needs upgrading. Indiaranks 89th for the quality of roads, far behind China(50th) and Pakistan (65th) but ahead of Indonesia(94th) and the Philippines (104th). Roads are ofparamount importance to India’s development: theycarry 65% of freight and 85% of passenger traffic23.Yet, the 3.4 million kilometre-long network – theworld’s second largest and 50% longer than China’s –is in poor condition, with half of it unpaved24. It is alsocongested and dangerous. In 2007, 130,000 peopleperished in car accidents, 60% more than in Chinawhere there are four times as many cars25. Withoutinfrastructure improvements, the situation is likely toget worse, as the government projects an annualincrease of 12-15% in traffic in the comings years.

India’s port infrastructure is also in need ofupgrading. According to a report by Ernst & Young(2008), Indian ports are operating at more than 90%capacity. The Indian ports sector has lined up amajor capacity overhaul, but low productivity andinfrastructure bottlenecks continue to stifle theperformance of the country's major ports. Handlingcapacity is insufficient, turnaround times are too


0%

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1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

kWh per unit of GDP % of losses

India Production Loses

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Source: Authors’ analysis based on World Bank 2009a

Figure 6: Electricity Production and Losses

long, procedures too many and human interventiontoo frequent. Indeed, India ranks a low 90th on portinfrastructure quality, with a score of 3.5 out of 7.

None of the comparators performs significantlybetter, with the notable exception of Malaysia (19th).China comes in at 61st, indicating that its ports alsorequire upgrading. But China has improved muchfaster and its score increased from 3.6 in 2005 to4.3 in the latest edition. Over the same period, Indiahas only improved from 3.2 to 3.5. In view ofupgrading port infrastructure and adding capacity,the government has stressed the need for moreprivate sector involvement through public-privatepartnerships (PPP) and wishes to confer moreautonomy to India’s major ports26.

Air transport is better assessed. At 65th, India isranked higher than all of the comparators, includingChina (80th) and Brazil (89th). In terms of capacity,India (10th) lags behind China (2nd) but outperformsthe other comparators by a sizeable margin. In1994, the state monopoly over commercial aviationwas brought to an end. Since then, India haswitnessed a proliferation of private airlines, includinglow-cost airlines. Illustrating this dynamism,Kingfisher, founded just four years ago, is India’slargest carrier with a market share of 22.6%27.

There is no doubt that this competition hasbenefited the economy through the increasednumber of destinations, more frequent services andbetter value for money. The number of seat-kilometres available on flights originating from Indiahas soared by 50% since 2006 to reach 2.65 billionin 200928. India is now the 10th largest market interms of capacity. Yet, this boom in air traffic isstraining the existing airport facilities. Thegovernment has initiated a vast programme ofmodernization of 35 airports, and five of India’sbiggest airports – Bangalore, Cochin, Delhi,Hyderabad and Mumbai – were privatized. Besidesimproving connectivity inside India and partlycompensating for the lack of ground transportinfrastructure, air transport has a major role to playin the development of tourism, a sector withenormous potential beyond what is presently seen.

Railroad is the last of the four major modes oftransportation taken into account by the GCI and byfar the best assessed in the case of India. The

country ranks an impressive 20th overall, one notchbehind Malaysia and seven places ahead of China.The chasm is the widest with the Philippines, whichranks 92nd. The Indian railway network is one of theworld’s largest, carrying 14 million passengers daily.Railroad remains the primary mode for carryingpassengers and freight across India’s vast territory.However, the World Bank recognizes that, with tariffpolicies that overcharge freight to subsidize passengertravel, a shift from railways to roads has been observed,although the country’s high-density rail corridorscontinue to face severe capacity constraints29.

The dire state of electricity and transportinfrastructure is in large part attributable toinsufficient investment, which in turn has multiplecauses: poor planning, lack of coordination,excessive bureaucracy, price controls and cross-subsidy mechanisms, as well as corruption. Theproblem is accentuated by the pace of economicgrowth. The World Bank estimates that overalldemand for transport infrastructure and services hasrisen by around 10% a year since 199030. Theprojected rapid urbanization of India is likely to straininfrastructure even further. Currently, 286 millionIndians, or 28% of the population, live in urban areas– a small share by regional standards. This figure isexpected to rise to 576 million, or 41% of thepopulation, by 203031. This massive exodus intoIndian cities, 10 of which are among the 30 fastest-growing urban areas in the world32, represents anextraordinary opportunity – dubbed the “urbanizationbonus” – because urbanization is generally a forcefor growth, development and modernization. But, ifurbanization is not supported by improvedinfrastructure and sanitation, it could very wellbecome an urbanization disaster.

To upgrade infrastructure and keep up with risingdemand, it is estimated that India will need to boostinvestment in this sector from 4-5% to about 8-9%33. The government alone does not have thefinancial resources to meet this need, given the grimfiscal situation. India benefits from the support of theWorld Bank and other donors in the form of loans,but it will not be nearly enough to provide thenecessary resources.

Everybody agrees that a significant amount of India’sinfrastructure financing needs to come from theprivate sector through public-private partnerships34.


By the government’s own account, some 75% ofthe additional investment – 40% in total – will needto come from the private sector. Since the mid-1990s, the private sector has been involved to acertain extent. The OECD (2007) estimated thatalready the value of PPPs amounted to 3.5% ofGDP at the end of 2006. The government has put inplace a number of incentives to encourage andattract private investment such as special loans,guarantees and risk mitigation instruments, tax cuts,BOT models, and no restriction on FDI in certainsectors. Yet, much remains to be achieved.

3rd Pillar: Macroeconomic Stability

The stability of the macroeconomic environment isimportant for business and, therefore, for the overallcompetitiveness of a country. Although it is certainlytrue that macroeconomic stability alone cannotincrease the productivity of a nation, it is alsorecognized that macroeconomic disarray harms theeconomy. The government cannot provide servicesefficiently if it has to make high-interest payments onits debt. Running fiscal deficits limits thegovernment’s future ability to react to business cycles.

Firms cannot operate efficiently when inflation ratesare out of hand. In sum, the economy cannot growin a sustainable manner unless the macroenvironment is stable. Macroeconomic stability isincluded among the basic factors of nationalcompetitiveness – key for factor-driven countries likeIndia, but also a basic requirement for any economy,regardless of its stage of development. The GCIrelies on five indicators to draw a picture of themacroeconomic situation: the government budgetbalance, public debt, inflation, national savings rateand the interest rate spread.

Owing to a very weak fiscal position, India appearsin 96th position in the Macroeconomic Stability Pillar,a gap of almost 90 positions with China (8th). Russia(36th), Malaysia (42nd), Indonesia (52nd) and thePhilippines (76th) all display better performances.Among comparator countries, only Brazil (109th),Vietnam (112th) and Pakistan (114th) score lower.

As Figure 7 shows, India lags behind allcomparators in terms of government deficit anddebt, which amounted to 4.9% and 75% of GDP in2008, respectively. In 2003, India adopted a rules-based fiscal framework, the Fiscal Responsibility andBudget Management Act (FRBMA). The FRBMA set


Brazil

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Figure 7: Public Debt and Budget Balance , 2008

a plan to gradually reduce the central governmentdeficit through 2009. Although the idea of abalanced budget remains remote, the FRBMA hashelped to institute some fiscal discipline35. Further,thanks to the economic boom of recent years, thefiscal situation of the central government had beenslightly improving until last year when the crisis hit.Since then, government stimulus measuresjeopardized its plans for fiscal adjustment.Government consumption expenditure increasedsharply and contributed 32.5% of real GDP growthin 2008-2009, compared with an averagecontribution of 5.9% in the previous five years. As aresult, the government now envisages a deficit of6.8% of GDP for 2009-201036. India’s consolidateddeficit – that is, including states’ deficits – couldreach 10%. Although perhaps seen as necessary inthe short term to address the crisis, this hasnegative repercussions for the country’smacroeconomic stability going forward.

Repeated fiscal deficits have caused debt levels toswell, as the funding gap has forced the governmentto issue more and more debt. It is estimated that thegovernment now borrows 34 out of every 100rupees it spends37. At 75% of GDP, India’s debt ratiois among the highest in the world (17th out of 133countries). The bulk of India’s public debt isdenominated in rupees. On a more positive note,

India’s external debt is low, thus limiting exchangerate risk. But such a large domestic debt ratio hurtsthe economy. Government regulations requirecommercial banks to invest in government bonds –precisely to finance the large deficit – and in other“priority investments”, thereby divertinginvestments from the more productive sectors of theeconomy (see the Financial Market Sophisticationsection below). What is more, the issuance of largeamounts of debt pushes up India’s interest rates anddepresses the price of government bonds, largeamounts of which are held by banks, thus exposingthem to potential capital losses.

The national savings rate has surged since thebeginning of the decade to reach 36% of GDP in2008, after years of erratic movement. This upwardtrend is to a large extent attributable to India’sdemographic transition. The falling dependency ratioincreases savings rates simply because the workingpopulation saves more than the dependent population38.As Figure 9 illustrates, the savings rate is tightlylinked to investment, which is an important driver ofgrowth in India and in all developing economies. Tosustain growth of roughly 8%, India must continue tosave at a similar rate. To finance the investmentrequired to attain 10% growth, Poddar and Yi (2007)estimate that savings rates would need to rise wellabove 40% – closer to the rate observed in China.


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Gross fixed Investment, contribution (%) to real GDP growth*

Gross fixed Investment, % of GDP

Gross national savings, % of GDP % of GDP % of GDP growth

* Change in gross fixed investment, as a percentage of real GDP in the previous period

China's savings rate

Source: Economist Intelligence Unit, CountryData Database

Figure 8: Savings and Investments

However, present regulations force banks to channela large quantity of savings to sectors whereproductivity is low, thereby diminishing the potentialimpact of investment on growth39.

Historically, inflation has been relatively well-containedin India due to a strong commitment by the ReserveBank of India (RBI) and the Ministry of Finance.Between 1999 and 2006, inflation never exceeded5%40. Later, however, strong global growth and theensuing global rise in commodity and food pricescaused inflation in India to soar. However, peaking at8.4% in 2008, inflation never got out of control. Inthe context of the economic crisis, inflation isexpected to be close to zero in 2009 before pickingup again in 2010. At the height of the crisis, the RBIloosened monetary policy to provide ample rupeeand US dollar liquidity and ensure a continued flowof credit, although in July 2009 the RBI announced ithad shifted the focus back to inflation targeting41.

India’s fiscal situation is alarming and not sustainablein the long run. The government is in a relativelyweak position to withstand a further deterioration inglobal economic conditions. Further, India’s cash-strapped government finds it difficult to makeneeded investments in education, health andinfrastructure, as discussed elsewhere in thischapter. As economic growth picks up again, thegovernment will need to take tough decisions in

terms of raising taxes and curtailing expenditures inorder to rein in deficits. This will imply cutting backsubsidies and reforming the tax system.

4th Pillar: Health and PrimaryEducation

A healthy workforce is vital to a country’scompetitiveness and productivity. Poor health leadsto significant costs to businesses, as workers whoare not healthy are often absent or operate at lowerlevels of efficiency, thus constraining productivity. Inaddition to health, this Pillar takes into account thequantity and quality of basic education received bythe population, which is increasingly important intoday’s economy. Workers with little formal educationcan carry out only simple manual work and find itmuch more difficult to adapt to more advancedproduction processes and techniques. Lack of basiceducation can therefore become a constraint onbusiness development, with firms finding it difficult tomove up the value chain by producing moresophisticated or value-intensive products.

As Gupta (2008) points out, the government hascome to realize that, to emerge as a globaleconomic superpower, India must invest in its socialfabric, in particular in education and healthcare. Thisinvestment is all the more pressing given that India is


28.0 89.0 6.0 46.6 36.0 0

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India Lower middle income Indonesia China Malaysia

India's score

Source: Authors’ calculation; World Bank 2009a

Figure 9: Selected Health and Sanitation Resource Indicators, 2006 or Latest Year Available

home to one-fifth of the world’s population under 24,which makes it the world’s youngest nation. It is alsoexpected to become the most populous by 2035.This undoubtedly represents a huge opportunity, butcould become a liability if India cannot reverse theworrisome trends in sanitation, health and basiceducation.

India ranks 101st for health and primary education,its lowest rank across the 12 Pillars of the GCI andin contrast with its overall GCI rank. As the heat mapin Table 4 shows, India trails all comparators exceptPakistan (113th). The gap is significant even withinthe region. The median rank of developing Asianeconomies is 82, 19 places higher than India.

The health component of the Pillar includes basic healthindicators, including the incidence of tuberculosisand malaria, HIV/AIDS prevalence, the impact ofthese diseases on businesses, infant mortality and lifeexpectancy. Taken together, they provide a sense ofpublic health situation prevailing in a country. Indiaranks 103rd in this component; amongcomparators, only Pakistan (106th) does worse –and barely. India compares unfavourably within itsincome group and within the region.

India’s precarious situation is, in large part, linked toa lack of infrastructure and skilled staff. Figures 9and 10 report selected health indicators for Indiaand a number of comparators. More specifically,Figure 9 presents a selection of measures of healthresources while Figure 10 illustrates health outputs.

The correlation is obvious between the two sets ofindicators. India systematically trails China andMalaysia on all measures, and generally comparesunfavourably with Indonesia and the lower middleincome average. In particular, a dismally lowproportion – 28% – of India’s population has accessto improved sanitation facilities. This is half theaverage of India’s income group (52%), and lowerthan the sub-Saharan Africa average (31%)42.Further, the incidence of communicable diseases isdisturbingly high. There were 168 cases oftuberculosis per 100,000 population in 2007, one ofthe highest rates outside Africa, while there were129 malaria cases per 100,000 population in 200843.Equally worrisome, 21% of Indians suffer frommalnutrition, 50% more than the lower middleincome group average (14%) and more than twiceChina’s rate (9%).

It is perhaps not a surprise, therefore, that lifeexpectancy in India is just 64 years. This is almosteight years shorter than in China, and five yearsshorter than the average for the lower middleincome group. Among the 133 countries included inthe GCI, only in a few Asian countries, includingPakistan and Cambodia and in some sub-SaharanAfrican nations is life expectancy shorter.

India also exhibits shortfalls in basic education, thesecond component of the Pillar. The country is atthe 100 mark with a score of 4.0, clustering withBrazil (94th) and the Philippines (91st), with China(42nd) and Malaysia (24th) in a different league. India


21.0 16.8

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India's score

(years)

Source: Authors’ calculation; World Bank 2009a

Figure 10: Selected Health Status Indicators, 2007 or Latest Year Available

compares unfavourably with the regional (4.1) andincome group (4.0) averages, and surpasses onlyPakistan (128th). The net enrolment rate in primaryeducation has almost reached 90% in India. In anhistorical context, this is a remarkable achievement,given that the rate was just 79% at the beginning ofthe decade and is now on a par with the regionalaverage. This progress follows government efforts toimplement free and compulsory education forchildren between six and 14 years of age and a banon child labour44. Yet, because many countries haveachieved universal education at the primary level, anenrolment rate of 90% does not compare favourably.

While quantity is improving, the quality remains aconcern. The business community gives the qualityof primary education a mediocre assessment. On ascale from 1 (poor) to 7 (excellent), India scores just3.2, corresponding to a rank of 89. This is alsoreflected in a variety of other indicators. The pupil -to-teacher ratio is 40 to 1, indicating that studentsdo not receive significant personal attention. Theratio is twice that of China, and 25% higher than thelower middle income group average. In the Philippinesand Pakistan, the ratio is around 35 to 145. Adding tothe infrastructure problem, some research alsohighlights the lack of training of teachers, their lowlevel of commitment, and the high rate ofabsenteeism46.

