1. The
India Competitiveness
Review 2009
Thierry Geiger, World Economic Forum
Sushant Palakurthi Rao, World Economic Forum
In collaboration with
Confederation of Indian Industry
PricewaterhouseCoopers

2. The India Competitiveness Review 2009 is published
by the World Economic Forum within the framework of
the Global Competitiveness Network.
At the World Economic Forum
Professor Klaus Schwab
Founder and Executive Chairman
Robert Greenhill
Managing Director and Chief Business Officer
Editors
Thierry Geiger, Associate Director, Economist, Global
Competitiveness Network; Global Leadership Fellow
Sushant Palakurthi Rao, Director, Head of Asia
Global Competitiveness Network
Jennifer Blanke, Director, Senior Economist, Head of
the Global Competitiveness Network
Ciara Browne, Associate Director
Margareta Drzeniek Hanouz, Director, Senior
Economist
Irene Mia, Director, Senior Economist
Carissa Sahli, Team Coordinator
Pearl Samandari, Community Manager
Eva Trujillo Herrera, Research Assistant
Asia Regional Agenda Team
Fabien Clerc, Community Manager; Global Leadership
Fellow
Anne-Catherine Gay des Combes, Community
Relations Manager
Béatrice Laenzlinger, Senior Community Relations
Manager
Jaeyoung Lee, Community Manager; Global
Leadership Fellow
Karen Sim, Community Manager; Global Leadership
Fellow
Christoph S. Sprung, Senior Community Manager
The editors would like to extend a special thank you to
the following World Economic Forum staff: Janet Hill
for her excellent editing work, Kristina Golubic for her
graphic design and layout, and Kamal Kimaoui who
organized the production of this review.
World Economic Forum
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3. Contents
Preface 2
Executive Summary 3
Assessing India’s Competitiveness: Insights from the Global Competitiveness Index
Thierry Geiger and Sushant Palakurthi Rao, World Economic Forum 5
An Evaluation of India’s Economic Reforms
Bidisha Ganguly and Tanvi Garg, Confederation of Indian Industry 45
India’s Competitiveness: The View from CEOs
N. Ramesh Rajan and Jairaj Purandare, PricewaterhouseCoopers, India 57
Acknowledgements 64
The India Competitiveness Review 2009 | 1

4. Preface
The India Competitiveness Review 2009 is being We would like to express our gratitude to the
published at an important moment for India’s distinguished experts from the Confederation of
economic development. India has experienced two Indian Industry and PricewaterhouseCoopers, who
decades of remarkable growth, unleashed by the have contributed excellent papers to the review,
implementation of important reforms in the early casting light on different aspects key to enhancing
1990s. This impressive economic performance, India’s competitiveness. We especially wish to thank
coupled with a population of 1.2 billion, leaves no the editors of the review, Thierry Geiger and Sushant
doubt that India is an important player in the global Palakurthi Rao, for their leadership and commitment.
economy. Appreciation also goes to Robert Greenhill, Chief
Business Officer at the Forum, and Jennifer Blanke,
Despite these clear strengths, India has not been Head of the Global Competitiveness Network, as
spared the fallout of the global economic crisis, with well as her team: Ciara Browne, Margareta Drzeniek
growth slowing significantly in 2008 and 2009. The Hanouz, Irene Mia, Carissa Sahli, Pearl Samandari
slowdown underscores the importance of putting and Eva Trujillo Herrera. In addition, this review
into place the factors and policies that will ensure would not have been possible without the hard work
sustained economic growth and prosperity for the and enthusiasm of our network of 150 Partner
benefit of all Indians. As the world slowly emerges Institutes worldwide who carry out the Executive
from the crisis, the time is propitious for India to take Opinion Survey, which provides the basis of this
stock of its competitive strengths, as well as those review.
areas hindering its development. This year also
marks the 25th anniversary of the World Economic Klaus Schwab
Forum’s engagement in India, providing an excellent Founder and Executive Chairman
opportunity to reflect upon how the country's World Economic Forum
competitiveness has progressed over the period and
what remains to be achieved.
The India Competitiveness Review builds on the
methodology and findings of the World Economic
Forum’s Global Competitiveness Report 2009-2010,
and aims to further the understanding of the main
competitiveness challenges ahead for India. The
review provides a unique platform for discussion and
a valuable tool for policy-makers, business
strategists and other stakeholders to use in
identifying the main hurdles to growth and designing
best policies and practices to foster
competitiveness. We hope the review will provide
support for any discussion on India’s
competitiveness aimed at generating concrete
insight and priorities for action.
