GLOBAL COMPETITIVENESS AND INDIA: CURRENT TRENDS AND OPPORTUNITIES

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1 GLOBAL COMPETITIVENESS AND INDIA: CURRENT TRENDS AND OPPORTUNITIES 1 Syed Rizwan Naqvi ABSTRACT Global Competitiveness report published by World Economic Forum (WEF) provides an overview of competitive performance of around 140 economies and ranks (indexes) each country on the basis of its global competitiveness on annual basis.individual rank (index) of each country is known as Global Competitive Index. The assessment of global competitiveness is done on the basis of 3 main categories Basic Requirements category, Efficiency Enhancers category and Innovation & Sophistication category out of which Basic Requirements consists of four pillars, Efficiency Enhancers consists of six pillars and Innovation & Sophistication consists of two pillars.each of these pillars consists of sub indexes on the basis of which ranking of each country is done. On trend analysis of Global Competitiveness of India, it is found that current trends in innovation growth in India is imminent but India is lagging behind in Basic Requirements and Efficiency Enhancers. By combining Global Competitiveness reports of previous decade, the paper aims to analyze the areas of improvement in which India is lagging behind other countries in the past few years. Keywords: Global Competitiveness; Innovation I. INTRODUCTION Concept of globalization was introduced by Adam Smith father of Modern Economics in 1776 through the book titles wealth of Nations. Global business was part of ancient India as India was actively involved in trade business with China, Nepal and other neighboring countries. While performing global business, countries were in a race to outperform each other in order to gain to the maximum profit. In order to evaluate each country in terms of its competitiveness, world economic forum (initially known as European Management Forum), a nonprofit foundation based in Geneva,Switzerland took an initiative in generating annual comprehensive report (WEF Global Competitiveness Report) depicting competitiveness of each country out of around 140 countries. Depending upon competitiveness, each country is awarded rank known as Global Competitiveness Index. The entire evaluation of global competitiveness of individual countries is based on 12 pillars broadly out of which first four pillars fall under the category of Basic Requirements,next 6 pillars fall under Efficiency Enhancers category and remaining 2 pillars belong to Innovation and Sophistication factors. All the twelve pillars are further broken down into further sub pillars for which evaluation of each country is performed.either Expert Opinion Survey(EOS) is sought for evaluation of that category otherwise data is taken from world Bank or international telecommunication union or international monetary fund or united nations (UN) data base. Different countries are in different stages of development which is basically determined by two criteria ----one is level of GDP per capita as per market exchange rate, which is the total output divided by the number of 728 P a g e

2 people in the population which gives a figure of the average output of each person, i.e., the average amount of money each person makes and the other criteria is extent to which countries are factor driven. Table 1 explains the criteria for evaluation of each country in terms of broad three categories of global competitiveness on the basis of GDP per Capita. Table 1. Table showing sub index weights and income thresholds for stages of development Stage of Development Stage A Stage B Stage C Stage D Stage E GDP Per Capita ( US $ < >17000 Thresholds) Wt for Basic Requirements 60% 40-60% 40% 20-40% 20% Wt fro efficiency Enhancers 35% 35-50% 50% 50% 50% Wt for Innovation and Business Sophistication Factors 5% 5-10% 10% 10-30% 30% Stage A Stage B Stage C Stage D -Factor Driven -Transition from Stage A to Stage C -Efficiency Driven -Transition from Stage C to Stage E Figure 1: Annual Trends of GDP per Capita of India: Stage E -Innovation Driven As per Fig. 1 GDP per capita of India(As per data taken from world bank record of India s GDP per capita) is 1805 USD, so falls under factor driven stage of development (Stage A) thus GCI(Global Competitiveness Index) is calculated as per Table 1 where 60% weightage is given to Basic Requirements category,35 % to Efficiency Enhancers category and 5% weightage is given to innovation and business sophistication category. II. RESEARCH METHOD 729 P a g e

3 Research method used in research paper is time-series analysis on qualitative basis. Unique input data is taken from annual reports generated by WEF (World Economic Forum) for calculating global competitiveness of different countries. In the research paper focus is made on current trends prevalent in India as far as global competitiveness is concerned. As the data is taken from annual reports, so year wise data is taken for analyzing the trends. The trend component refers to the data's gradual shifting over time. It is often shown as upward- or downward-sloping discrete lines to represent increasing or decreasing trends, respectively. III. STUDY Trends in GCI (Global Competitiveness Index Figure 2 : Global Competitiveness index, As can be seen in Fig. 2, India s GCI (Global competitiveness Index) ranking is continuously showing downward trend from 42 nd rank ( ) to 50 th rank( ),slight jump in ranking to 49 th rank in and then continuous downward trend from 49 th rank( ) to 71 st rank( ). In , India ranks 55 moving ahead by 16 points as compared to 71 st attained in No member of SAARC ( South Asian Association for Regional Cooperation ) features in top 50 ranking of GCI. India is leading among SAARC countries by getting a rank of 55 followed by Sri Lanka(68 th ),Nepal(100 th ), Bhutan(105 th ), Bangladesh(107 th ) and Pakistan(126 th ). The rise in GCI ranking of India can be attributed to recent economic recovery, improvement in macroeconomic environment and slight improvement in infra structures and quality of India s institutions. Trends in Basic Requirements Category 730 P a g e