In this context, it is perhaps not surprising that onlytwo-thirds of Indians over 15 are literate47. Despiteimpressive progress – the ratio was 20% in 1950and less than 50% in 1990 – this remains low byinternational, and even regional, standards. Amongthe comparators, only Pakistan has a lower rate(55%), while China, the Philippines, Indonesia andVietnam all achieve rates of 90% or higher. But, withliteracy running at 90% of pupils aged five to 14, adultilliteracy will continue to drop in the years to come48.

Insufficient funding partly explains India’s pooreducational outcomes. With total spending oneducation representing 3.2% of its GDP, India ranks94th on this indicator. Although it is a bigger sharethan in China (1.9%, 123rd), Indonesia (1.1%, 127th)and Vietnam (2.8%, 103rd), India is characterized bya larger education deficit. In 2004, the governmentpledged to increase expenditure to 6% of GDP aspart of its National Common Minimum Programme,

but this objective has not yet materialized. Instead,spending shrunk from 4.4% to the current 3.2%.The OECD (2007) reckons that part of the solutionresides in more private education at all levels. Itestimates that already one-fifth of primary schoolpupils in rural areas are enrolled in private schools,with better average class performance.

The performance of India in the 4th Pillar of the GCIis a reminder that, despite recent achievements,there is still much to be done to ensure thatdevelopment is inclusive and sustainable. In additionto meeting the infrastructure challenge, reaping thebenefits of the demographic dividend will alsorequire addressing health and education challenges.

5th Pillar: Higher Education andTraining

Higher Education and Training is the first of the sixPillars that comprise the Efficiency EnhancersSubindex (see Figure 3). Quality higher educationand training is crucial for economies that want tomove up the value chain beyond simple productionprocesses and products. In particular, today’sglobalizing economy requires economies to nurturepools of well-educated workers who are able toadapt rapidly to their changing environment. ThisPillar measures secondary and university enrolmentrates as well as the quality of education as assessedby the business community. The extent of stafftraining is also taken into consideration because ofthe importance of vocational and continuous on-the-job training – which is neglected in many economies– for ensuring a constant upgrading of workers’skills to the changing needs of an evolving economy.

India ranks 66th in this Pillar, closely followed by thePhilippines (68th) and Indonesia (69th), and with thedistance to China (61st) much narrower than in theprevious Pillar. Yet, this proximity with comparatorsmasks differences in the Pillar components:comparators tend to have higher enrolment ratesbut poorer quality education, while access to highereducation in India remains the privilege of a few butthe quality is perceived as fairly good. This alsocontrasts with the situation in basic education in Indiawhere, as described above, enrolment is relatively highbut the education dispensed is of poor quality.India’s secondary education gross enrolment rate is


55%, which is low by international standards. Itcompares unfavourably against top-ranked Brazil,which has almost achieved universal secondaryeducation, but also against the Philippines (83%),Indonesia (73%) and Vietnam (66%), and comparedwith the lower middle income average (61%). As fortertiary education, only one out of 10 Indians attendscollege or university. Among the comparators, onlyVietnam and Pakistan exhibit lower enrolment rates,while three out of four Russians receive tertiaryeducation – one of the highest rates in the world –as well as one out of four in China (see Figure 11).

By contrast, the quality of higher education is fairlygood (33rd). In particular, India ranks 37th for theextent to which the educational system meets theneeds of a competitive economy, 22nd for the qualityof math and science education and an impressive15th for the quality of its management schools49. OnlyMalaysia and China boast similar results, with othercomparators typically appearing below the 50 mark.

Finally, India ranks 33rd in on-the-job training. Thisdimension is of particular significance in India giventhe low attainment rate in higher education. Manycompanies have put in place internal programmes totrain or retrain employees. This represents one wayfor them to address – at least partly – the shortageof graduates and the employability issue. Skillrequirements evolve at a rapid pace, especially in ITand the business process outsourcing sector, andthe formal educational system strains to keep upwith the curriculum, hence the need for on-the-jobtraining to bridge the skills gap50.

6th Pillar: Goods Market Efficiency

Countries with efficient goods markets are wellpositioned to produce the right mix of products andservices given supply-and-demand conditions, aswell as to ensure that these goods can be mosteffectively traded in the economy. Healthy marketcompetition, both domestic and foreign, is importantin driving market efficiency, and thus businessproductivity, by ensuring that the most efficient firmsproducing goods demanded by the market arethose that thrive. The best possible environment forthe exchange of goods requires a minimum ofimpediments to business activity throughgovernment intervention. For example,competitiveness is hindered by distortionary orburdensome taxes and by restrictive anddiscriminatory rules on FDI – limiting foreignownership – as well as on international trade.

Market efficiency also depends on demandconditions such as customer orientation and buyersophistication. For cultural reasons, customers insome countries may be more demanding than inothers. This can create an important competitiveadvantage, as it forces companies to be moreinnovative and customer oriented, and thus fostersthe discipline necessary for efficiency to be achievedin the market.


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Source: UNESCO; national sources

Figure 11: Enrolment Rate by Level of Education, Latest Year Available

With a score of 4.4, India ranks 48th in the GoodsMarket Efficiency Pillar, in line with its overall rank. Asshown by the heat map, India, China and Malaysiaare in a league of their own. The other two BRICeconomies, Russia and Brazil, lag 50 notchesbehind them. India owes its relatively strong showingto its competitive market. Intense competition and agrowing middle class allow for a situation in whichconsumers are relatively sophisticated anddemanding (40th). These favourable demandconditions encourage companies to constantlyimprove on product quality and variety.

Competition in India would be fiercer, and moreemployment created, if starting businesses wasmade easier (see Figure 12). Various indicatorsreveal how cumbersome, time-consuming andcostly it is for entrepreneurs to start a business,despite significant improvements in recent years.According to the World Bank, starting a businessstill takes 30 days on average, down from 71 days in2006. This places the country 82nd, well ahead ofBrazil (152 days, second longest) and China (40days). Similarly, starting a business requires 13procedures in total, placing India at 111th rank51.This is fewer than China (14 procedures) and Brazil(18 procedures), but more than the regional average(10.3). In terms of costs, starting a business in Indiaamounts to a staggering 70% of per capita gross

national income (GNI). This is costly compared toChina (8%) and the regional average (27%), Further,the minimum capital required to establish a companyrepresents more than 200% of the GNI, comparedwith just 27% on average for the South Asia region52.

The tax regime in India is a further hurdle onproductivity enhancements as it distorts decisionsmade by entrepreneurs and foreign investors. TheWorld Bank estimates that the total taxes paid by atypical firm represent some 72% of its profits. OnlyChina among the comparators ranks lower, with arate approaching 80%53. A widening of the tax basewould make cutting taxes easier for the government.

Competition could also be fostered through a furtheropening of the domestic market to internationalcompetition. India ranks 90th, with a score of 4.0 inthe foreign competition component of the Pillar. Inparticular, India’s trade-weighted import tariff rateremains high at 11% (placing the country 104th)despite recent reductions, while trade barriers andrestrictions still exist in a number of service areas.Lowering such barriers would benefit the economyby ushering in further competition54.

India should also take measures to encourageexisting firms to enter the formal sector. Prevalenceof informality is very high in India. Ferrari and Dhingra


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Source: World Bank, Doing Business Database

Figure 12: Starting a Business

(2008) estimate the share of the labour forceworking in the formal sector at just 6% in 2003,down from 8% in 1990. A survey conducted in 2000by the Indian Ministry of Statistics found that, out ofa total workforce of 397 million, only 28 millionworkers were employed in the organized sector55.The consequences are dire. Firms in the informalsector typically grow more slowly, have lowerproductivity and poorer access to credit, and employfewer workers. In addition, as mentioned above, alarge informal sector significantly limits the tax base.

7th Pillar: Labour Market Efficiency

The efficiency and flexibility of the labour market arecritical for ensuring that workers are allocated totheir most efficient use in the economy and providedwith incentives to give their best effort in their jobs.Therefore, labour markets must have the flexibility toshift workers from one economic activity to anotherrapidly and at low cost, and allow for wage fluctuationswithout much social disruption. Efficient labourmarkets must also ensure a clear relationship betweenworker incentives and their efforts, as well as the bestuse of available talent – which includes equity in thebusiness environment between women and men.

India ranks 83rd in this Pillar. Indeed labor marketefficiency historically has been a problematic aspectof India’s competitiveness. Although the situationhas been improving slightly, the labour marketremains characterized by high costs and restrictionson firing workers, which reduces the incentive forcompanies to hire permanent workers and growtheir businesses. Figure 13 illustrates the unevenperformance of India on the World Bank’s Rigidity ofEmployment Index, which is included in the GCI.

In addition to the difficulty of dismissing employees,the associated cost is high, equivalent to 56 weeksof salary (placing India 85th on this indicator). Thus,although hiring workers is very easy in India (with aperfect zero on this dimension), the difficulty of firingthem afterwards still creates a significantdisincentive. On the positive side, as shown in theFigure 13, employers enjoy significant discretion insetting work hours. In addition, the ExecutiveOpinion Survey finds that businesses have flexibilityin setting wages (44th) and that, overall, therelationship between employers and employees isnot particularly confrontational (40th).

The rigidity of India’s labour market constitutes oneof the major obstacles for a swifter transitiontowards a more manufacturing-based economy, byslowing the shift of the labour force from agriculture


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Index value

Difficulty of

Source: World Bank and IFC 2009b

Figure 13: Hiring, Employing and Dismissing Workers, 2009

to other sectors. Poddar and Yi (2007) estimate thatthe movement of surplus labour away from low-productivity agriculture to high-productivity industryand services contributes about one percentage pointto annual GDP growth, as productivity in industryand services is more than four times that in agriculture.Accelerating this transition, therefore, would beexpected to boost productivity and growth.

Excessive rigidity also encourages the developmentof the informal economy at the expense of theformal sector. Two studies, by the OECD (2007) andFerrari and Dhingra (2008), show that employmentgrowth has been concentrated mainly in sectors notcovered by restrictive labour laws. Anotherconsequence is that large firms in the formal sectorare becoming more capital-intensive despite theabundance of cheap labour. Since 1997, the formalsector has experienced negative employmentgrowth.

In addition to flexibility, efficiency is also a criticalfeature for an optimal allocation of human capital.India ranks 88th in this component of the Pillar,owing to the very low proportion of female workersin the labour force. There are only 42 female workersfor every 100 male workers. At 122nd, this is one ofthe lowest ratios among the 133 covered by theGCI. Only Pakistan, with 25 female workers per 100male workers (131st), and 10 countries in the MiddleEast and North Africa region display a lower figure.This low level of participation is partly explained bythe significant differences in terms of educationalattainment. For instance, while 77% of males areliterate, the figure is just 55% for women – one oflargest differentials in the world. A study by theWorld Economic Forum (2009b) on the gender gapin economies around the world ranked India in 127thplace out of 134 countries for the cavernous gapthat exists between men and women in terms ofeconomic participation and opportunity.

On a more positive note, the brain drain in India isnot as severe as in other countries at a similar levelof development. Indeed, at 41st, India is the highestranked among countries in the first stage ofdevelopment (i.e. GDP per capita of less than US$2,000), trailing China by two notches. Although itmay be premature to talk about a “reverse brain

drain” or “brain gain” phenomenon, there is nodoubt that India’s good economic fortunes createopportunities, thereby contributing to retaining andattracting talented people.

8th Pillar: Financial MarketSophistication

The recent economic crisis has highlighted thecentral role of the financial system for economicactivity. A sound and efficient financial sectorchannels national savings as well as the investmentsfrom abroad to the most productive uses. Itchannels resources to those entrepreneurial orinvestment projects with the highest expected ratesof return, rather than to the politically connected. Athorough and proper assessment of risk is,therefore, a key ingredient.

Business investment is critical to productivity.Therefore, economies require sophisticated financialmarkets that can make capital available for private-sector investment from such sources as loans froma sound banking sector, well-regulated securitiesexchanges, venture capital and other financialproducts. This has been underscored once again bythe liquidity crunch in developing and developedcountries in recent times. To fulfil all functions, thebanking sector must be trustworthy and transparent,and – as has been made clear recently – financialmarkets need appropriate regulation to protectinvestors and the economy at large.

Financial market sophistication constitutes a clearstrength for India, ranked a high 16th in this Pillar.Although it is ranked behind Malaysia, the heat map(Table 4) highlights the wide gap between India andthe other comparators, with the closest contender,Brazil, ranking 35 places lower, and China behind bya full 65 positions. Indeed, this Pillar constitutes oneof the two areas, together with BusinessSophistication, in which India performs better thanChina. Despite the financial crisis, India’sperformance in the Pillar has improved from theprevious edition in both relative and absolute terms(see Figure 14). Indeed, it is this Pillar in which Indiahas improved the most since the first edition of theGCI (see Figure 4).


India’s equity market has been extremely dynamic inrecent years. Between 2005 and 2008, the totalmarket capitalization of companies listed on theIndian stock market jumped from US$ 387 billion toUS$ 1,811 billion, which is equivalent to 155% ofGDP56. This phenomenal growth has beenaccompanied by improving financial marketsophistication, as witnessed by the jump in India’sscore on this indicator – from 4.8 in 2005-2006 to5.3 in 2009-2010.

Obtaining finance through the local equity markethas become easier in India than almost anywhereelse in the world – India is ranked third in thisindicator, behind only Hong Kong and Qatar.Although obtaining a loan has been somewhat moredifficult over the past year, India still goes up in theranking of this indicator (34th, up eight places), ascredit conditions in several other countries havebecome even tighter. Another sign of the financialsector’s vigour and increased depth is the boost indomestic credit from 53% in 2000 to 70% in 2007.Supporting these positive trends, banks in India aregenerally perceived as being in sound financialhealth (25th). In fact, only Brazil (10th) receives abetter appraisal for its banking sector.

Venture capital is also becoming more prevalent,providing an additional growing channel forfinancing, with India placing 23rd on this indicator.This suggests that, as well as big corporations,

entrepreneurs with good ideas and smaller concernsare increasingly able to get funding for businessdevelopment.

Despite the overall positive and improving picture,areas for improvement remain. One of the majorproblems relates to the rules and restrictions oninternational capital flows, as indicated by India’s lowrank of 73 in this dimension. Further, while thegovernment’s tight control of the financial system hasprovided some stability during the financial crisis, italso distorts decisions on allocation of capital.

Present regulations on banks and other intermediariesserve to channel funding directly to the governmentand to its priority investments. This results in the publicsector, rather than the business sector, absorbingmuch of the country’s savings. Banks are forced tohold 25% of their assets in government bonds.Government policies require banks to direct a further36% of their loans to agriculture, household businessand other “priority” sectors57.

Starting from a low base, India’s financial sector hasgrown rapidly in the past decade. This hascontributed to improved productivity andcompetitiveness by effectively channelling savingsinto investment. As India develops, it will need anincreasingly strong financial system – not only athriving equity market – to sustain rapid growth.


16 34 9 64 57 71 78 109 80 78 95.5 6 16 20 51 61 64 71 81 82 93 94 1

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Figure 14: Financial Market Sophistication: Performance of India and Selected Comparators

9th Pillar: Technological Readiness

The agility with which an economy adopts existingtechnologies to enhance the productivity of itsindustries is critical for its competitiveness. In today’sglobalized world, technology has become animportant element for firms to compete and prosper.In particular, ICT have now evolved into “generalpurpose technology”, given the critical spillovers tothe other economic sectors and their role as efficientinfrastructure for other industries and transactions.