2 | The India Competitiveness Review 2009

5. Executive Summary
Assessing India’s Competitiveness: Insights is of particular importance to the development of the
from the Global Competitiveness Index industry and services sectors. The country boasts a
developed financial system (16th) with a particularly
In the first chapter, Thierry Geiger and Sushant sound banking sector (25th). Another competitive
Palakurthi Rao, both at the World Economic Forum, advantage is the size of its market (4th overall). The
use the results of the Global Competitiveness Index Indian goods market is also fairly efficient (48th)
(GCI) to carry out an in-depth assessment of India’s thanks to fierce competition and despite the
competitiveness landscape. presence of important barriers to entry. On a more
negative note, the difficulty of hiring and firing
The GCI provides a methodological framework to employees makes the labour market rigid (83rd). The
assess “the set of institutions, policies and factors country’s technological readiness (83rd) continues to
that determine the level of productivity of a country.” It be held back by low penetration rates for
comprises a large number of drivers of competitiveness information and communications technologies.
organized in 12 categories – the 12 “Pillars” of Firms, however, are generally adept at adopting and
competitiveness. Countries are expected to move using the latest technologies. Finally, higher
through a sequence of development steps to build up education in India (66th) is of relatively good quality,
their competitiveness, starting with the more basic but access to it remains a privilege of the few.
factors (e.g. institutions, infrastructure, health,
education) and moving to more complex ones (e.g. Compared with the mixed performance in the other two
technological readiness, business sophistication, Subindexes, India’s showing in the two most complex
innovation). To mirror this sequence, the GCI classifies areas of competitiveness, Business Sophistication
countries into three stages of development (factor- (27th) and Innovation (30th), is truly remarkable. This
driven, efficiency-driven and innovation-driven) and reflects, to a large extent, the brisk development of
attributes different weights to each Pillar by function of India’s private sector and of a few industries in
the stage of development. That is, the more advanced particular. Yet, at present, these two categories
a country, the less weight on the basic factors and the account for just 5% of the overall GCI score because
more weight on the more complex ones. they are not yet the engine of India’s productivity.
India ranks 49th out of 133 economies in the GCI To place India’s performance in context, the authors
2009-2010, up one rank from the previous edition. draw parallels with a number of countries and
Given India’s present level of development, its country groups. The analysis reveals that India lags
competitiveness is factor-driven. What matters most behind almost all comparators in the areas of health
for India are the first four Pillars that form the Basic and primary education, labour markets,
Requirements Subindex, which together account for technological readiness and macroeconomic
60% of the overall GCI score. It is precisely in this stability. China ranks ahead of India in 10 out of the
Subindex that India presents the greatest shortcomings. 12 Pillars – often by a wide margin. However, India
The country very much underperforms in the Health possesses a number of competitive advantages in
and Primary Education Pillar (101st). The sanitary several Pillars, namely Institutions, Financial Market
situation is particularly alarming, with some indicators Sophistication, Market Size, Business Sophistication
comparing unfavourably even with the sub-Saharan and Innovation.
Africa region. Both the quality and quantity of
education are insufficient. India has been running India has come a long way since 1991 to become
cavernous deficits, weighing heavily on its one of the world’s fastest growing economies. This
performance in the Macroeconomic Stability Pillar is not only remarkable, but also necessary: India
(96th). Energy and transport infrastructures are in a needs to continue growing at this pace and,
state of disrepair (76th). In this context, India’s rank of possibly, faster to create enough jobs, prevent social
54th for the quality of institutions is encouraging, unrest and raise the living standards of all Indians. To
although corruption and security remain major issues. achieve that, the country will have to address in a
prompt and decisive manner the many shortcomings
India’s performance in the second Subindex, identified in this analysis.