4 Figure 3: Annual Trends in Basic Requirements Category, Basic Requirements Category consists of four pillars Institutions, Infra structure, Macro-economic environment and health & primary education. Fig. 3 depicts annual trend for India s ranking in Basic Requirements Category. In basic requirements category, India is showing downward trend from 60 th rank( )) to 80 th rank( ),slight improvement to 79 th rank( ),then again downward trend from 79 th rank ( ) to 91 st rank( ),again slight improvement to 85 th rank( ) and sudden drop to 96 th rank( )and finally slight improvement from 96 th rank ( ) to 80 th rank( ).india has improved its ranking in quality of institutions jumping from 72 nd rank ( ) to 60 th rank( ). In Institutions pillar, there is rising trend (60 th rank,up 10).On further analysis of sub indexes of institutions pillar,india is showing rising trends in diversion of public funds(40 th,up 20), Intellectual Property Protection(50 th,up 15), public trust in politicians(31 st,up 19), irregular payments and bribes(63 rd,up 30), favoritism in decisions of government officials(32 nd,up17), burden of government regulation(27 th,up32),efficiency of legal framework in settling disputes(42 nd, up 15), strength of investor protection(6 th,up 28),transparency of government policy making (58 th, up 6) and ethical behavior of firms(44 th,up 44). India is showing poor ranking in reliability of police services(86 th,up 2), organized crime(114 th,down 5),business costs of crime & violence(98 th ),business costs of terrorism(126 th,down 1),judicial independence(64 th,down 14),protection of minority shareholders interests(69 th, up 7) and wastefulness of government spending(51 st,down 2). In infrastructure pillar, it has improved to 81 st (up six) but still it remains major growth bottleneck. On analysis of infrastructure pillar, it is found that quality of railroad infrastructure (29 th,down 2 ),quality of port infrastructure(60 th, up 16) is showing rising trend whereas quality of roads (61 st,up 15), quality of air transport infrastructure (71 st ),quality of overall infrastructure (74 th,up 16).quality of electricity supply(98 th, up 5),fixed telephone lines/100 population (116 th,up 2),mobile telephone subscriptions/100 population (121 st ) need to be focused. 731 P a g e

5 In macroeconomic environment, India has improved its ranking from 110 th ( ) to 91 st ( ) but still lot of scope exists for further improvement. In macroeconomic environment, government budget balance in terms of percentage GDP (131 st, down 2), inflation in terms of percentage change (105 th,up 28),general government debt in terms of percentage GDP(103 rd,up 7) needs special focus for enhancing positive macroeconomic environment. In health and primary education pillar, India has shown slight improvement from 102 nd rank ( ) to 84 th rank( ) but health and primary education needs are to be addressed by government.on analysis of current trends in health and primary education, there is sharp improvement observed in business impact of malaria from 112 th rank( ) to 60 th rank ( ) and malaria cases /100,000 population from 116 th rank ( ) to 44 th rank ( ). Business impact of tuberculosis (132 nd,up 3),tuberculosis cases/100,000 population (113 th ),business impact of HIV/AIDS(130 th,up 2),HIV prevalence in terms of percentage adult population (63 rd,down 4), infant s mortality in terms of deaths /1000 live births (114 th, up 1), life expectancy in terms of years (107 th, up 3),quality of primary education (52 nd, up 36) and primary education enrollment in net percentage (77 th,up 1) needs to be addressed on priority due to poor ranking in all the above sub indexes. Trends in Efficiency Enhancers Category Figure 4: Annual Trends in Efficiency Enhancers Category, Efficiency Enhancers category consists of six pillars---higher Education and Training, Goods Market Efficiency, Labor Market Efficiency, Financial Market Development, Technological readiness and Market size. On trend analysis of Efficiency Enhancers category for India, India is showing slight improvement from 2006 (33 rd )to 2008(31 st ),then gradual decline from 2008(31 st ) to 2011(38 th ),little rise by one rank in to 37 th rank, then declining trend from 2012(37 th ) to 2015 (61 st )with jump by 3 ranks in (58 th ). In Higher education and training pillar, India is lagging in secondary education enrollment in gross percentage (105 th,up 1),Tertiary education enrollment in gross percentage (86 th,up 1),quality of math and science education (sharp fall from 30 th rank in to 63 rd rank in ,quality of management schools (55 th 732 P a g e