Therefore, ICT access (including the presence of anICT-friendly regulatory framework) and use areincluded in the Pillar as essential components ofeconomies’ overall level of technological readiness.Whether the technology used has or has not beendeveloped within national borders is irrelevant for itseffect on competitiveness. The central point is thatthe firms operating in the country have access toadvanced products and blueprints, and the ability touse them58.

It is important to note that the level of technologyavailable to firms in a country needs to bedistinguished from the country’s ability to innovate

and expand the frontiers of knowledge. The latterconcept is captured in the Innovation Pillar, whichwill be discussed below.

India ranks a low 83rd in the TechnologicalReadiness Pillar, essentially as a result of low ICTpenetration in the country. ICT adoption provides aformidable potential to boost productivity andgrowth and reduce poverty, especially in developingcountries59. A recent study by the World Bank foundthat a 10 percentage point increase in mobile phonepenetration leads to a 0.8% increase in GDP percapita of developing countries, while a similarincrease in broadband Internet access has a growtheffect of 1.4%60. However, because it is easier andcheaper to deploy, mobile telephony is thetechnology being adopted most rapidly indeveloping countries, with spectacular results.

As Figure 15 shows, India has experiencedexponential growth in this technology over the pastdecade, with a compound annual growth rate(CAGR) of 65% between 1998 and 2008. BetweenMarch 2008 and March 2009, India saw an increaseof 125 million new mobile phone subscriptions.There are now three subscriptions for every 10


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Figure 15: Telephony Penetration: Trends for India and Selected Comparators

people. At this pace, India will achieve universalcoverage by 2011. However, as impressive as thesefigures may be, the rate of adoption has not allowedIndia to catch up with the rest of the world. Today,among the 133 countries in the GCI sample, onlyBangladesh, Nepal, East Timor and a handful ofAfrican nations report lower mobile phone diffusion.

Internet use in India is also spreading rapidly, but notas quickly as in some other countries. There are anestimated seven Internet users per 100 population inIndia, compared with 11 in Pakistan and 22 inChina. Broadband access to the Internet remainsthe privilege of a very few in India, with a mere 5million subscribers, compared with 83 millionsubscribers in China. Further, computer use remainsscarce, with less than three personal computers per100 population, half the number of China and one-third that of the Philippines.

While these technologies have not yet reached everyhousehold in India, Indian firms are aggressiveadopters. The country consistently outperforms mostcomparator countries in this aspect of technologicalreadiness. India ranks 30th for firm-level adoption ofnew technologies, and 19th for the extent to whichfirms harness FDI as a means to transfer technology.This will allow India to significantly boost itsproductivity and competitiveness, especially as itbecomes increasingly prevalent throughout thecountry. Greater ICT diffusion is therefore a clearpriority going forward.

10th Pillar: Market Size

A large domestic market size plays an important rolein enhancing national productivity, as it allowscompanies to benefit from economies of scale intheir production processes and strategies.Historically, the market available to firms has beenconstrained by national borders. In the era ofglobalization, international markets have become asubstitute for domestic markets, especially for smallcountries. The GCI includes a comprehensivedefinition of market size by taking into account thesize of the domestic and foreign markets, therebygiving credit to economies that are open to foreigntrade and compete successfully in internationalmarkets.

India ranks fourth in the Market Size Pillar, behindonly the United States, China and Japan. Thecountry’s large population of 1.1 billion is a strongasset for India, representing an enormous pool ofworkers and potential consumers. Yet, consumptionremains constrained by low incomes. According tothe World Bank, some 40% of Indians still live inextreme poverty (see Figure 2) constraining theirpurchasing power.

However, the recent years of rapid economic growthhave begun to change the consumption landscape.Real average household disposable income doubledbetween 1985 and 2005. Assuming annual growthof 7.3%, Beinhocker et al. (2007) estimate thatincome will grow at an annual rate of 5.3% until2025. They predict that the middle class willrepresent 41% of the population (583 million) by2025, up from 5% in 2005, and that privateconsumption will grow fourfold.

An issue that time alone will not resolve is India’sfragmented domestic market. Although theconstitution states that trade and commercethroughout the country should be free, significantbarriers to interstate trade remain. A sales tax islevied on moveable goods, and rates varydepending upon the type and nature of goods andthe state in which a sale takes place, with both thecentral and state governments potentially imposingsuch taxes. In addition, a number of regulatorymeasures such as the Essential Commodities Actimpede the free movement of goods61. Reducingsuch barriers would further enable India to reap thebenefits of its vast domestic market.

Finally, following a recovery from the currenteconomic crisis, there is potential to increase theexport market. In 2007, India was the world’s 26thbiggest exporter with a 1% share in total worldexports, compared with 9% for China. India’s tradeopenness (as measured by the ratio of total trade toGDP) is relatively modest at 45%, compared with71% in China and 60% in Indonesia. This wouldimply that room for growth in this area remains.


11th Pillar: Business Sophistication

Business sophistication is conducive to higherefficiency in the production of goods and services.This leads to increased productivity, thus enhancinga nation’s competitiveness. Business sophisticationconcerns the quality of a country’s businessnetworks as well as the quality of individual firms’operations and strategies. This is particularly

important for countries at an advanced stage ofdevelopment, when the more basic sources ofproductivity improvements have been exhausted toa large extent. While this is not yet among the mostcritical areas for India’s competitiveness, as discussedabove, it is an area where India performs quite well.

The Pillar takes into account the quality of nationalbusiness networks and supporting industries, whichare captured using variables on the quantity and


Rank* Company Sector Revenues105 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

Table 5: Global Companies: India’s Presence

Source: Fortune 2009; Financial Times 2009

Rank* Company Sector Market value75 Reliance Industries Oil & gas 47,250120 Oil and Natural Gas Oil & gas 32,870138 National Thermal Power Electricity 29,286188 Bharti Airtel Mobile telecommunications 23,414330 Infosys Technologies Software & computer services 14,950345 Bharat Heavy Electricals Industrial engineering 14,515362 ITC Tobacco 13,748372 State Bank of India Banks 13,346483 Tata Consultancy Services Software & computer services 10,416495 Hindustan Unilever Personal goods 10,235

Number of Rank Company Global 500 companies Market value1 United States 181 6,154,0352 China 27 1,367,8813 United Kingdom 32 1,160,2254 Japan 49 1,110,7445 France 23 796,7146 Germany 20 617,5157 Canada 27 526,4608 Switzerland 10 515,6369 Hong Kong SAR 16 439,19210 Spain 13 359,00111 Australia 14 354,54012 Brazil 9 348,06013 Italy 7 223,49314 Russian Federation 6 220,22715 India 10 210,030

* Wal-Mart Stores (United States) tops the ranking with revenues of US$ 378,799 million

* Exxon Mobil (United States) tops the ranking with value of US$ 336,525 million

Fortune Magazine Global 500

Financial Times Global 500

All figures in US$ millions

quality of local suppliers and the extent of theirinteraction. When companies and suppliers from aparticular sector are interconnected in geographicallyproximate groups (“clusters”), efficiency isheightened, greater opportunities for innovation arecreated and barriers to entry for new firms arereduced. Individual firms’ operations and strategies(branding, marketing, the presence of a value chainand the production of unique and sophisticatedproducts) lead to sophisticated and modernbusiness processes.

India ranks an impressive 27th in this Pillar, trailingMalaysia by just three positions and outperformingall the other comparators, including China (see Table4). The country is characterized by well-developedclusters (20th) with a large number of local suppliers(3rd), which are of reasonable quality, given thecountry’s stage of development (41st). The assessmentof the sophistication of firms’ operations and strategiesis also good, ranked 35th. Although low-cost labourremains a competitive advantage, Indian firms arenevertheless present across the value chain (26th) andretain some control over the international distribution oftheir products (44th). Marketing is also becoming moreextensive (33rd) and production processes arerelatively sophisticated (43rd).

India’s strong showing in the Pillar might be attributableto the brisk development of certain key industries. Inthe area of offshoring – or business processesoutsourcing (BPO) – India is arguably the world leader62.Other industries such as IT, telecommunications,retailing, automotive, pharmaceuticals and airtransportation are thriving, with several companiesbecoming corporate giants, and some assertingcross-border leadership in their fields.

As Table 5 shows, there are now seven Indiancompanies, mainly oil and gas producers, onFortune magazine’s Global 500 list of the world’sbiggest corporations as measured by revenue.Similarly, 10 companies are listed on the FinancialTimes list, which uses market value to establish itsranking. These leaders have undoubtedlycontributed to improving the degree of businesssophistication in India, and will continue providingexamples to other companies of sophisticatedbusiness models as India moves up thedevelopment path.

12th Pillar: Innovation

The final Pillar of competitiveness captures acountry's innovative potential. Although substantialgains can be obtained by improving institutions,building infrastructure, reinforcing macroeconomicstability or improving human capital, these factorseventually seem to run into diminishing rates ofreturn. Innovation is particularly important foreconomies as they approach the frontiers ofknowledge and the possibility of integrating andadapting exogenous technologies tends todisappear.

At its present stage of development, India can stillimprove its productivity by adopting existingtechnologies or making improvements in otherareas. Yet, as the country continues to develop,innovation will become an increasingly importantarea of focus and will require a conduciveenvironment. In particular, this necessitates sufficientinvestment in research and development (R&D)especially by the private sector, the presence ofhigh-quality scientific research institutions, extensivecollaboration in research between universities andindustry, and adequate protection of intellectualproperty.

Although India’s main competitiveness priorities lieelsewhere, it should continue nurturing its innovationpotential, especially by further strengthening asupportive environment. India ranks 30th in thisPillar, with a performance similar to that of China(26th) and Malaysia (24th) and considerably betterthan all other comparators. India does well on mostindicators, with the notable exception of the extentto which the government places an emphasis ontechnological attributes in its procurement process.

Scientific research institutions are assessed by thebusiness community as of good quality (25th, scoreof 4.9). The strong reputation of the 15 IndianInstitutes of Technologies (IITs) certainly contributesto this positive assessment. They are considered thebest technical schools in India63, with increasinginternational recognition64.


The 20 National Institutes of Technology (NITs) arealso fairly successful, although only a few areconsidered on a par with IITs65. The 12 IndianInstitutes of Information Technology (IIITs), allestablished in or after 1997, are also building astrong reputation in their field66. Separate from thesenetworks, the Indian Institute of Science (IISc)located in Bangalore is also recognized as aprominent research institution. It ranks first amongIndian universities in Shanghai Jiao Tong University’s2008 Academic Ranking of World Universities.

The availability of scientists and engineers is also aclear strength for the country, with India ranking animpressive 4th on this indicator, supporting thesuccess of India’s IT and BPO sectors. But, if Indiais to maintain its leadership in this sector andeventually become an innovation hub, it will need toimprove both the quantity and quality of highereducation or risk facing shortfalls in high-qualitygraduates. NASSCOM, the Indian NationalAssociation of Software and Services Companies,has estimated that, of the 350,000 engineeringgraduates who emerge each year, 25% areunemployable without extensive further training, andhalf are unemployable67.

The business community signals that, generallyspeaking, companies could increase spending onR&D. Although India does well in relative terms(ranked 36th), its score is mediocre on this indicator

(3.6). India’s total spending on R&D in 2004 wasequivalent to 0.7% of GDP in 200768. This is low byinternational standards: China spent twice as much(1.4%), the United States 2.6%, and champion Japan3.3%. The share of India in global R&D spendingamounts to 2%, compared with 9.5% for China,which is catching up with Japan (13.5%), and 34.3%for the United States69. Equally troublesome for India isthe origin of the funding. UNESCO estimates thatthe bulk of it, 75%, comes from the public sector,while the private sector accounts for 19%70. InChina, Malaysia and most of the developedcountries, the share of private sector in R&Dspending is typically around 70%.

Another important driver of innovation is the extent ofcollaboration between academia and the businesssector in R&D. While not yet very strong, this collaborationhas improved in India in recent years. India now ranks46th with a score of 3.8, up from 3.4 in 2005.

A strong intellectual property (IP) protection systemgoes hand in hand with the development of acountry’s innovation capacity. IP is of particularimportance in India, given the country’s status as aprime offshoring destination. Firms that outsourcebusiness processes may be required to provideaccess to classified data and information to a BPOcompany. But IP also matters as much in otherareas, such as in the growing pharmaceuticalindustry. Looking at India’s performance in this


40.8

10.3

13.5

1.7 4.

4

0.8 5.

1

0.2

23.2

31.6

17.6

11.5

4.8

4.3

3.7

3.4

0.7

22.3

United States Japan Germany Korea, Rep. France China United Kingdom India Others

2000 2007

19 1 2 3 4 5 6 7 2008 rank

Total: 163,178 93,243

+75%

Source: WIPO Statistics Database (September 2009)

Figure 16: Share (%) of Countries in Total PCT Filings

indicator – 61st with a score of 3.6 – the businesscommunity assesses that IP protection is notsufficiently stringent and enforced.

One way to measure a country’s innovation power isby the number of patents granted to its residents. In2008, the US Patent and Trademark Office (USPTO)granted a total of 634 utility patents to residents ofIndia. This corresponds to 0.5 patents per millionpopulation (58th), on a par with Brazil (59th), butabout half China’s rate of 0.9 (50th). Malaysia has arate of 5.6, the highest among the comparators, butremains far below the rates displayed by innovationhubs like Taiwan (279.3), Japan (263.3) and theUnited States (250.9), respectively first, second andthird.

Figure 16 provides another measure of innovation byreporting selected countries’ share in the total ofpatent filings under the World Intellectual PropertyOrganization (WIPO's) Patent Cooperation Treaty(PCT), for 2000 and 2007, during which time India’sshare rose from 0.2% to 0.7%71. During the sameperiod, China’s share jumped from 0.8% to 3.7%,now placing the country on a par with the UnitedKingdom. Both the USPTO and WIPO statisticsconfirm that India has made impressive strides buthas not yet established itself as an internationalinnovation powerhouse.

Conclusion

India’s economic performance over the past twodecades has been truly remarkable. Pro-growth,outward-looking reforms have reinforced India’sgrowth potential. In recent years, India has been oneof the world’s fastest growing economies. Yet, thequestion remains whether India will be able tosustain and, indeed, accelerate its current pace ofgrowth in the years to come. The GCI provides aframework for thinking about this question bybenchmarking India’s competitive landscape againstthat of other economies. In this context, the GCIpaints a rather mixed picture of India’scompetitiveness.

India’s competitiveness is constrained by a numberof structural problems. First and foremost, Indiamust strengthen the foundations of competitiveness,on which its long-term growth crucially depends.

Despite 20 years of rapid economic growth, much ofits population remains mired in poverty and poorhealth. Basic education is not yet universal and is ofmediocre quality, while access to higher educationremains accessible to only a privileged few. As aresult, illiteracy is pervasive, particularly amongadults. The good news is that most of the indicatorsare moving in the right direction and the governmenthas articulated its intention to urgently address theseweaknesses. Asked about the priorities for India,Prime Minister Manmohan Singh responded that“the first and foremost priority is […] to get rid ofchronic poverty, ignorance and disease, which haveafflicted millions and millions of our people.”72

Achieving these development priorities will befacilitated through improvements in other aspects ofIndia’s business environment. In particular, Indiadesperately needs to upgrade its transport andelectricity infrastructure, the strains on which aremade all the more acute by the economy’s rapidgrowth. In addition, both the central and stategovernments must urgently address the runawayfiscal situation; repeated deficits leave thegovernment with limited latitude to increase criticalsocial spending.