Efficiency Enhancers, is better, albeit uneven. This
Subindex accounts for 35% of India’s GCI score and
The India Competitiveness Review 2009 | 3

6. An Evaluation of India’s Economic Reforms Annual Global CEO Survey, conducted in September
2009. The survey reveals that despite the global
In the second chapter, Bidisha Ganguly and Tanvi economic crisis, an optimistic sentiment prevails in
Garg from the Confederation of Indian Industry, India. Sixty-two chief executive officers (CEOs) of
examine some of the sources of strength for the Indian Iarge Indian companies indicated that their
economy, as well as the challenges faced by policy- confidence was high, with 97% either very confident
makers in addressing the critical needs for fostering or somewhat confident of their revenue growth
more inclusive growth and development; this would prospects over the coming 12 months. Underlying
reinforce the country’s productivity and competitiveness. this confidence is the CEOs’ belief that the country’s
economy is well on its way to recovery, with nearly
The Indian economy has gained strength from the two-thirds expecting recovery by the middle of
recent period of comparative macroeconomic stability, 2010. South Asia, China and the United States will
characterized by acceleration in growth, a surge in be the most important markets outside of India
domestic savings and investment, and healthy corporate during the recovery.
performance. The structure of the economy has also
undergone considerable change in the last decade, as India’s rise in global competitiveness is widely
India has been integrating more into the world economy. associated with its services sector, which is forecast to
Going forward, there are several factors favouring India’s represent over 90% of economic growth in 2010. Still,
competitiveness. These include the relatively inexpensive 42% of CEOs surveyed believe the country’s
and skilled labour force – India’s demographic dividend manufacturing sector has improved its global
– the availability of key raw materials and a large and competitiveness since the financial crisis began, with
fast growing domestic market. many citing cost competitiveness and productivity
gains as drivers. This suggests a diversification of
Yet, much remains to be done. Policy-makers need to India’s global capabilities is underway, with manufacturing
focus on significantly reducing poverty and improving growth complementing India’s vaunted services
living standards. One of the key challenges is to industries. It also points to a different set of competitors
provide quality employment to the large number of on the global stage: 34% of Indian CEOs expect
people entering the workforce, as well as to those manufacturing powerhouse China to be India’s greatest
leaving the agriculture sector. So far and despite brisk competitor in global markets during the recovery, while
growth, the benefits in terms of job creation have been only 6% of them named the United States.
relatively limited. Much also needs to be done to
improve the situation in the areas of health and For this diversification to take place, however, CEOs
education. Public spending has been increasing in consistently say the country still needs to develop its
these areas through several initiatives, but this needs infrastructure. A shift towards manufacturing will only
to be amplified. The third area where the government make the deficit, including in transportation
needs to focus is infrastructure, in particular power infrastructure, more acute. What is more, CEOs
and transport infrastructure, which face major believe an educated workforce has been vital to
shortages made worse by rapid economic growth. India’s past competitiveness, but the country will
Upgrading infrastructure will require a considerable need to step up its investment in education – at
step-up in private and public investment. every level – to sustain growth. The potential for
labour shortages remains in all industries.
Lately, the government has been focusing on urgent
measures to soften the impact of the global economic A majority of Indian CEOs expressed concern about
crisis. Now that India’s economy is recovering from the 19 of the 20 potential threats to growth that were
crisis, the authors conclude that it is a good time for policy- surveyed, including exchange rate volatility, a
makers to shift focus back on longer-term imperatives. protracted global recession, over-regulation, terrorism
and energy costs. Accordingly, more CEOs reported
India’s competitiveness: The View from CEOs they are planning to change their risk management
functions than other corporate functions. The desire to
In the third chapter, N. Ramesh Rajan and Jairaj avoid or mitigate systemic risks is likely to be an
Purandare, both at PricewaterhouseCoopers, India, enduring legacy of the global economic crisis.
present the findings of PricewaterhouseCoopers’ 13th
4 | The India Competitiveness Review 2009

7. Assessing India’s Competitiveness:
Insights from the Global Competitiveness Index
Thierry Geiger and Sushant Palakurthi Rao, World Economic Forum
From an economic standpoint, the past two decades
Introduction
have been remarkable for India. In 1991, the Indian
government unleashed an unprecedented programme
The publication of The India Competitiveness Review
of economic reforms that put India on the path of
comes at a critical time for India’s economy. The
sustained growth (see Figure 1). GDP grew at an
severity of the global economic crisis – the worst
annualized rate of 6.2% between 1991 and 20082.
since the Great Depression – has demonstrated the
This contrasts sharply with the three decades that
fragility of economic growth among industrialized
followed independence in 1947, which had been
and developing countries alike. India has not been
characterized by inward-looking policies and a
spared its fallout. Growth slowed from a brisk 9.4%
complex system of socialist economic controls – the
in 2007 to 7.4% in 2008, and is expected to fall to
infamous license raj – heavy state interventionism
5.4% in 20091. The recent turmoil underscores the
and central planning. This system resulted in erratic,
importance of not losing sight of long-term
lacklustre growth rates, on average 4% per year
competitiveness fundamentals amid short-term
between 1960 and 1991. The 1990s therefore
urgencies. Competitive economies are those that
marked a turning point in India’s history. India is now
have in place factors driving the productivity
one of the fastest growing economies and, with a
enhancements on which their present and future
population of 1.2 billion, is the world’s second most
prosperity are built.
populous country. There is no doubt India is an
increasingly important player in the global economy.