6 ,up1 ),internet access in schools (100 th,13 down),availability of research and training services (68 th,4 down),extent of staff training (48 th,29 up). Except extent of staff training, all other sub indexes are ranked more In goods market efficiency,india is showing downward trends from 36 th rank ( ) to 95 th rank ( ) and then 91 st rank in (up 4).In goods market efficiency pillar, Intensity of local competition (101 st,down 10), Number of procedures to start a business(129 th,up 2),Number of days to start a business (110 th, down 4),agricultural policy costs(53 rd,up 7),total tax rate in terms of percentage profits(123 rd,up 7), prevalence of trade barriers(82 nd,up 18),prevalence of foreign ownership(96 th, up 2),business impact of rules on FDI(92 nd,up 1), burden of customs procedures(54 th,up 21),import as a percentage of GDP(116 th,down 4),trade tariffs in terms of percentage duty (124 th ) and degree of customer orientation(97 th,up 3) all occupy poor rank so need to be addressed whereas sub indexes viz. buyer sophistication (26 th,up 12), extent of market dominance (41 st,down 5), effectiveness of anti-monopoly policy(41 st,up 2) and effect of taxation on incentives to invest (38 th,up3) exist in top 50 ranking so they need not to be reviewed. In labor market efficiency, India has shown rising trend from 96 th rank ( ) to 83 rd ( ), then falling trend to 112 th rank ( ) and finally jump to 103 rd rank in In labor market efficiency pillar, cooperation in labor employee relations (86 th,up 4),hiring and firing practices (25 th, up 22),flexibility of wage determination (120 th, down 7),effect of taxation on incentives to work(36 th, up 9),redundancy costs in terms of weeks of salary(70 th,up 5),pay and productivity (47 th, up 22),reliance on professional management (86 th,down 9),country capacity to retain talent (40 th,up 2),country capacity to attract talent (40 th,up 6),women in labor force in terms of ratio to men (132 nd,up 1 In financial market development, India has shown rising trend from 38 th rank ( ) to 16 th rank ( ), then downward trend to 21 st rank ( ), slight jump to 19 th rank ( ), then again falling trend to 53 rd ( ). In financial market development pillar, India has shown poor ranking in availability of financial services (81 st, up 2), soundness of banks (100 th,up 1),regulation of securities exchanges (69 th,down 7),legal rights index(44 th,down 15) and affordability of financial services (71 st,up 2) where it has got ranking in top 50 list in financing through local equity market (45 th,down 6),ease of access to loans (29 th ),venture capital availability ( 13 th, up 7), In technological readiness, India is showing falling trend from 57 th rank ( ) to 121 st rank ( ) and then slight improvement to 120 th rank ( ). In technological readiness pillar, all the sub indexes viz. availability of latest technologies (108 th, up 2),firm level technology absorption(102 nd ),FDI and technology transfer ( 95 th ),individuals using internet in percentage (107 th,up 8),fixed broadband internet subscriptions/100 populations(104 th, down 1),international bandwidth in terms of kb/user (116 th, down 9),mobile broadband subscriptions/100 populations(124 th,down 10) show poor ranking more than 50. In market size, India is steadily maintaining a rank of 3 from 2006 to 2016 except for 5 th rank in and 4 th rank in On further analysis of market size pillar, domestic market size index (steady at 3 rd rank),foreign market size index(3 rd,up 1),GDP in PPP in dollar billions(steady 3 rd ) are placed at excellent positions except exports as percentage of GDP(114 th,down 1). 733 P a g e