Finally, further reforms are needed in the functioningof government institutions, as pervasive red tapeand corruption increase transaction costs anddiscourage business creation and development. Inaddition, obstacles to business creation, combinedwith rigidities and inefficiencies in the labour market,encourage the development of the informal sector atthe expense of the formal sector, with all of thenegative consequences this entails.

On a more positive note, India has many strengthson which to build a prosperous future. In particular,the sheer size of its domestic market and thegrowing middle class should boost investment andconsumption. In addition, India’s strong showing inthe Financial Market Sophistication Pillar bodes wellas efficient financial intermediation will play a key rolein business development.

Further, the relatively high degree of businesssophistication and a knack for innovation ensure thatIndia is also investing in those aspects ofcompetitiveness that will become increasingly


important as the country moves up the value chain.Although there is room for improvement in each ofthese categories, India generally comparesfavourably with the comparator countries and, in afew areas, is on par with much more advancedeconomies.

With so many areas for productivity enhancements,India’s potential for efficiency gains is enormous.Coupled with the country’s vibrant democracy andfavourable demographic trends, there is muchreason for optimism about India’s economic future,as long as the weaknesses underlined in thischapter are efficiently tackled.


Notes


1 IMF 2009a.2 Calculated compound annual growth rate (CAGR)based on IMF 2009a.

3 When adjusting for purchasing power differences,India ranks fourth worldwide, behind the UnitedStates, China and Japan.

4 Current prices for 2008. Figures from IMF 2009a.5 The poverty line of US$ 1.25 a day (at purchasingpower parity) is the World Bank’s definition ofextreme poverty. 2005 is the most recent yearavailable. All figures from World Bank 2009a.

6 UNDP 2009.7 UNCTAD 2008.8 As the definition makes clear, the concept ofcompetitiveness underlying the Index includesboth static and dynamic components, sinceproductivity not only determines countries’capacity to sustain a high level of income, butalso, through its impact on rates of return toinvestment, national growth potential.

9 For more information about the GCI methodology,a more detailed description of each Pillar,expanded rankings, country profiles, data tablesand technical notes for all the indicators, pleaserefer to World Economic Forum 2009a.

10 For further details, see Sala-i-Martin et al. 2009.11 The weights have been derived from a maximumlikelihood regression.

12 For more information on the Survey, please referto Browne and Geiger 2009.

13 This “constant sample” approach eliminates thevariations in rankings caused by new countriesthat are included in subsequent editions.

14 The Developing Asia region comprises 26developing Asian countries, 14 of which areincluded in the GCI ranking: Bangladesh, BruneiDarussalam, Cambodia, China, India, Indonesia,Malaysia, Nepal, Pakistan, Philippines, Sri Lanka,Thailand, East Timor and Vietnam. The lowermiddle income group as defined by the WorldBank comprises 55, 31 of which are covered bythe GCI: Albania, Armenia, Azerbaijan, Bolivia,Cameroon, China, Côte d'Ivoire, Ecuador, Egypt,El Salvador, Georgia, Guatemala, Guyana,Honduras, India, Indonesia, Jordan, Lesotho,Mongolia, Morocco, Nicaragua, Nigeria, Pakistan,Paraguay, Philippines, Sri Lanka, Syria, Thailand,East Timor, Tunisia and Ukraine. For the purposeof the analysis, India is excluded when computingthe average score and the median ranks of groupsto which it belongs.

15 In this Pillar-by-Pillar analysis, the discussion of theresults is preceded by a short description of thePillar and its relevance for nationalcompetitiveness. For fuller descriptions and aliterature review, see Sala-i-Martin et al. 2009.

16 Since 2003, in the context of the ExecutiveOpinion Survey (EOS), the World Economic Forumhas asked the business community what theyconsider to be the most problematic factors fordoing business in their country. Respondents areasked to pick from a list of 15 factors the five thatare most problematic, and to rank them from 1(most problematic) to 5. The results are thentabulated and weighted according to the rankingassigned by respondents. For each factor, the finalscore corresponds to its weighted total divided bythe sum of weighted totals of all factors.

17 Note, however, that India's score of 3.2 out of 10represents a significant improvement from 2004,when India ranked 90th among 145 countries witha score of 2.8.

18 See Zainulbhai 2007.19 World Bank 2006.20 The Economist 2008.21 See Zainulbhai 2007.22 OECD 2007.23 Figures from the National Highways Authority ofIndia (NHAI)’s website (accessed on 22 September2009).

24 World Bank 2009a.25 The Economist 2008.26 See Government of India 2009 for moreinformation.

27 Note that the combined share of Jet Airways andits subsidiary Jet Lite is 26.4%. Figures are forAugust 2009 and from India’s Directorate-Generalof Civil Aviation.

28 This measure, compiled by the International AirTransport Association, corresponds to an airline’spassenger-carrying capacity. It is the product ofthe number of seats available on all flightsoriginating from a country during one week andtheir flight distance in kilometres.

29 See “India’s Transport Sector” available athttp://go.worldbank.org/FUE8JM6E40.

30 See “India’s Transport Sector” available athttp://go.worldbank.org/FUE8JM6E40.

31 MHUPA and UNDP, 2009.32 See Poddar and Yi, 2007.33 Estimates vary. See The Economist 2008 andZainulbhai 2007.


34 See, for example, OECD 2007 and, for agovernment opinion, Zainulbhai 2007.

35 For an in-depth analysis of India’s experience withfiscal rules, see IMF 2009b.

36 All cited figures are from RBI 2009.37 The Economist 2009a.38 The dependency ratio is equal to the populationaged below 15 and above 64 (the dependent part)divided by the population aged 15 to 64. For moreinformation on the link between demographicsand savings and the impact on Asia’s growth, seeSanyal and Folkerts-Landau 2005.

39 See McKinsey 2006.40 All inflation figures from IMF 2009a.41 EIU 2009.42 On a much more positive note, access toimproved water is nearly universal at 89%.

43 Figures are from the Directorate of National VectorBorne Disease Control Programme (NVBDCP),situation as of April 2009.

44 See OECD 2007.45 World Bank 2009a. Figures are for 2003, the latestyear available for all the comparator countries.

46 See Gandhi Kingdon 2007.47 See ADB 2008.48 OECD 2007.49 Interestingly enough Hyderabad-based IndianSchool of Business is also ranked in the FinancialTimes’ Global MBA Rankings 2009.

50 Nowadays, foreign companies not only outsourcecustomer relationship management or salesdepartments, but also more complex processessuch as IT maintenance, software developmentand accountability.

51 All the Doing Business figures used in the GCI2009-2010 are from the 2009 edition of DoingBusiness (see World Bank and IFC 2008). Theymay, therefore, differ from the 2010 editionrecently released (see World Bank and IFC2009b).

52 Cost estimates for India and China are from WorldBank and IFC 2008. Estimates for South Asia arefrom World Bank and IFC 2009b. The South Asiaregion covers Afghanistan, Bangladesh, Bhutan,India, Maldives Nepal, Pakistan and Sri Lanka.India is not excluded from the computation of theaverage, unlike the GCI averages reportedelsewhere in the text.

53 The latest Doing Business study reveals thesituation has slightly improved. See World Bankand IFC 2009b.

54 For a brief overview of competition conditions inIndia, see OECD 2007.

55 See World Bank and IFC 2009a.56 World Bank 2009a.57 For a comprehensive analysis of India’s financialsector and of its shortcomings, see McKinsey2006.

58 For an in-depth analysis of the drivers of ICTpromotion, diffusion and use, see Mia et al. 2009.

59 For an overview of the benefits of ICT in generalon growth, see The Economist 2009b. For a morespecific discussion on mobile telephony, seeGeiger and Mia 2009.

60 See World Bank 2009b.61 See Rao 2003.62 See A.T. Kearney 2009.63 Dataquest’s 2008 Ranking of India’s Top TechnicalSchools places IIT Kharagpur in first position, withthe next five places also occupied by IITs.

64 In the Times Higher Education’s 2008 Top 100 ofEngineering and Innovation TechnologyUniversities, IIT Bombay and IIT Delhi rank 36thand 42nd respectively.

65 NIT Calicut and NIT Warangal both appear in thetop 15 of Dataquest’s ranking.

66 The IIIT at Hyderabad ranks 7th – and firstinstitution not to be an IIT – in the Dataquest’sranking.

67 NASSCOM’s Strategic Review 2008.68 R&D Magazine 2008.69 In 2008, in his address to the Indian ScienceCongress, Prime Minister Manmohan Singhannounced that total spending on R&D would bebrought to 2% of GDP by the end of the 11thFive-Year Plan, which is in 2012.

70 Figures for 2004 from UNESCO’s Institute forStatistics (accessed on October 4th).

71 The PCT offers inventors and industry a means forobtaining patent protection internationally. By filingone “international” patent application under thePCT, protection of an invention can be soughtsimultaneously in each of a large number ofcountries.

72 Gupta 2005.

ADB (Asian Development Bank). 2008. KeyIndicators for Asia and the Pacific 2008. August.Manila, Philippines: Asian Development Bank.

A. T. Kearney. 2009. The Shifting Geography ofOffshoring. The Global Services Location Index2009. Chicago, IL: A. T. Kearney.

Beinhocker, E. D., D. Farrell, and A. S. Zainulbhai.2007. “Tracking the Growth of India’s Middle Class”.McKinsey Quarterly Online Edition. August.

Browne, C., T. Geiger. 2009. “The Executive OpinionSurvey: Capturing the Views of the BusinessCommunity”. The Global Competitiveness Report2009-2010. Geneva: World Economic Forum. 49-57.

EIU (Economist Intelligence Unit) . 2009. “India”.Country Report. September. London: EIU.

The Economic Times. 2006. “Brain Drain on ReverseGear to India”. 8 March.

The Economist. 2008. “A Special Report on India”.11 December. London: The Economist NewspaperLimited.

The Economist 2009a. “Hopes Suspended: India’sBudget”. 9 July. London: The Economist NewspaperLimited.

The Economist. 2009b. “A Special Report onTelecoms in Emerging Markets”. 26 September.London: The Economist Newspaper Limited.

Ernst & Young. 2008. Transforming Indian Ports intoWorld Class Facilities. April.

Ferrari, A. and I. S. Dhingra. 2008. India’sInvestment Climate. Washington, D.C.: The WorldBank.

FT (Financial Times). 2009. The FT 500 CompaniesReport. 29th May.

Fortune Magazine. 2009. 20 July.

Gandhi Kingdon, G. 2007. The Progress of SchoolEducation in India. Global Poverty Research GroupPaper. March.

Geiger, T. and I. Mia. 2009. “Mobile Telephony: ACritical Enabler of Networked Readiness?” TheGlobal Information Technology Report 2008-2009.Geneva: World Economic Forum. 27-35.

Government of India. 2009. Outcome Budget 2009-2010. Ministry of Shipping. Available at:http://shipping.gov.in/

Gupta, R. 2005. “India’s Economic Agenda: AnInterview with Manmohan Singh”. McKinseyQuarterly Online Edition. September.

Gupta, R. 2008. “A Healthier Future for India”.McKinsey Quarterly Online Edition. January.

IANS (Indo-Asian News Service). 2009. “ShippingMinistry to Boost Port Infrastructure”. 15 September.

IMF (International Monetary Fund). 2009a. WorldEconomic Outlook Database. October.

IMF (International Monetary Fund). 2009b. “India:Selected issues”. IMF country Report No. 09/186.June. Washington DC: IMF.

ITU (International Telecommunication Union). 2009.ITU World Telecommunication/ICT Indicators 2009(June Update). CD-ROM. June.

McKinsey (McKinsey & Company). 2006.Accelerating India’s Growth through FinancialSystem Reform. McKinsey Global Institute. May.

MHUPA (Ministry of Housing and Urban PovertyAlleviation) and UNDP (United Nations DevelopmentProgramme). 2009. India: Urban Poverty Report2009.

Mia, I., S. Dutta, and T. Geiger. 2009. “Gauging theNetworked Readiness of Nations: Findings from theNetworked Readiness Index 2008-2009.” TheGlobal Information Technology Report 2008-2009.Geneva: World Economic Forum.

OECD (Organisation for Economic Co-operation andDevelopment). 2007. 2007 OECD Economic Surveyof India. October. Paris: OECD.

Pandit, R. V. 2005. “Why Believe in India”. McKinseyQuarterly Online Edition. September.

References


Poddar, T. and E. Yi. 2007. “India’s Rising GrowthPotential”. Global Economics Paper no.152.Goldman Sachs. January.

Rao, G. 2003. “Fiscal Decentralization in China andIndia: A Comparative Perspective”. Asia-PacificDevelopment Journal. Vol. 10, No. 1, June.

R&D Magazine. 2008. 2009 Global R&D FundingForecast. December.

Reserve Bank of India (RBI). 2009. Macroeconomicand Monetary Developments First Quarter Review2009-10. July.

Sala-i-Martin, X., J. Blanke, M. Drzeniek Hanouz, T.Geiger, I. Mia. 2009. “The Global CompetitivenessIndex 2009-2010: Contributing to Long-TermProsperity amid the Global Economic Crisis WorldEconomic Forum”. The Global CompetitivenessReport 2009-2010. Geneva: World EconomicForum. 3-47.

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This appendix presents the structure of the GlobalCompetitiveness Index 2009-2010 (GCI).

The number preceding the period indicates to whichPillar the variable belongs (e.g. variable 1.01 belongsto the 1st Pillar; variable 12.04 belongs to the 12thPillar).

The hard data indicators used in the GCI arenormalized on a 1 to 7 scale to align them with theExecutive Opinion Survey’s results.a

Those variables that are followed by the symbol 1/2

enter the GCI in two different places. To avoiddouble counting, we give them a half-weight in eachplace by dividing their value by 2 when computingthe aggregate score for the two categories in whichthey appear.b

The percentage next to each category representsthis category’s weight within its immediate parentcategory. The computation of the GCI is based onsuccessive aggregations of scores, from the variablelevel (i.e. the lowest level) up to the overall GCI score(i.e. the highest level) using the weights reportedbelow. For example, the score a country achieves inthe 9th Pillar accounts for 17% of this country’sscore in the Efficiency Enhancers Subindex. Similarly,the score achieved on the Networks and SupportingIndustries Subpillar accounts for 50% of the score ofthe 11th Pillar. Reported percentages are rounded tothe nearest integer, but exact figures are used in thecalculation of the GCI.

Unlike for the lower levels of aggregation, the weightput on each of the three Subindexes (BasicRequirements, Efficiency Enhancers, and BusinessSophistication and Innovation Factors) is not fixed. Itdepends on each country's stage of development,as discussed in the text.c In the case of India,currently in the first stage of development, the scorein the Basic Requirements Subindex accounts for60% of its overall GCI score, while it represents just20% of the overall GCI score of Australia, a countryin the third stage of development.