Now that the world appears to be slowly emerging
from the crisis, the time is propitious for India to take
However, India is not yet one of the world
stock of its competitive strengths, as well as those
economy’s engines. Its economy is the smallest
areas hindering its development. This year marks the
among the four emerging market BRIC economies
25th anniversary of the World Economic Forum’s
and the world’s 12th largest (see Table 1)3. Further,
engagement in India, providing an excellent
India systematically lags behind China and many
opportunity to reflect on how India’s competitiveness
large emerging economies in several measures of
has progressed over the period and what remains to
economic and social performance. Its GDP per
be achieved to ensure a prosperous future.
capita is just US$ 1,000, one-third of China’s and
Figure 1: India’s GDP and GDP Per Capita Growth
Real GDP*, Real GDP*/
$ billion capita, $
1,000 1,000
800 800
CAGR +6.3%**
600 600
400 400
CAGR +4.0%**
200 200
0 0
1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
*Base year is 2000. **Compound annual growth rate
Source: World Bank 2009a
The India Competitiveness Review 2009 | 5

8. Table 1: Selected Indicators for the BRIC Countries
GCI 2009-2010 GDP (US$ billion)* GDP per capita GDP CAGR (%) Population (millions)
rank (out of 133) 2008 (US$), 2008 1991-2008** 2008 2050
China 29 4,327 3,259 9.8 1,336 1,409
India 49 1,207 1,017 6.2 1,186 1,658
Brazil 56 1,573 8,295 2.9 194 254
Russian Federation 63 1,677 11,807 1.9 142 108
* Current prices. **1992-2008 for Russian Federation
Source: IMF 2009a; UNFPA 2008; World Economic Forum 2009
one-eighth of Brazil’s4. As of 2005, according to the In sum, India has come a long way, but still has
World Bank, some 42% of Indians still lived below significant room for improvement to ensure strong
the extreme poverty line of US$ 1.25 a day, down and inclusive economic growth in the coming years.
from 54% in 1988 (see Figure 2)5. Over the same The country will have to leverage its competitive
period, extreme poverty in China dropped from 54% strengths and overcome obstacles to enhanced
to 16%. India ranks 134th in the latest Human competitiveness and productivity. The World
Development Index (HDI) not only far behind China Economic Forum’s Global Competitiveness Index
(92nd), but also the Philippines (105th) and Indonesia (GCI) represents a valuable tool for identifying and
(111th)6. Life expectancy in India is just 64 years, 8 measuring the obstacles and drivers of India’s
years less than in China, while the infant mortality productivity and competitiveness. It also allows for
rate is three times China’s rate. Trade and investment insightful comparative analysis with relevant
data also reveal the gap between India and China. In countries and regions.
2007, foreign direct investment (FDI) in India
amounted to US$ 23 billion, four times less than into The next section presents an overview of the GCI
China, while exports of goods and services amounted methodology and data used to assess the
to US$ 239 compared with US$1,340 billion – a competitiveness of nations. The section that follows
higher figure than India’s overall GDP – for China7. provides an overview of India’s performance in the
Figure 2: Poverty Trends in India and Selected Comparators: Percentage of Population Living on Less Than
US$ 1.25 a Day (PPP)
% of population India China Pakistan Philippines
100
80
60 56 54
49
42
40
20
0
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Source: World Bank 2009a
6 | The India Competitiveness Review 2009

9. GCI as well as an analysis of each Pillar. The final Below is a brief description of each Pillar composing
section provides some general conclusions about the GCI9. Appendix A provides a detailed structure
India’s competitiveness landscape. of the Index.