7 Trends in Innovation and Sophistication Factors Category Figure 4: Annual Trends in Innovation and Sophistication factors Category, Innovation and Sophistication factors consist of two pillars ---Business Sophistication and Innovation Pillar. On current trend analysis of Innovation and Sophistication factors, it is found that in and , ranking of India was steady at 26, slight fall between 2008(26 th rank) to 2010(28 th rank), major fall to 42 nd rank in ,slight jump in to 40 th rank, slight fall to rank 43 rd in ,again slight rise to 41 st in , slump by 11 ranks to 52 nd rank in and then jump by 8 ranks to 46 th rank in In business sophistication factors, India has shown slight improvement from 57 th rank ( ) to 52 nd rank ( ). On further analysis of business sophistication pillar, India is showing local supplier quantity(54 th, up 18),state of cluster development(29 th,down 2),nature of competitive advantage (47 th, down 3),value chain breadth (29 th,up14),control of international distribution (48 th,up 2) and willingness to delegate authority (56 th,up 1).India needs to look into local supplier quality (66 th rank, up 12), production process sophistication (61 st rank, up 1) and extent of marketing (82 nd rank, down 1). As far as innovation factors are concerned, India lies in top 50 countries,presently holding a rank of 42 nd (jump of 7 ranks from previous year).india has got excellent quality of research institutes(31 st,down 1), handsome company spending on R&D(31 st rank, down 1). India can improve upon capacity for innovation(50 th rank, down 2), India has seen sharp jump in government procurement of advanced technological products from 61 st rank ( ) to 26 th ( ).Although scientists and engineer s availability is falling from 45 th rank ( ) to 49 th ( ) due to globalization and better opportunities prevailing in other countries. India needs to look into industry-university collaboration in R&D as it is struck at a rank of 50 for the last two years. PCT (Patent Cooperation Treaty) in terms of patents applications/million population is, also, struck at 61 st rank for the last two years. 734 P a g e

8 IV. RESULTS AND ANALYSIS On deep analysis of each pillar, the following points need to be concentrated for boosting global competitiveness in India ---- a) Institutions --- India s rank in protection of property rights is dropped significantly in last two years which need to be focused. Although India has improved its ranking in corruption, still investors think corruption and policy instability as major hindrance for starting business. b) Infrastructure India needs to put into lot of investment on infrastructure particularly quality of electricity supply and overall infrastructure. c) Macroeconomic Environment- Government should look into Government budget balance,inflation as well as General Government debt. d) Health and Primary Education India should improve its ranking in health and primary education received by population as infant mortality and life expectancy rank is quite low(>100). The lack of basic education and proper well being of individuals may pose obstacle to business development. e) Higher Education and Training Performance of India in secondary and tertiary education in terms of gross percentage as well as internet access to schools needs improvement. f) Goods Market Efficiency-Number of days & procedures to start a business needs, import as percentage of GDP needs to be improved for enhancing business growth. g) Labor Market efficiency- India needs to look into restrictive labor regulations, poor work ethics in labor and training of inadequately skilled workforce as these factors attribute to hindrance of congenial business environment. h) Financial market development-due to low ranking of sub indexes in financial market development pillar,access to finance has come out to be a major hindrance for doing business in India. i) Technological readiness - It was the biggest surprise that India with large population of IT champions, its performance in technological readiness is unsatisfactory. It needs attention as it is found to be amongst one of the least connected countries holding a rank of 120 th in which has come up by one position as compared to the previous year. j) Market size-india has got a huge market base inclusive of both domestic as well as foreign markets.huge market size is an opportunity for growth of business. k) Business Sophistication India needs to follow sophisticated business practices for achieving higher efficiency in the production of goods. l) Innovation Technological innovations may lead to dramatic productivity gains. In the field of innovation, growth of India is showing rising trend. V. CONCLUSION Since India is categorized as a factor-driven economy, India needs to focus more into Basic Requirements and Efficiency Enhancers Category(95 percent weightage for calculation of Global Competitiveness Index) for enhancing boost in global competitiveness ranking. As India is, already, performing quite well in innovation and sophistication pillars, not many efforts are needed to push it to the top. The performance of India is exemplary 735 P a g e

9 for devising effective innovation policy for other developing nations, so termed India as Innovation Achievers by INSEAD Business School for the last two years in its global report for evaluation of Global Innovation Indexing among 140 economies. India has, already, started several national level and state level schemes & state-wise monitoring/evaluation for innovative growth among individual states and the entire nation. REFERENCES [1] Schwab, Klaus and Professor Xavier Salai-i-Martin. Global Competitiveness Report. Geneva: World Economic Forum, [2] Schwab, Professor Klaus and Professor Michael E Porter. The Global Competitiveness Report. Geneva: World Economic Forum, [3] The Global Competitiveness Report. Geneva: World Economic Forum, [4] The Global Competitiveness Report. Geneva: World Economic Forum, [5] Schwab, Professor Klaus and Professor Xavier Salai-i-Martin. The Global Competitiveness Report. Geneva: World Economic Forum, [6] The Global Competitiveness Report. Geneva: World Economic Forum, [7] The Global Competitiveness Report. Geneva: World Economic Forum, [8] The Global Competitiveness Report. Geneva: World Economic Forum, [9] The Global Competitiveness Report. Geneva: World Economic Forum, [10] The Global Competitiveness Report. Geneva: World Economic Forum, P a g e