Weight (%) within immediate parent category v

Basic Requirements

1st Pillar: Institutions 25%

A. Public Institutions 75%

1. Property Rights 20%

1.01 Property Rights

1.02 Intellectual Property Protection1/2

2. Ethics and Corruption 20%

1.03 Diversion of Public Funds

1.04 Public Trust of Politicians

3. Undue influence 20%

1.05 Judicial Independence

1.06 Favouritism in Decisions of GovernmentOfficials

4. Government Inefficiency 20%

1.07 Wastefulness of Government Spending

1.08 Burden of Government Regulation

1.09 Efficiency of Legal Framework in SettlingDisputes

1.10 Efficiency of Legal Framework inChallenging Regulation

1.11 Transparency of Government Policy-making

5. Security 20%

1.12 Business Costs of Terrorism

1.13 Business Costs of Crime and Violence

1.14 Organized Crime

1.15 Reliability of Police Services

B. Private Institutions 25%

1. Corporate Ethics 50%

1.16 Ethical Behaviour of Firms

2. Accountability 50%

1.17 Strength of Auditing and ReportingStandards

1.18 Efficacy of Corporate Boards

1.19 Protection of Minority Shareholders’Interests

Appendix A: Structure of the Global CompetitivenessIndex 2009-2010


2nd Pillar: Infrastructure 25%

A. General infrastructure 50%

2.01 Quality of overall infrastructure

B. Specific Infrastructure 50%

2.02 Quality of Roads

2.03 Quality of Railroad Infrastructure

2.04 Quality of Port Infrastructure

2.05 Quality of Air Transport Infrastructure

2.06 Available Seat Kilometres (Hard Data)

2.07 Quality of Electricity Supply

2.08 Telephone Lines (Hard Data)

3rd Pillar: Macroeconomic Stability 25%

3.01 Government Budget Balance (Hard Data)

3.02 National Savings Rate (Hard Data)

3.03 Inflation (Hard Data)d

3.04 Interest Rate Spread (Hard Data)

3.05 Government Debt (Hard Data)

4th Pillar: Health and Primary Education 25%

A. Health 50%

4.01 Business Impact of Malariae

4.02 Malaria Incidence (hard data)e

4.03 Business Impact of Tuberculosise

4.04 Tuberculosis Incidence (Hard Data)e

4.05 Business Impact of HIV/AIDSe

4.06 HIV Prevalence (Hard Data)

4.07 Infant Mortality (Hard Data)

4.08 Life expectancy (Hard Data)

B. Primary Education 50%

4.09 Quality of Primary Education

4.10 Primary Enrolment (Hard Data)

4.11 Education Expenditure (Hard Data)1/2

Efficiency Enhancers

5th Pillar: Higher Education and Training 17%

A. Quantity of Education 33%

5.01 Secondary Enrolment (Hard Data)

5.02 Tertiary Enrolment (Hard Data)

4.11 Education Expenditure (Hard Data)1/2

B. Quality of Education 33%

5.03 Quality of the Educational System

5.04 Quality of Math and Science Education

5.05 Quality of Management Schools

5.06 Internet Access in Schools

C. On-the-job Training 33%

5.07 Local Availability of Specialized Researchand Training Services

5.08 Extent of Staff Training

6th Pillar: Goods market efficiency 17%

A. Competition 67%

1. Domestic Competition variablef

6.01 Intensity of Local Competition

6.02 Extent of Market Dominance

6.03 Effectiveness of Anti-Monopoly Policy

6.04 Extent and Effect of Taxation1/2

6.05 Total Tax Rate (Hard Data)1/2

6.06 Number of Procedures Required to Start aBusiness (Hard Data)g

6.07 Time Required to Start a Business (HardData)g

6.08 Agricultural Policy Costs

2. Foreign Competition variablef

6.09 Prevalence of Trade Barriers

6.10 Trade-Weighted Tariff Rate (Hard Data)

6.11 Prevalence of Foreign Ownership

6.12 Business Impact of Rules on FDI

6.13 Burden of Customs Procedures

10.04Imports as a Percentage of GDP (HardData)

B. Quality of Demand Conditions 33%

6.14 Degree of Customer Orientation

6.15 Buyer Sophistication

7th Pillar: Labour Market Efficiency 17%

A. Flexibility 50%

7.01 Cooperation in Labour-Employer Relations

7.02 Flexibility of Wage Determination

7.03 Rigidity of Employment (Hard Data)

7.04 Hiring and Firing Practices

6.04 Extent and Effect of Taxation1/2


6.05 Total Tax Rate (Hard Data)1/2

7.05 Firing Costs (Hard Data)

B. Efficient Use of Talent 50%

7.06 Pay and Productivity

7.07 Reliance on Professional Management1/2

7.08 Brain Drain

7.09 Female Participation in Labour Force (HardData)

8th Pillar: Financial Market Sophistication17%A. Efficiency 50%

8.01 Financial Market Sophistication

8.02 Financing through Local Equity Market

8.03 Ease of Access to Loans

8.04 Venture Capital Availability

8.05 Restriction on Capital Flows

8.06 Strength of Investor Protection (Hard Data)

B. Trustworthiness and Confidence 50%

8.07 Soundness of Banks

8.08 Regulation of Securities Exchanges

8.09 Legal Rights Index (Hard Data)

9th Pillar: Technological Readiness 17%

9.01 Availability of Latest Technologies

9.02 Firm-level Technology Absorption

9.03 Laws Relating to ICT

9.04 FDI and Technology Transfer

9.05 Mobile Telephone Subscriptions (Hard Data)

9.06 Internet Users (Hard Data)

9.07 Personal Computers (Hard Data)

9.08 Broadband Internet Subscribers (Hard Data)

10th Pillar: Market Size 17%

A. Domestic Market Size 75%

10.01Domestic Market Size Index (Hard Data)h

B. Foreign Market Size 25%

10.02 Foreign Market Size Index (Hard Data)i

Innovation and Sophistication Factors

11th Pillar: Business Sophistication 50%

A. Networks and Supporting Industries 50%

11.01 Local Supplier Quantity

11.02 Local Supplier Quality

11.03 State of Cluster Development

B. Sophistication of Firms' Operations andStrategy 50%

11.04 Nature of Competitive Advantage

11.05 Value Chain Breadth

11.06 Control of International Distribution

11.07 Production Process Sophistication

11.08 Extent of Marketing

11.09 Willingness to Delegate Authority

7.08 Reliance on Professional Management1/2

12th Pillar: Innovation 50%

12.01 Capacity for Innovation

12.02 Quality of Scientific Research Institutions

12.03 Company Spending on R&D

12.04 University-Industry ResearchCollaboration

12.05 Government Procurement of AdvancedTechnology Products

12.06 Availability of Scientists and Engineers

12.07 Utility Patents (Hard Data)

1.02 Intellectual Property Protection1/2

Notesa The standard formula for converting hard data is

the following:

The sample minimum and sample maximum are,respectively, the lowest and highest countryscores in the sample of countries covered by theGCI. In some instances, adjustments were madeto account for extreme outliers. For those harddata variables for which a higher value indicates aworse outcome (e.g. disease incidence,government debt), we rely on a normalizationformula that, in addition to converting the seriesto a 1 to 7 scale, reverses it, so that 1 and 7 still


6 x + 1(country score - sample minimum)

(sample maximum - sample minimum)

corresponds to the worst and best possibleoutcomes, respectively:

b For those groups of variables that contain one orseveral half-weight variables, country scores forthose groups are computed as follows:

c As described in the chapter, the weights are thefollowing:

d In order to capture the idea that both highinflation and deflation are detrimental, inflationenters the model in a U-shaped manner asfollows: for values of inflation between 0.5% and2.9%, a country receives the highest possiblescore of 7. Outside this range, scores decreaselinearly as they move away from these values.

e The impact of malaria, tuberculosis and HIV/AIDSon competitiveness depends not only on theirrespective incidence rates, but also on how costlythey are for business. Therefore, in order toestimate the impact of each of the threediseases, we combine its incidence rate with theSurvey question on its perceived cost tobusinesses. To combine these data we first takethe ratio of each country's disease incidence raterelative to the highest incidence rate in the wholesample. The inverse of this ratio is then multipliedby each country's score on the related Surveyquestion. This product is then normalized to a 1to 7 scale. Note that countries with zero reportedincidence receive a 7, regardless their scores onthe related Survey question.

f The Competition Subpillar is the weightedaverage of two components: Domesticcompetition and Foreign competition. In bothcomponents, the included variables provide an

indication of the extent to which competition isdistorted. The relative importance of thesedistortions depends on the relative size ofdomestic versus foreign competition. Thisinteraction between the domestic market and theforeign market is captured by the way wedetermine the weights of the two components.Domestic competition is the sum of consumption(C), investment (I), government spending (G), andexports (X), while foreign competition is equal toimports (M). Thus we assign a weight of(C+I+G+X)/(C+I+G+X+M) to Domesticcompetition and a weight of M/(C+I+G+X+M) toForeign competition.

g Variables 6.06 and 6.07 combine to form onesingle variable.

h The size of the domestic market is constructedby taking the natural log of the sum of the grossdomestic product valued at PPP plus the totalvalue (PPP estimates) of imports of goods andservices, minus the total value (PPP estimates) ofexports of goods and services. Data are thennormalized on a 1 to 7 scale. PPP estimates ofimports and exports are obtained by taking theproduct of exports as a percentage of GDP andGDP valued at PPP. The underlying data arereported in the Data Tables section (see tables10.03, 10.04 and 10.05).

i The size of the foreign market is estimated as thenatural log of the total value (PPP estimates) ofexports of goods and services, normalized on a 1to 7 scale. PPP estimates of exports are obtainedby taking the product of exports as a percentageof GDP and GDP valued at PPP. The underlyingdata are reported in the Data Tables.


- 6 x + 7(country score - sample minimum)

(sample maximum - sample minimum)

1+ (sum of scores on full - weight variables) (sum of scores on half - weight variables)2

x

1+ (count of full - weight variables) (count of half - weight variables)2

x

Basic requirements 60 40 20Efficiency enhancers 35 50 50Innovation factors 5 10 30

WeightsFactor-drivenstage (%)

Innovation-driven stage (%)

Efficiency-driven stage (%)

The next two pages provide the details of India’sperformance on the Global Competitiveness Index(GCI) 2009-2010.

This column contains the title of eachcomponent and each indicator. Hard data indicatorsare identified by an asterisk.

This column reports India’s position amongthe 133 economies covered by the GCI. Next to therank, a coloured square indicates whether anindicator constitutes an advantage () or adisadvantage () for the country. For India, as for alleconomies ranked between rank 11 and 50 in theoverall GCI, any individual variables on which Indiaranks higher than its overall GCI rank (i.e. 49) areconsidered advantages. Any variables ranked lowerare considered disadvantages.

This column reports India’s score. ForExecutive Opinion Survey data, scores range from 1(lowest) to 7 (highest). For hard data indicators,identified by an asterisk, the units of measure areindicated in parentheses.

This column shows India’s evolution inthe score of each component and indicator. The firstsymbol indicates whether India’s score in the GCI2009-2010 has improved (), worsened () orremained unchanged (=) compared with the 2008-2009 edition. The second symbol indicates whetherIndia’s score in the 2008-2009 edition has improved(), worsened () or remained unchanged (=)compared to the 2007-2008 edition.

For thesake of comparison, we report scores of China, aswell as average scores of the developing Asia region(DEV ASIA), and lower middle income group (LOWMID INC). The developing Asia region comprises 26developing Asian nations, 14 of which are includedin the GCI: Bangladesh, Brunei Darussalam,Cambodia, China, India, Indonesia, Malaysia, Nepal,Pakistan, Philippines, Sri Lanka, Thailand, EastTimor and Vietnam. The lower middle income groupas defined by the World Bank comprises 55, 31 ofwhich are covered by the GCI: Albania, Armenia,Azerbaijan, Bolivia, Cameroon, China, Côte d'Ivoire,

East Timor, Ecuador, Egypt, El Salvador, Georgia,Guatemala, Guyana, Honduras, India, Indonesia,Jordan, Lesotho, Mongolia, Morocco, Nicaragua,Nigeria, Pakistan, Paraguay, Philippines, Sri Lanka,Syria, Thailand, Tunisia and Ukraine. For the purposeof the analysis, India is excluded when computingthe average scores of these two groups.

The two columns under thisheading report the score and the name of the bestperforming country. When several countries sharethe first rank, the number of countries is reported inthe second column.

CHINA DEV ASIA LOW MID INC

INDICATOR

RANK

SCORE

EVOLUTION

BEST PERFORMER

Appendix B: India’s performance on the GlobalCompetitiveness Index 2009–2010



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 detailREMROFREP TSEBCNI DIM WOLAISA VEDANIHCEROCSKNARROTACIDNI

Global Competitiveness Index 49 4.3 4.7 4.0 3.8 5.6 Switzerland2.497stnemeriuqer cisaB 5.1 4.2 4.1 6.0 Finland5.453srecnahne ycneiciffE 4.6 3.9 3.7 5.7 United States2.482srotcaf noitacitsihpos dna noitavonnI 4.2 3.5 3.3 5.7 United States

1st pillar: Institutions1.01 Property rights 54 D 4.8 5.2 4.1 3.9 6.5 Switzerland1.02 Intellectual property protection 61 D 3.6 4.0 3.2 3.0 6.2 Singapore1.03 Diversion of public funds 58 D 3.6 3.7 3.3 3.1 6.6 New Zealand1.04 Public trust of politicians 79 D 2.4 4.0 2.9 2.5 6.4 Singapore1.05 Judicial independence 37 A 5.0 3.9 3.7 3.2 6.7 New Zealand1.06 Favouritism in decisions of government officials 54 D 3.2 3.8 3.1 2.8 5.8 Sweden1.07 Wastefulness of government spending 55 D 3.4 3.9 3.5 3.1 6.1 Singapore1.08 Burden of government regulation 95 D 2.9 3.9 3.3 3.4 5.6 Singapore1.09 Efficiency of legal framework in settling disputes 37 A 4.4 n/a n/a 4.1 3.6 3.3 6.3 Singapore1.10 Efficiency of legal framework in challenging regulations 21 A 4.7 n/a n/a 3.9 3.5 3.2 5.8 Sweden1.11 Transparency of government policy-making 43 A 4.6 4.8 4.0 4.0 6.3 Singapore1.12 Business costs of terrorism 117 D 4.7 5.7 4.6 5.2 6.8 Austria1.13 Business costs of crime and violence 50 D 5.2 5.4 4.4 4.3 6.7 Qatar1.14 Organized crime 63 D 5.5 5.3 4.8 4.7 6.8 Luxembourg1.15 Reliability of police services 52 D 4.5 4.7 3.8 3.7 6.6 Finland1.16 Ethical behaviour of firms 57 D 4.1 4.3 3.8 3.7 6.7 New Zealand1.17 Strength of auditing and reporting standards 27 A 5.5 4.7 4.4 4.2 6.3 New Zealand1.18 Efficacy of corporate boards 63 D 4.6 4.4 4.4 4.4 5.9 Sweden1.19 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 Switzerland2.02 Quality of roads 89 D 3.1 4.2 3.6 3.3 6.7 Singapore2.03 Quality of railroad infrastructure 20 A 4.5 4.1 2.8 2.4 6.8 Switzerland2.04 Quality of port infrastructure 90 D 3.5 4.3 3.8 3.7 6.8 Singapore2.05 Quality of air transport infrastructure 65 D 4.7 4.3 4.4 4.3 6.9 Singapore2.06 Available seat kilometres (mio per week) * 10 A 2'645.3 8'056.0 1099.4 487.9 30919.9 United States2.07 Quality of electricity supply 106 D 3.2 5.0 3.6 3.9 6.9 Denmark2.08 Telephone lines (per 100 pop.)* 103 D 3.2 27.5 11.4 10.6 64.2 Switzerland

3rd pillar: Macroeconomic stability3.01 Government budget balance (% of GDP)* 115 D -4.9 -0.7 29.0 12.0 384.0 East Timor3.02 National savings rate (% of GDP)* 20 A 35.6 51.5 29.1 24.6 61.3 Azerbaijan3.03 Inflation (%)* 67 D 8.3 5.9 10.7 11.4 1.4 Japan3.04 Interest rate spread (% points)* 85 D 7.3 3.1 6.1 7.4 0.3 Hungary3.05 Government debt (% of GDP)* 116 D 75.2 15.9 38.7 38.7 0.0 East Timor