1st Pillar: Institutions – The quality of public and
The Global Competitiveness Index
private institutions, including perceived fairness and
Framework
transparency of public institutions, government
efficiency, security level and corporate governance
Introduced in 2004, the Global Competitiveness
2nd Pillar: Infrastructure – The quality and extent
Index has become one of the most respected and
of general and specific basic infrastructure, including
broadly used tools to assess competitiveness.
roads, railroads, ports, air transport and fixed telephony
Developed by Professor Xavier Sala-i-Martin of
3rd Pillar: Macroeconomic Stability – The
Columbia University and the World Economic
soundness of the macroeconomic environment
Forum, the GCI is a highly comprehensive index that
4th Pillar: Health and Primary Education – The
captures the microeconomic and macroeconomic
general health level of a country’s population and the
foundations of national competitiveness. Competitiveness
quality of and access to basic education
is defined as “the set of institutions, policies and
5th Pillar: Higher Education and Training – The
factors that determine the level of productivity of a
quality of and access to secondary and university-
country.”8 Taking into account the complex nature of
level education and effectiveness of on-the-job training
competitiveness, the Index identifies 12 Pillars of
6th Pillar: Goods Market Efficiency – The extent
Competitiveness (see Figure 3), reflecting the diverse
of domestic and foreign competition in a given
and interrelated factors that have a bearing on
market and the quality of demand conditions
national long-term potential for sustained growth.
Figure 3: The 12 Pillars of the Global Competitiveness Index
BASIC REQUIREMENTS
1. Institutions Key for
2. Infrastructure FACTOR-DRIVEN
3. Macroeconomic Stability
economies
4. Health and Primary Education
EFFICIENCY ENHANCERS
5. Higher Education and Training Key for
6. Goods Market Efficiency
EFFICIENCY-DRIVEN
7. Labor Market Efficiency
8. Financial Market Sophistication economies
9. Technological Readiness
10. Market Size
SOPHISTICATION & INNOVATION FACTORS Key for
11. Business Sophistication INNOVATION-DRIVEN
12. Innovation economies
Source: World Economic Forum 2009a
The India Competitiveness Review 2009 | 7

10. 7th Pillar: Labour Market Efficiency – The flexibility institutions (1st Pillar); well-developed infrastructure
of the labour market and the degree to which it (2nd Pillar); good macroeconomic fundamentals (3rd
ensures the efficient allocation and use of talent Pillar); and a healthy and literate labour force (4th Pillar)
8th Pillar: Financial Market Sophistication – The are critical for competitiveness at this stage.
sophistication and trustworthiness of financial markets
9th Pillar: Technological Readiness – The penetration As countries progress to the efficiency-driven stage,
of information and communication technologies (ICT) their competitiveness becomes increasingly based
and countries’ capacity to leverage technology and upon well-functioning factor markets and efficient
knowledge, notably through FDI, and in their production processes and practices at the firm level.
production systems Important elements at this stage include quality
10th Pillar: Market Size – The size of the domestic higher education and training (5th Pillar); efficient
and foreign markets available for firms operating in a markets for goods and services (6th Pillar); flexible
given country and well-functioning labour markets (7th Pillar);
11th Pillar: Business Sophistication – At the firm sophisticated financial markets (8th Pillar); the ability
level, the degree of sophistication of operations and to leverage existing technologies, notably ICT, in the
company strategies and the presence and national production system (9th Pillar); and a large
development of clusters domestic and/or foreign market allowing for
12th Pillar: Innovation – The national potential to economies of scale (10th Pillar).
generate endogenous innovation
In the most advanced, innovation-driven stage, countries
Underpinning this methodological framework is the are able to sustain higher wages and the associated
idea that, although all 12 Pillars matter in standard of living only if their businesses are able to
determining competitiveness, each does so to a compete with new and unique products. At this stage,
varying extent, depending on each country's specific companies must compete through innovation (12th
stage of development. Factors that crucially drive Pillar), producing new and different goods using the
national competitiveness evolve as economies move most sophisticated production processes (11th Pillar).
along the development path. In this sense, the GCI
builds upon well-known theories of stages of Countries are allocated to the different stages of
development10 classifying economies into three development according to their level of GDP per capita
stages: factor-driven, efficiency-driven and at market exchange rates, used as a proxy for wages.
innovation-driven. This criterion is complemented by a second one
measuring the extent to which countries are factor driven,
In the initial factor-driven stage, countries compete using as a proxy the share of exports of mineral products
based on their factor endowments – primarily unskilled in total exports (goods and services); the assumption
labour and natural resources – and their economies is that countries that export more than 70% of mineral
are centred on commodities and/or basic products (measured using a five-year average) are, to
manufactured products. Efficient public and private a large extent, factor driven.
