Here’s how to boost India’s competitiveness

Photo: Mint
Photo: Mint

Summary

  • Many factors count but India’s economic prospects would be lifted best by focusing on key areas with scope for improvement.

Over the last few decades, the Indian economy has traversed an interesting journey. The country finds itself among a few countries that have achieved an average annual per capita growth rate above 3.5% over the last 30 years. During this period, India has never seen its 5-year moving average annual prosperity growth rate drop below 2%. It has established its potential to attain sustained prosperity growth. To determine how India should strategize in the coming decades, it is important to learn from the standards set worldwide by different peers in various areas and work towards attaining the best, so as to fulfil our unique potential.

What will it take to rise to the next level and propel the country forth in terms of elevating our overall competitiveness performance? If we are to encapsulate the comprehensive framework of Michael Porter’s competitiveness in a line, it is the ability of a region to provide a context that enables firms to operate productively, and individuals to partake in the value generated through their productivity. The context here implies an environment encompassing both the microeconomic foundation (factors affecting labour and firms directly) as well as the macroeconomic foundation (the overall fiscal and monetary set-up and institutional factors). Competitiveness translates into a process of continual upgradation and improvement in the overall national environment, and not just in any one arena. Mapping the country’s competitiveness shows that while India has attained considerable gains, there is immense scope to improve further.

Looking at the world’s best competitiveness performers is not to draw comparisons, but to learn, and then persevere on the basis of our specific strengths and opportunities. At present, India is classified as a lower middle-income country with an average prosperity level of $2,000 ($7,150 by purchasing power parity). India has registered sustained prosperity growth, with its prosperity level at 18.5% of the global average, compared to less than 6.5% of the global average in the early 1990s. It is at a stage of economic development where fundamental dimensions of competitiveness, like workforce skills, basic infrastructure, an open functioning market, predictable legal and institutional conditions and macroeconomic stability, serve as critical levers for better-balanced development. While there is scope for improvement across different areas, India should lay emphasis on key fundamentals.

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One of the key fundamentals that call for attention is skills and education. Leveraging the pool of human resources available has been an extensively discussed theme, but its relevance cannot be overstated. The education system in India has made notable progress over the years. The overall gross enrolment rate (GER) in elementary education saw an 11% increase from 81.6 in 2001 to 93.03 in 2018. Similarly, secondary enrolment has also jumped from 45% in 2000 to 75% in 2020. Going forward, there needs to be a greater focus on the adequacy of education to meet the needs of employment. Switzerland, Singapore, Denmark and Sweden are among the countries that have successfully managed to develop their human capital in such a way that the transition from education and skilling to employment is relatively smooth, especially on the back of a strong tertiary education system. India’s ministry of education is implementing a scheme for vocationalizing school education under the umbrella of Samagra Shiksha, a scheme that aims at integrating vocational education with general academic education in secondary and senior secondary schools to enhance employability among students. India is striving to improve on this front through a slew of similar initiatives. By adequately harnessing the link between education and employment, India can enhance its competitiveness through greater labour productivity.

Between 2008-09 and 2016-17, average labour productivity growth accelerated to 4.5% from 3.9% during 1993-94 to 2007-08. According to estimates of the International Labour Organization, GDP per hour worked (GDP at constant 2017 international dollars at purchasing power parity) for 2021 is the highest for Luxembourg, at $128.1. Labour productivity is closely associated with economic growth, competitiveness and living standards in an economy. In the coming years, India must work towards elevating its labour productivity levels further.

Yet another key area to boost India’s competitiveness is an improvement in the business environment. A strong business ecosystem eases functioning at all stages of business development and fosters growth opportunities for enterprises. There has been significant progress in creating an efficient business environment, with over 33,000 compliances simplified, rationalized or digitized (or failure decriminalized) by central ministries and states/Union territories combined. There is still much ground to cover for us to improve the overall environment for businesses and individuals. Countries like Singapore have been consistently successful in providing a business-friendly environment for entrepreneurs. While we should derive motivation to elevate India’s overall competitiveness level by looking at other countries, we must shape our strategies and policy priorities as per our own strengths and opportunities.

Competitiveness depends on a wide range of mutually reinforcing factors. A more nuanced analysis of India’s competitiveness performance calls for each area to be assessed deeply. For the overall national context to offer an atmosphere conducive to growth for all, India must continue on the path of competitiveness enhancement with a coherent strategy and more vigour.

This article is based on ‘Competitiveness Roadmap for India@100’, a report recently launched by the Economic Advisory Council to the Prime Minister and the Institute for Competitiveness, India.

Amit Kapoor & Bibek Debroy are, respectively, chair, Institute for Competitiveness, India, and lecturer at Stanford University; and chairman, Economic Advisory Council to the Prime Minister.

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