4th pillar: Health and primary education4.01 Business impact of malaria 100 D 5.1 6.0 5.1 5.0 n/a n/a4.02 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 Finland4.04 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 Norway4.06 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 SAR4.08 Life expectancy (years)* 100 D 64.0 74.0 68.2 66.9 83.0 Japan4.09 Quality of primary education 89 D 3.2 4.7 3.6 3.3 6.7 Finland4.10 Primary enrolment (net rate, %)* 96 D 88.7 99.5 88.1 88.0 101.7 Costa Rica4.11 Education expenditure (% of GDP)* 94 D 3.2 1.8 3.3 4.0 11.0 East Timor

5th pillar: Higher education and training5.01 Secondary enrolment (gross rate, %)* 107 D 54.6 77.3 65.8 70.4 148.6 Australia5.02 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 Singapore5.04 Quality of math and science education 22 A 5.0 4.8 3.8 3.6 6.4 Singapore5.05 Quality of management schools 15 A 5.4 4.0 3.8 3.8 6.1 Switzerland5.06 Internet access in schools 67 D 3.6 5.4 3.6 3.1 6.6 Iceland5.07 Local availability of specialized research and training services 32 A 4.7 4.4 3.7 3.6 6.3 Switzerland5.08 Extent of staff training 34 A 4.5 4.2 3.8 3.7 5.7 Sweden

6th pillar: Goods market efficiency6.01 Intensity of local competition 12 A 5.8 5.8 4.8 4.6 6.2 Germany6.02 Extent of market dominance 22 A 5.0 4.9 3.7 3.5 6.0 Germany6.03 Effectiveness of anti-monopoly policy 25 A 4.9 4.2 3.8 3.5 5.9 Netherlands6.04 Extent and effect of taxation 29 A 4.2 4.1 3.9 3.6 6.3 Bahrain6.05 Total tax rate (% of profits)* 118 D 71.5 79.9 41.1 44.2 11.3 Qatar6.06 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 Zealand6.08 Agricultural policy costs 82 D 3.7 5.1 4.1 3.8 6.1 New Zealand6.09 Prevalence of trade barriers 79 D 4.4 4.6 4.3 4.2 6.5 Hong Kong SAR6.10 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 SAR6.12 Business impact of rules on FDI 45 A 5.3 5.6 5.0 4.6 6.7 Singapore6.13 Burden of customs procedures 71 D 3.9 4.6 3.7 3.6 6.4 Singapore6.14 Degree of customer orientation 57 D 4.8 4.5 4.6 4.4 6.3 Japan6.15 Buyer sophistication 33 A 4.0 4.7 3.6 3.3 5.3 Japan

EVOLUTION


8.04 Venture capital availability 23 A 3.6 3.2 2.9 2.6 4.6 Hong Kong SAR8.05 Restriction on capital flows 73 D 4.4 3.1 4.2 4.2 6.5 Hong Kong SAR8.06 Strength of investor protection [0-10 (best)]* 31 A 6.0 = = 5.0 5.5 4.9 9.7 New Zealand8.07 Soundness of banks 25 A 5.9 5.2 5.0 5.0 6.7 Canada8.08 Regulation of securities exchanges 11 A 5.6 4.0 4.1 3.9 5.9 Sweden8.09 Legal rights index [0-10 (best)]* 18 A 8.0 6.0 5.6 4.7 10.0 Multiple (4)

9th pillar: Technological readiness9.01 Availability of latest technologies 39 A 5.5 4.3 4.5 4.4 6.8 Iceland9.02 Firm-level technology absorption 30 A 5.5 5.1 4.6 4.5 6.5 Iceland9.03 Laws relating to ICT 39 A 4.5 4.2 3.5 3.3 6.0 Singapore9.04 FDI and technology transfer 19 A 5.4 4.7 4.6 4.5 6.3 Ireland9.05 Mobile telephone subscriptions (per 100 pop.)* 116 D 29.2 47.4 58.5 66.8 207.8 United Arab Emirates9.06 Internet users (per 100 pop.)* 104 D 6.9 22.3 16.2 12.5 86.8 Netherlands9.07 Personal computers (per 100 pop.)* 96 D 3.2 5.6 5.9 5.2 94.6 Canada9.08 Broadband Internet subscribers (per 100 pop.)* 91 D 0.4 6.2 1.4 1.0 37.3 Sweden

10th pillar: Market size10.01 Domestic market size index* 4 A 6.0 6.5 3.9 3.3 7.0 United States10.02 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 Japan11.02 Local supplier quality 41 A 5.0 4.8 4.2 4.1 6.3 Austria11.03 State of cluster development 20 A 4.6 4.7 3.9 3.2 5.5 Japan11.04 Nature of competitive advantage 67 D 3.4 3.5 3.4 3.2 6.4 Germany11.05 Value chain breadth 26 A 4.4 3.9 3.5 3.4 6.2 Germany11.06 Control of international distribution 44 A 4.3 4.3 3.9 3.9 5.5 Germany11.07 Production process sophistication 43 A 4.3 3.9 3.3 3.3 6.4 Japan11.08 Extent of marketing 33 A 4.9 4.6 3.9 3.8 6.4 United States11.09 Willingness to delegate authority 36 A 4.3 3.9 3.7 3.5 6.2 Sweden

12th pillar: Innovation12.01 Capacity for innovation 35 A 3.6 4.2 3.1 2.9 5.9 Japan12.02 Quality of scientific research institutions 25 A 4.9 4.4 3.5 3.2 6.2 Switzerland12.03 Company spending on R&D 36 A 3.6 4.2 3.2 2.8 6.0 Switzerland12.04 University-industry collaboration in R&D 46 A 3.8 4.6 3.4 3.0 5.9 United States12.05 Government procurement of advanced technology products 68 D 3.6 4.4 3.6 3.4 5.5 Singapore12.06 Availability of scientists and engineers 4 A 5.6 4.6 3.9 3.9 6.0 Finland12.07 Utility patents (per mio pop.)* 58 D 0.5 0.9 0.6 0.1 279.3 Taiwan, China

8th pillar: Financial market sophistication8.01 Financial market sophistication 32 A 5.3 4.0 3.8 3.7 6.7 Luxembourg8.02 Financing through local equity market 3 A 5.0 3.9 4.0 3.4 5.3 Hong Kong SAR8.03 Ease of access to loans 34 A 3.6 2.7 3.1 2.7 5.0 Luxembourg

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 detailREMROFREP TSEBCNI DIM WOLAISA VEDANIHCEROCSKNARROTACIDNI EVOLUTION

continued

7th pillar: Labour market efficiency7.01 Cooperation in labour-employer relations 40 A 4.7 4.5 4.4 4.3 6.3 Singapore7.02 Flexibility of wage determination 44 A 5.3 5.3 4.9 5.0 6.3 Hong Kong SAR7.03 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 Singapore7.05 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 Singapore7.07 Reliance on professional management 30 A 5.3 4.9 4.3 4.0 6.5 Sweden7.08 Brain drain 41 A 4.2 4.2 3.5 3.1 6.0 United States7.09 Female-male participation ratio in labour force* 122 D 0.4 0.9 0.7 0.6 1.2 Mozambique

India has been on the path of slow and steady reformssince the mid-1980s. Initially, the reforms aimed toundo the layers of controls on business activityimposed in the post-independence period. This ledto an increase in competitive forces and a burst ineconomic activity, especially in the private sector.

Major economic reforms were undertaken during the1990s. The rupee was devalued in 1991 and wasmade convertible on the current account in 1994.Meanwhile, industry deregulation was completed,while public sector monopoly was restricted to a fewsectors. Foreign direct investment was permittedunder automatic approval in many sectors. Financialmarkets were liberalized with the entry of foreigninstitutional investors into India’s equity markets.

The most visible progress has been made in openingvarious sectors to competition, and a choice ofproducts is now available to the consumer. Successstories can be seen in areas as diverse as automobiles,telecommunications, aviation, banking and otherfinancial services, such as mutual funds and insurance.

However, significant challenges remain, with Indiaranked 49th out of 133 countries in the WorldEconomic Forum’s Global Competitiveness Index,behind such comparators as Malaysia (ranked 24th)and China (ranked 29th). Millions of Indians continueto earn livelihoods that are not adequate for adecent living standard. According to the WorldBank, the number of Indians living below the

international poverty line actually increased from 407million to 456 million between 1983 and 20051, andIndia’s social indicators on health and literacy do notcompare well with many other countries.

In this article, some of the sources of strength forthe Indian economy are examined, as well as thechallenges faced by policy-makers in addressing thecritical need for fostering more inclusive growth anddevelopment, which would reinforce the country’sproductivity and competitiveness potential.

India’s strong growth and competitiveness in keysectors are a source of strength. However, there areseveral areas where much remains to be done,especially to lift the living standards of a vast majorityof the people. Policy-makers need to focus on threekey areas: creating employment, improving socialdevelopment and improving infrastructure.

Recent Key Drivers of India’s RapidGrowth

The Indian economy has gained strength from therecent period of comparative macroeconomicstability, but this remains an area for furtherimprovement, with India ranked 96th out of 133countries in this area.

There has been a significant acceleration in growthsince the turn of the century. While GDP growth inthe 1980s and the 1990s averaged 5.9% and 5.8%,



Bidisha Ganguly and Tanvi Garg, Confederation of Indian Industry

0

2

4

6

8

10

First Plan 1951-56

Third Plan 1961-66

Fourth Plan 1969-74

Sixth Plan 1980-85

Eighth Plan 1992-97

Tenth Plan 2002-07

Gross National Product (at factor cost) Per capita Net National Product

*1999-2000 prices

%

Source: Ministry of Finance

Figure 1: India's Income Growth*

respectively, the average growth during the past fiveyears has been 8.5% (see Figure 1). This has beenaccompanied by advances in social indicators aswell.

A notable feature of the recent acceleration ingrowth is the rising trend in domestic investmentsand savings. Gross capital formation (GCF), whichwas 25.2% of the GDP in 2002-2003, increased to39.1% in 2007-2008. The rise in the rate ofinvestment is due to various factors, especially theimprovement in the investment climate coupled withan optimistic outlook for the growth prospects forthe Indian economy.

The growth in capital formation in recent years hasbeen amply supported by a rise in the savings rate(see Figure 2). The gross domestic savings as apercentage of GDP at current market prices stood at37.7% in 2007-2008, as compared to 29.8% in2003-2004. This improvement has been driven byan increase in all categories – household, corporateand public sector savings.

Robust Corporate Performance

Corporate sector performance has contributedimmensely to Indian’s growth performance (seeFigure 3). Sustained growth in profits and a gradual


20

30

40

50

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Gross Domestic Savings Gross Capital Formation

% of GDP

Source: Ministry of Finance

Figure 2: Increasing Investments and Savings 15

22

20 25

16

27

28

36

17

27

20 22

0

10

20

30

40

2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Manufacturing Services other than financial services

%

Source: CMIE

Figure 3: Performance of Corporate Sector: Net Sales Growth (%)

increase in productivity and capital efficiency haveenabled the Indian corporate sector to cut costs andbe globally competitive. Analysis of the financialresults of a large sample of companies drawn fromthe CMIE Prowess database shows that their topline has been growing at a robust rate of more than20% over the last five years2.

Recently, corporate India witnessed extremelychallenging times during the worst financial andeconomic crisis since the Great Depression.However, many Indian companies have shown greatresilience by not only surviving the downturn, butalso by taking the challenges as significantopportunities to innovate, consolidate and movetowards a more efficient corporate structure.

The quarterly results available for a smaller sample of515 companies (307 manufacturing companies and208 from the service sector) reveal that, as a resultof a decline in the cost of raw materials, power andfuel, and a moderation in the growth of interestexpenses, their net profit recovered in the quarterending June 2009. As a result, their net profit marginimproved from 3.8% in the quarter ending December2008 to 11.2% in the June 2009 quarter (see Figure 4).

The challenge for corporate India is to sustain plansfor capacity expansion even in the aftermath of thefinancial crisis, which has led to some postponement

of investment. If robust corporate performance andconsistent bottom-line growth continues, it willsupport the continued trend of investment-ledgrowth.

Globalization of the Indian Economy

The structure of the Indian economy has undergoneconsiderable change in the last decade, duringwhich India's integration into the world economy hasbeen remarkably rapid.

Based on the common measure of globalization, theshare of trade to GDP increased to 60.5% in 2008-2009 from 37.6% in 2003-2004 (see Figure 5). Withan enabling policy framework and concerted effortsby the government to facilitate a favourableenvironment for international trade, exports havemore than tripled between 2001-2002 and 2008-2009.

The rapid growth of the economy also made Indiaan attractive destination for foreign capital inflows. Ina recent UNCTAD study, Assessing the Impact ofthe Current Financial and Economic Crisis on GlobalFDI Flows, it was found that India achieved a growthrate of 85.1% in foreign direct investment flows in2008, the highest increase across all countries (seeBox 1).


0

5

10

15

20

March/07 June/07 Sept./07 Dec./07 March/08 June/08 Sept./08 Dec./08 March/09 Juin/09

yoy

chan

ge, %

All Industry Services Manufacturing

Source: CMIE

Figure 4: Performance of Corporate Sector: Net Profit Margin (%)


0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

1990-91 1993-94 1996-97 1999-00 2002-03 2005-06 2008-09

Exports Invisible earnings (gross) Imports Invisible payments (gross) Total

Source: CMIE

Figure 5: Trade (% of GDP)

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 in2008. This is despite a 14.5% decline in global FDI inflows from US$ 1,940.9 billion in 2007 to US$ 1,658.5billion in 2008. India also ranked ninth in global FDI inflows in 2008.

According to UNCTAD’s World Investment Prospects Survey 2008-2010, China is perceived to be the topinvestment destination, followed by India, the United States, Russia and Brazil. Similarly, AT Kearney’s 2007FDI 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 manufacturingtransnational corporations (TNCs) shows India replacing China as the most promising country for businessoperations of Japanese TNCs. Robust economic growth, an improved investment environment and opening ofcritical sectors (e.g. telecommunications, civil aviation, refineries, construction) facilitated FDI inflows into India.

Box 1: Foreign Direct Investment

Rankin 2008 Countries 2007 2008 Growth Rate (%)

1 United States 232.8 320.9 37.82 France 158.0 126.1 -20.23 United Kingdom 196.4 96.8 -50.74 Belgium 70.0 94.2 34.65 China 83.5 92.4 10.66 Russian Federation 52.5 70.3 34.07 Spain 68.8 65.5 -4.88 Hong Kong SAR 59.9 63.0 5.29 India 25.1 46.5 85.110 Brazil 34.6 45.1 30.311 Sweden 22.1 40.4 83.1

World 1,940.9 1,658.5 -14.5

Source: UNCTAD 2009

Factors Favouring India’s Productivity

Cost-effective and Skilled Manpower

India's labour cost advantage is well understood.Wage levels in India are among the lowest in theworld. India has one of the largest pools of Englishspeaking, high-quality and skilled manpower. Indianuniversities churn out engineers, MBAs, PhDs,among others, in large numbers, although, given thelarge population, university enrolment rates remainvery low by international standards.

India produces 400,000 engineers a year, nearly 16 timesThailand’s 25,000. This skilled workforce has helpedreduce process and redesign costs. For example, in thepharmaceutical sector, the cost of producing bulkdrugs has declined by 60%, and a KPMG study in2005 estimated that India’s drug producing costsare one-twentieth that of US companies.

Availability of Raw Materials

India has a significant advantage in some industriesdue to its natural resources and raw materials. Forexample, India has one of the richest sources of ironore, which is a key ingredient for Indian steelcompanies. In addition, India has advantagesupstream (e.g. bauxite), which lead to increasedcompetitiveness in alumina. In sectors such as textiles,India has a significant raw material advantage.

This availability provides a significant advantage toany producer seeking to convert these materials intohigher value-added products to serve adjacent markets.

Huge Domestic Market

India’s market size is a competitive advantage.Domestic consumption has played a significant rolein India’s economic growth. The share ofconsumption in India’s GDP is much higher than inother emerging economies. Rising incomes in Indiaresult in increased consumption, which in turnprovides a boost to demand and creates furtheremployment opportunities, thus stimulating the GDPand income growth.

According to a study by the McKinsey GlobalInstitute in 2007, the size of the Indian consumermarket was estimated at US$ 370 billion in 2005.The study concludes that, as incomes andpopulation grow, the market could quadruple in sizeby 2025, becoming the fifth-largest consumermarket in the world. Under this scenario, 291 millionpeople will escape poverty, and the middle class willcomprise 583 million at the end of two decades.

Demographic Dividend

According to a CII study, India accounts for 16% ofthe world’s population and is expected to becomethe world’s most populous country by 20503. About


4.3 6.

3 7.0

12.4

6.8

14.8

7.3

12.9

11.0

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13.4

20.8

13.7

20.2

18.1

22.0

23.3

27.4

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10

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30

2000 2025 (Projected) 2050 (Projected)

% of total population

Source: United Nations 2008

Figure 6: % of Population Aged 65 and Older

265 million people will enter the working-age cohortin the next 20 years. By 2020, the average age inIndia will be 29 years, compared to 37 in China and48 in Japan. India’s age-dependency ratio will havedeclined from 0.6 to 0.4 (see Figure 6).

India’s demographic dividend will have severalimplications for the global economy:• Greater demand for goods and services

produced overseas• Shift in labour-intensive value addition as the

workforces in other countries decrease• Bigger contribution from India in research and

development and innovation

Towards More Inclusive Growth

The sections above describe the positive aspects ofIndia’s economic prospects. Yet, challenges remainto ensure that this growth is sustainable and livingstandards of India’s large population rapidly improve.

The current government has often stated that itspriority is to foster inclusive growth and has institutedmany programmes to that end. Key among theprogrammes aimed at fostering more inclusivegrowth is the National Rural Employment GuaranteeScheme (see Box 2), aimed at guaranteeingemployment at a minimum wage to rural labourers.While the programme has been successful inkeeping people out of poverty, more sustainabledrivers of employment need to be generated.

Increase Employment Opportunities

Generating greater employment and moving towardsbetter-quality employment stand among India’sgreatest challenges today. The manufacturing andservices sectors need to absorb the large number ofnew entrants into the labour force, as well as thesurplus labour from agriculture (see Figure 7). Thesesectors need to create a sufficient volume of high-quality jobs to achieve the objective of inclusivegrowth. India’s economic policy-makers need to re-orient themselves to evaluate their performance bykey parameters in job creation. Although a largeupswing in the economy’s growth rate has takenplace, the benefits in terms of employmentgeneration have been relatively limited.

In India, the shift of labour from agriculture tomanufacturing and services, and from theunorganized to the organized sector, has beenpainfully slow. Agriculture – where productivity is low– continues to employ about 50% of the labour force.Employment opportunities in non-agriculture sectors,which enjoy higher productivity, are not able toadequately absorb the surplus labour from agriculture.

The manufacturing sector is a key to providing large-scale employment to a labour force being displacedby a shrinking agricultural sector, given that the skillsets of this segment of the population are likely tobe relatively limited. The share of manufacturing inIndia’s GDP, at 16.3%, compares poorly with other


385 278

107

35

25

10

0

100

200

300

400

500

nabrU laruR latoT

Million population

Unemployed Workforce

Source: Planning Commission 2008

Figure 7: Employment in Rural and Urban India (Financial Year 2004-2005)

Asian countries such as China (43.1%), Korea(24.7%), Indonesia (28.0%), Malaysia (29.8%) andThailand (35.1%)4.

Improve Social Development

Human development indicators demonstrate theneed for significant improvement. According to themost recent Human Development Index calculatedby UNDP, India ranks 134 out of 182 countries. Animprovement in health and literacy standards wouldalso greatly improve the productivity of theworkforce (see Table 1).

In consonance with the commitment to ensure fastersocial development and achieve an inclusive patternof growth, the government continues to focus onseveral initiatives and programmes towards that end.Recent trends show that government spending onsocial services is consistently increasing.


Table 1: India’s Performance on the UNDP’s Human Development Index 2009

Figures in parentheses indicate ranking among 182 countriesSource: UNDP 2009

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)

Country

HumanDevelopmentIndex (Value)

LifeExpectancy atBirth (Years)

Adult LiteracyRate (% age15 and above)

Combined GrossEnrolment Ratioin Education (%)

GDP Per Capita(PPP US$)

Invest in Infrastructure

With the rapid growth of the economy in recentyears, the importance and urgency of removinginfrastructure constraints have increased.Government spending on infrastructure has laggedbehind other economies, such as China, and theeconomy has consistently faced shortages in criticalareas, such as power and transport infrastructure. Itis also apparent that the lack of adequateinfrastructure has hurt the poor the most, as theavailable infrastructure has been rationed in favour ofthose who are able to pay. It is a matter of concernthat over 50% of rural households have noelectricity.

The Indian government recognizes this imperative.The 11th Five-Year Plan (2007-2012) has detailedplans for raising the level of investment ininfrastructure (see Table 2). The Plan measures theamount of investment needed if India’s investment ininfrastructure were to rise from 5% of GDP currentlyto 9% by the terminal year of the Plan. Assumingthat GDP growth is maintained at 9% every year, thistranslates to an investment of 20,000 billion rupees,or about US$ 500 billion over the entire five-yearperiod.


Recent government initiatives to achieve inclusive growth and faster social sector development and removeeconomic 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 330districts 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 NirmanLaunched in 2005-2006 to build infrastructure and basic amenities in rural areas, this programme has sixcomponents: rural housing, irrigation potential, drinking water, rural roads, electrification and rural telephony.

Midday Meal SchemeLaunched 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 MissionRenamed in 1991, this mission was introduced as one of five Societal Missions in 1986 and originally calledthe National Drinking Water Mission. It aims to provide an adequate and safe supply of drinking water.

National Rural Health MissionLaunched in 2005, the mission provides accessible, affordable and accountable quality health services to thepoorest 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 tothe 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 urbanpoor in 63 selected cities in the country.

Box 2: Major Government Initiatives in the Social Sector

The government has made an effort to facilitate theentry of private enterprise into this sector throughchanges in the legal framework. A role for privatesector participation has also been facilitated bytechnological change that allows unbundling ofinfrastructure, so the public and private sectors cantake up the components most suited to their capacities.

Government continues to invest significant sums inareas where private participation is minimal or notforthcoming. Public-private partnerships (PPPs) aregaining in importance and benefiting from government

support. The inflow of foreign direct investment tothe infrastructure sector increased more than fivefoldin 2007-2008, compared with the previous year, andwas maintained during 2008-2009 (see Table 3).

Combating the Impact of the GlobalFinancial Crisis

The global financial meltdown and the economicrecession that ensued were not withoutconsequences to the Indian economy. According tothe Economic Survey, economic growth deceleratedin 2008-2009 to 6.7%. This represents a decline of2.1% from the average growth rate of 8.8% in theprevious five years (2003-2004 to 2007-2008).

The slowdown in GDP growth is more clearly visiblefrom the growth rates over successive quarters of2008-2009 (see Figure 8). In the first two quarters of2008-2009, the growth in GDP was 7.8% and 7.7%,respectively. The growth rate fell to 5.8% in the thirdand fourth quarters of 2008-2009 (compared to9.3% and 8.6% in the third and fourth quarters of2007-2008, respectively).

The fallout of the global financial crisis on the Indianeconomy has been palpable in the industry andtrade sectors, and has also permeated the servicessector. Although economic growth clearly becamemore moderate, the Indian economy – with morethan 6.0% growth in 2008-2009, according to the


Table 2: Investment Estimate for InfrastructureSector (US$ billion)

Table 3: FDI Flows to Infrastructure (US$ million)

Source: Planning Commission 2008

Source: Ministry of Finance 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

Sector 2005-2006 2006-2007 2007-2008 2008-2009

Energy 70.5 150.4

Roads and Bridges 31.7 76.1

Telecommunication 22.5 65.1

Railways 20.3 62.2

Irrigation 32.1 53.1

Water Supply and Sanitation 15.6 48.6

Ports 1.3 18.0

Storage and Gas 4.4 10.5

Airports 2.1 8.5

Total 200.5 492.4

10th Plan (2002-2007)

11th Plan (2007-2012)Sector

Economic Survey – remained one of the bestperforming economies. India’s financially sound andwell-capitalized banking system, comfortable foreignexchange reserves position and robust domesticdemand, led by the rural economy, have acted asshock absorbers amid the crisis.

To counter the negative fallout of the globaleconomic slowdown on the domestic economy, thegovernment provided a substantial tax relief as wellas increased expenditure on public projects tocreate employment and public assets. Box 3provides more details on the government’sresponse.


4

6

8

10

Q1 2007-08

Q2 2007-08

Q3 2007-08

Q4 2007-08

Q1 2008-09

Q2 2008-09

Q3 2008-09

Q4 2008-09

Q1 2009-10

year on year change, %

Source: Ministry of Finance 2009

Figure 8: Quarterly Estimates of GDP Growth

• 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, insuccessive policy announcements. The cash reserve ratio was reduced from 9.0% to 5.0%. Thesereductions 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. roadbuilding, 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 ofmicro, small and medium enterprises by banks

Box 3: Policy Response to the Financial Crisis

Although there are indications that the economy mayhave weathered the worst of the downturn due, inpart, to the resilience of the economy and variousmonetary and fiscal measures taken by thegovernment, the recovery process remains fragile.Further, the stimulus package, while arguablynecessary in the short run, has aggravated thedeficit and debt positions of the country, makinggovernment investments in many areas more difficultgoing forward. Policy measures that evenly addressthe short- and long-term challenges would helpachieve tangible progress and ensure that theoutlook for the Indian economy remains firmlypositive.


1 The poverty line of US$ 1.25 a day (at purchasingpower parity) is the World Bank’s definition ofextreme poverty. The year 2005 is the most recentavailable. Figures are from World Bank 2009.

2 Sample size is determined by the number ofcompanies whose results are available in thedatabase for the latest year; in this case, thesample consists of over 3,000 companies.

3 CII (2008)4 Country at a Glance tables, World Bank, availableonline at www.worldbank.org; data shown refersto 2006.

Confederation of Indian Industry (CII). 2008. NationalConference and Annual Session theme paper:Building People, Building India.

Confederation of Indian Industry (CII). 2009. State ofthe Economy. July.

CII and Boston Consulting Group. 2005. Advantage– The India Manufacturing Opportunity.

CMIE (Centre for Monitoring Indian Economy).Prowess. Database of large and medium Indianfirms.

KPMG. 2005. Destination ... India.

McKinsey Global Institute. 2007. Tapping into theIndian Consumer Market.

Ministry of Finance, Government of India. 2008.Economic Survey 2007-2008.

Ministry of Finance, Government of India. 2009.Economic Survey 2008-2009.

Planning Commission, Government of India, 2008.Eleventh Five-Year Plan (2007-2012).

UNCTAD (United Nations Conference on Trade andDevelopment). 2009. Assessing the Impact of theCurrent Financial and Economic Crisis on Global FDIFlows. April.

UNCTAD (United Nations Conference on Trade andDevelopment). 2008. World Investment ProspectsSurvey (2008-2010)

UNDP (United Nations Development Programme).2009. Human Development Report 2009.

United Nations. 2008. World Population Prospects –2008 revision.

The World Bank. 2009. World DevelopmentIndicators 2009.

Notes


References

Over the past two decades, India’s economicreforms have bolstered its leading companies intoglobal powerhouses, giving the world a glimpse ofthe nation’s economic potential. But it is one thing tohave achieved success when the global economy isstable and steadily growing. It is quite another whenthe global economy turns sharply downwards andvolatility emerges in every market.

The PricewaterhouseCoopers 13th Annual GlobalCEO Survey assessed the perspectives of India’schief executive officers (CEOs) at this distinctivepoint in time, during the worst global economicconditions in 75 years, to provide a new window intoIndia’s competitiveness in a globalized world. India'sbusiness leaders have a unique outlook on thenation's past and future competitiveness. And theirview points towards a resilient economy that ispoised to diversify its base and continue its pastsuccesses, despite the risks both at home andabroad.

Confidence in Recovery

When the world tumbled into economic crisis, therewas initially a sense in India that the country wasdecoupled from the global malaise, thanks to a

regulated banking industry, conservative capitalrequirements and an economy less dependent onexports than many others in the developing world.That hope gave way to reality in late 2008 as thebroader effects of the slump hit home and growthslowed.

Still, a more optimistic sentiment prevails in India asit joins other Asian countries in recovery. InPricewaterhouseCoopers’ survey of 62 chiefexecutive officers of Iarge Indian companies,conducted in September 2009, confidence washigh: 63% were very confident of their revenuegrowth prospects over the next 12 months and 34%were somewhat confident. To be sure, these figuressuggest a moderate fall in confidence comparedwith past years: In 2008, 70% of CEOs were veryconfident in their 12-month prospects, and 90%were very confident in 2007 (see Figure 1).

Indian CEOs’ optimism extends to the country’sbroader economy as well, with nearly two-thirdsexpecting recovery, defined as stable and steadygrowth, by the middle of 2010. Indeed, more thanone-third of CEOs believe their industry and thecountry’s economy have already recovered or willhave by the end of this year (see Figure 2).

India’s Competitiveness: The View from CEOs


N. Ramesh Rajan and Jairaj Purandare, PricewaterhouseCoopers, India

Survey question: How would you assess your level of confidence in prospects forthe revenue growth of your company over the next 12 months? Are you…?

0 25 50 75 100%

Note: 0% responded “Not confident at all” in each survey year

% of Indian CEO Survey respondents

2008(n=30)

2007(n=30)

3%

7%

7%

23%

2009(n=62)

3% 34% 63%

90%

70%

Not very confident

Very confident

Somewhat confident

Source: PricewaterhouseCoopers 13th Annual Global CEO Survey 2009

Figure 1: Indian CEOs remain confident, though their confidence is now more measured

Nurturing Green Shoots

Government policies are likely to support thisconfident outlook, despite concerns about India’sgrowing fiscal deficit and the prospect of higherinflation. Ensuring an economic recovery is moreimportant now than checking inflation, India'sPlanning Commission said at a press conference inOctober 20091. "We need to ensure economicrecovery that provides jobs. It's more important toprovide jobs than trying to lower inflation," MontekSingh Ahluwalia, Deputy Chairman of the PlanningCommission, told reporters. “General inflation is not abig problem yet. It is well below the comfort level,”Ahluwalia added.

The Reserve Bank of India expects the country'sinflation rate (based on the wholesale price index) tobe around 5% by the end of March 2010. With thedownside risks to the economy from scantymonsoon rainfall reduced, interest rates likely toremain low and expectations for consistenteconomic policy-making – including the continuationof tax cuts and lower interest rates – economicgrowth is forecast at 5.4% this year and 6.4% in2010, according to IMF estimates2.

In that environment, Indian companies will growprimarily from better penetration of existing markets,according to the CEOs surveyed, with 58% seeingthat as the main opportunity to grow theirbusinesses in the next 12 months. Leaders also saw

new product development, at 19%, and newgeographic markets, at 10%, as significantprospects for growth. But Indian companies arecommitted to going it alone; only 8% namedmergers and acquisitions as growth opportunities,and just 3% saw growth coming from new jointventures or strategic alliances.

Seventy-seven per cent of respondents expected tofinance the coming year’s growth through internallygenerated cash flow. But 26% said they would tapthe rebounding equity markets for their capitalneeds, and an equivalent number would rely onbank lending, while 24% planned to access the debtmarkets and 21% said they would look to privateequity or venture capital. Just 2% said they wouldseek investment from sovereign wealth funds. Indiangovernment officials have said that further reforms tolift restrictions on foreign investment in key industrieswould be considered only in the context of theglobal slump and the subsequent protectionistrhetoric and tariff proposals in various countriesaround the world.

When the economic recovery arrives, Indian chiefexecutives expect their most important marketsoutside of India to be South Asia, at 18%, andChina, 16%, equal to the United States (see Figure3). Over the past 10 years, the shares of Indianexports going to South Asia, China and the MiddleEast have grown, while the United States andEurope shares have shrunk. In that same period,


Survey question: When do you expect recovery to set in for your industry/economy?*

40%

30

20

10

0

% o

f Ind

ian

CE

O

Sur

vey

resp

onde

nts

Already recovered orrecovery expected before

the end of 2009

In the firsthalf of 2010

In the secondhalf of 2010

In 2011

5%

11%

23%

19%Industry India’s

economy

31%31%34%

37%

*(n=62)

Source: PricewaterhouseCoopers 13th Annual Global CEO Survey (2009)

Figure 2: Almost two-thirds of CEOs believe India's economy will have recovered by July 2010

India’s share of total world exports has grown fromjust over 0.6% in 1998 to nearly 1.5% through thefirst five months of 20093.

Global Competitiveness

Indian chief executives expect their greatestinternational competition in global markets duringthe recovery to come from China, 34%, and theEuropean Union, 15%. None of the executives in thesurvey named either of their other two cohortsamong the BRIC countries as their maincompetition, perhaps due to Russia’s heavyidentification with oil and gas and Brazil’s geographicdistance. And the United States, headquarters for140 of the Fortune Global 500, was only named by6% of Indian CEOs as their greatest internationalcompetitor (see Figure 4).

India’s remarkable economic rise has famously beendriven by its services sector, which represented over60% of economic growth in 2007 and is forecast torepresent over 90% of economic growth in 2009and 2010 (see Figure 5). Still, since the financialcrisis began, 42% of Indian chief executivessurveyed believe the country’s manufacturing sector

has improved its global competitiveness (see Figure6). Confidence in the manufacturing sector couldexplain why China, the world’s leading manufacturer,is seen as India’s largest global competitor. And, itsuggests that India’s economy is evolving away fromthe services-led growth that fuelled its pastsuccesses, a path that could take advantage of abroader spectrum of India’s diverse potential labourforce. Many CEOs cited cost competitiveness andproductivity gains as current drivers formanufacturing improvement.

Several manufacturing industries hold promise.Despite longstanding worries about the country’sinadequate infrastructure, some experts expect Indiato play a major role in automobile manufacturing,particularly for small cars, prompted in part by theresponse to Tata Motor's Nano, a fuel-efficient four-passenger city car that sells for as little as 100,000rupees (US$ 2,050) plus tax. Nanos first started toappear on India’s roads in July, and Tata says it willship the first 100,000 by the end of 2010. Small carscomprised nearly three-fourths of the 1.22 millioncars sold in India in the year ended 31 March 2009,according to the Indian edition of the Wall StreetJournal, which has led Toyota, Ford, GeneralMotors, Nissan, Volkswagen and other global

Survey question: Which of these will be your most importantmarket outside of India when economic recovery arrives?*

South Asia18%

China16%

United States16%Middle East

11%

EuropeanUnion

6%

Russian Federation

3%

Other8%

None11%

Don’t know/Refused

10%

*(n=62)



Figure 3: South Asia and China are importantmarkets for Indian companies, while Europe is alower priority

Survey question: Where do you expect your greatest international (non-Indian-based) competition in global

markets to come from, whenever economic recovery arrives?*

*(n=62)

SouthAsia6%

China34%

United States

6%

EuropeanUnion15%

Middle East3%

Japan5%

Other2%

None15%

Don’t know/Refused

15%


Figure 4: India's global competition is coming fromChina and Europe


8%

6

4

2

0

Con

tribu

tion

to G

DP

gro

wth

2007

6.2%5.7% 5.7%

5.4%

6.2%

2.9%2.5%

1.5%

0.3%0.6%

0.0%0.3%

0.8%0.8%

2008 2009F 2010F2006

Agriculture

Services

Industry

0.1%

Source: Indian Central Statistical Organisation; Indian Office of the Economic Adviser; PricewaterhouseCoopers forecasts (July 2009)

Figure 5: India's services sector is forecast to deliver 90% of the country's economic growth in 2009 and 2010

Survey question: Do you think that India's manufacturing/services sector has declined, stayedthe same or improved in terms of global competitiveness since the financial crisis began?*

0 25 50 75 100%

Note: Responses of Don't know/Refused excluded

Services

Manufacturing

21%

24%

47%

31%

27%

42%

DeclinedStayed the sameImproved

*(n=62)% of Indian CEO Survey respondents


Figure 6: CEOs are optimistic about the manufacturing sector's competitiveness

automakers to either make small cars in India orannounce plans to do so to tap this growingmarket4. The manufacture of pharmaceuticals isanother industry that experts believe could be afuture growth sector.

On the other hand, only 27% of Indian CEOs saidthe country’s services sector had improved its globalcompetitiveness during the crisis, with another 47%saying the sector’s competitiveness remained thesame. Twenty-one per cent said it had declined.

The global economic downturn slowed the growthof India’s technology and business services industrybut, beyond the crisis, the industry faces a changingenvironment, including increased competition fromother countries, and talent and infrastructureconstraints that will likely reduce the country’sdominant 50% market share. The revenues of India’sbusiness and technology services companies soaredto US$ 58 billion at the end of 2008 (including aboutUS$ 46 billion in exports), from US$ 4 billion in19985. In 2005, India’s National Association ofSoftware and Services Companies (NASSCOM)

suggested that export revenues could reach US$ 60billion a year by 2010, but the global downturn willprobably delay the achievement of this goal6.According to the CEOs surveyed, credit for India’spast competitiveness goes to its supply of educatedworkers, a strong entrepreneurial base and itstechnological readiness (see Figure 7). Buteducational achievement and technology adoptionare hardly uniform throughout India, with many areaslagging the leaders in both. While the IndianInstitutes of Technology and other top universitiesproduce thousands of engineering and sciencegraduates each year, many of the best and brightestemigrate, and relatively few of India’s millions qualifyto attend. India’s leading companies, many of whoseCEOs were interviewed for this survey, have adoptedinformation technology as aggressively as theirWestern counterparts, but smaller firms risk fallingbehind the curve. The workforce depth andtechnology access situations may hinder thetransition away from an agrarian economy –agriculture represents 16% of India's economy butstill over half of employment – and may very soonconstrain thriving sectors like IT and heavy industry.

Many Risks Remain

Among risks associated with the economic crisis,Indian CEOs are most concerned by exchange ratevolatility, not surprising in a period when the rupeehas see-sawed from 48 to the US dollar to 39 andback again. A protracted global recession and over-regulation are serious risk factors that were namedby most of those surveyed, but chief executives alsocited other worries, including the lack of stability incapital markets, protectionist tendencies of nationalgovernments and inflation (see Figure 8).

The attacks in Mumbai last November are vivid memoriesthat will keep security high on the agenda of businessleaders. Among risks not directly related to the economiccrisis, terrorism was highest at 76%. As to be expected,the inadequacy of basic infrastructure and energycosts, named by 74% and 73% of CEOs, respectively,also remained high on the list of potential threats.

Given the solid majorities who indicated concernover the risks surveyed, it is no surprise that moreCEOs are planning to change their risk management


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?*

0 25 7550 100%

74%6%

5%56%

47%18%

37%48%

26%16%

21%45%

19%29%

16%31%

2%97%

Adequate supply of educatedand healthy workers

Entrepreneurial base

Technological readiness

Stable economic policy-makingand institutions

Sophistication of businessleadership and organizations

Innovation

Efficient markets for goods

Stable and deep domesticcapital markets

Strong infrastructure


Need to improve inthe coming 10 yearsContributed over thepast 10 years

*(n=62)

Figure 7: Talent and technology factors have contributed to India's competitiveness; infrastructure needs remain unmet


functions, as compared with other corporatefunctions (see Figure 9). In this process, CEOsreported that they are reassessing their risktolerance; preparing for systemic risks and low-probability, high-impact events; and integrating riskmanagement capabilities into business units.

Chief executives consistently say that India stillneeds to develop its infrastructure and foster stableeconomic institutions and domestic capital markets,areas in which the government would be expected

to play a role. Further, Indian chief executives wanttheir government to drive the convergence of globaltax and regulatory frameworks. They believe thegovernment has been effective in helping to create askilled workforce in the past, but the country willneed to step up its investment in education tosustain heady growth.

The Economic Times cheered an August report of10.4% growth for the Index of Industrial Production– which measures manufacturing, mining and


Survey question: From the list of potential threats to your growth prospects related to oremerging from the current economic crisis, how concerned you are, if at all, about…*

40 50 7060 80%% of Indian CEO Survey respondents answering somewhat or extremely concerned

Exchange rate volatility

Protracted global recession

Over-regulation

Lack of stability incapital markets

Protectionist tendencies ofnational governments

Inflation

Financially stressed suppliers

Inability to finance growth

Permanent shift in consumerspending and behaviours

Macroeconomic imbalances(e.g. trade or fiscal)

82%

79%

74%

69%

68%

66%

66%

63%

63%

56%

*(n=62)


Figure 8: CEOs named exchange rate volatility and a protracted global recession as the biggest risks related to theeconomic crisis

Survey question: Thinking about [issue or function], do you anticipate making changes?*

0 25 7550 100%No change

Major changeSome change

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 reputationand rebuilding trust 19% 66% 13%

Engagement with yourboard of directors 15% 73% 11%

*(n=62)


Figure 9: CEOs are planning major changes to their risk management function


Survey Methodology

This chapter was written byPricewaterhouseCoopers based on the results ofthe PricewaterhouseCoopers 13th Annual GlobalCEO Survey. For the survey, over 1,000interviews with CEOs were conducted in 52countries beginning in early September 2009. InIndia, 62 interviews were conducted, from arange of different industries. The majority ofinterviews were conducted by telephone. Theresearch was coordinated by thePricewaterhouseCoopers International SurveyUnit, Belfast, Northern Ireland, in cooperationwith project managers and a global advisoryboard of PricewaterhouseCoopers partners.

1 WSJI 2009b.2 IMF 2009.3 Trade figures are from IMF Direction of TradeStatistics website, accessed 6 October 2009.

4 WSJ 2009.5 WSJI 2009a.6 NASSCOM and McKinsey 2005.7 The Economic Times 2009.

Notes

The Economic Times. 2009. "Industrial OutputCheers". 13 October.

IMF (International Monetary Fund). 2009. WorldEconomic Outlook. October.

NASSCOM (National Association of Software andServices Companies) and McKinsey & Co.(McKinsey). 2005. Extending India's Leadership of

the Global IT and BPO Industries.

Wall Street Journal. 2009. "Toyota to Make Enginesin India". 5 October.

Wall Street Journal India. 2009a. "Indian TechOutsourcers Aim to Widen Contracts". 6 October.

Wall Street Journal India. 2009b. 7 October.

References

electricity – as the strongest proof yet that a robustrecovery is underway7. But, on a cautionary note,the paper also pointed out that eight out of 17 sub-groups in the index reported negative or low growth.The drought and subsequent floods in the southernstates could erode the buying power of a significantportion of the population, and sectors such asconstruction and automobiles are still, to a largeextent, driven by low interest rates.

As India grows more innovative, and more competitiveup and down the value chain, the country’s CEOshave good reason to be optimistic in their outlooks.But they are also realistic about India’s deep needsand look to the government to support thedevelopment of a more robust infrastructure, providebroader and deeper education, and write more liberalpolicies to foster access to capital. There are choppywaters to navigate, CEOs say, but India remains on acourse to sustainable growth.

The Confederation of Indian Industry (CII) works tocreate and sustain an environment conducive to thegrowth of industry in India, partnering industry andgovernment alike through advisory and consultativeprocesses.

CII is a non-government, not-for-profit, industry-ledand industry managed organization, playing aproactive role in India's development process.Founded 114 years ago, it is India's premierbusiness association, with a direct membership ofover 7,500 organizations from the private as well aspublic sectors, including SMEs and MNCs, and anindirect membership of over 83,000 companies fromaround 380 national and regional sectoralassociations.

CII catalyses change by working closely withgovernment on policy issues, enhancing efficiency,competitiveness and expanding businessopportunities for industry through a range ofspecialized services and global linkages. It alsoprovides a platform for sectoral consensus buildingand networking. Major emphasis is laid on projectinga positive image of business, assisting industry toidentify and execute corporate citizenshipprogrammes. Partnerships with over 120 NGOsacross the country carry forward its initiatives inintegrated and inclusive development, which includehealth, education, livelihood, diversity management,skill development and water, to name a few.

PricewaterhouseCoopers provides industry-focusedassurance, tax and advisory services to build publictrust and enhance value for its clients and theirstakeholders. More than 163,000 people in 151countries across its network share their thinking,experience and solutions to develop freshperspectives and practical advice.

PricewaterhouseCoopers pushes itself – and itsclients – to think harder, to understand theconsequences of every action and to consider newperspectives. Its goal is to deliver a distinctiveexperience to its clients and people around theworld.

PricewaterhouseCoopers is committed to serving asa force for integrity, good sense and wise solutionsto the problems facing businesses and the capitalmarkets. Transparency and good standards ofcorporate governance – both in its clients'businesses and its own – are central to its ability toachieve those objectives.

PricewaterhouseCoopers is also dedicated to thepursuit of responsible leadership. In today'sbusiness environment, this means taking an activerole in building a sustainable business – one thatcreates long-term value for clients, people and thestakeholder community within which it operates.

Its member firm in India – PricewaterhouseCoopersPvt. Ltd – has offices in Ahmedabad, Bangalore,Bhubaneshwar, Chennai, Delhi NCR, Hyderabad,Kolkata, Mumbai and Pune. Complementing itsdepth of industry expertise and breadth of skills is itssound knowledge of the local business environmentin India. PricewaterhouseCoopers is committed toworking with its clients in India and beyond to deliverthe solutions that help them take on the challengesof the ever-changing business environment.

Acknowledgements


The World Economic Forum would like to thank the Confederation of Indian Industry andPricewaterhouseCoopers for their support and contribution to this review.

The World Economic Forum is an independentinternational organization committed to improvingthe state of the world by engaging leaders inpartnerships to shape global, regional andindustry agendas.

Incorporated as a foundation in 1971, and basedin Geneva, Switzerland, the World EconomicForum is impartial and not-for-profit; it is tied tono political, partisan or national interests.(www.weforum.org)

Documents

Wef india competitiveness report 2009