Table 2: Weights and Thresholds of the Three Subindexes per Stage of Development
Weight (%) of Subindex in overall GCI
Sophistication
Stage of development GDP per capita Basic Efficiency and innovation Examples of countries in that stage
(in US$) requirements enhancers factors
Stage 1: Factor driven < 2,000 60 35 5 India, Pakistan, Philippines, Vietnam
Transition from stage 1 to 2 2,000-3,000 40-60 35-50 5-10 Indonesia
Stage 2: Efficiency driven 3,000-9,000 40 50 10 Brazil, China, Malaysia
Transition from stage 2 to 3 9,000-17,000 20-40 50 10-30 Russian Federation
Stage 3: Innovation driven > 17,000 20 50 30 Korea Rep., United States
Source: World Economic Forum 2009a
8 | The India Competitiveness Review 2009

11. The concept of stages of development is integrated capture quantitative factors, such as inflation rate,
into the Index by attributing higher relative weights to public debt and educational enrolment rates, and are
those Pillars that are more relevant for a country, collected by international organizations, including the
given its particular stage of development. To take International Monetary Fund, the World Bank and various
this into account, the Pillars are organized into three United Nations agencies. Internationally collected and
Subindexes, each critical to a particular stage of validated data ensure its comparability across countries.
development (see Figure 3).
The survey data gauge dimensions that are more
The Basic Requirements Subindex groups those qualitative in nature or for which no hard data are
Pillars most critical for countries in the factor-driven available for a large number of countries, but are
stage. The Efficiency Enhancers Subindex includes nonetheless crucial to national competitiveness.
those Pillars critical for countries in the efficiency- Survey data are derived from the Executive Opinion
driven stage. And the Innovation and Sophistication Survey, a study conducted annually by the World
Factors Subindex includes the Pillars critical to Economic Forum in collaboration with a network of
countries in the innovation-driven stage. The specific Partner institutes located in each of the economies
weights attributed to each subindex in every stage covered by the study. In 2009, the Survey was
of development are shown in Table 211. administered to over 13,000 business leaders
across 133 economies12.
The table shows that India is currently in the factor-
driven stage of development. Therefore, its
Assessing India’s Competitiveness
competitiveness depends critically on the first
through fourth Pillars. These four Pillars account for
India ranks 49th out of 133 economies in the Global
a full 60% of the overall GCI weight. The score of
Competitiveness Index 2009-2010, up one rank from
India on the other two Subindexes, namely Efficiency
the previous edition. Looking further back reveals that,
Enhancers and Innovation and Sophistication
in recent years, India’s performance has been very
Factors, account for 35% and 5%, respectively.
stable, with a slight measurable improvement as shown
in Figure 4. In 2005, India ranked 46th out of 114
The GCI is composed of a combination of hard and
economies. Taking into account only the 114
survey data capturing both quantitative and qualitative
economies covered that year, India would rank 44th
determinants of national competitiveness. Hard data 13
this year – a small gain of two ranks .
Figure 4: India’s Performance in the Earliest and Latest Editions of the GCI
Rank
Edition 2009-2010 2005-2006
within 2005-06 Score
(out of 133) sample (out of 114) 1 2 3 4 5 6 7
49 44 46 2005-2006
Global Competitiveness Index
2009-2010
1 s t P illa r: I n s titu tio n s 54 47 40
2 n d P illa r: I n fra s tru c tu re 76 70 71
3 rd P illa r: Macroeconomic Stability 96 84 93
4th Pillar: Health and Primary Education 101 92 92
5th Pillar: Higher Education and Training 66 61 55
6 th P illa r: Goods Market Efficiency 48 45 33
7 th P illa r: Labour Market Efficiency 83 74 49
8th Pillar: Financial Market Sophistication 16 16 34
9 th P illa r: Technological Readines 83 76 58
1 0 th P illa r: Market Size 4 4 4
11 th P illa r: B u s in e s s So p h is tic a tio n 27 27 26
1 2 th P illa r: I n n o v a tio n 30 30 26
Source: World Economic Forum 2009a
The India Competitiveness Review 2009 | 9

12. Table 3 GCI 2009-2010 Results for India and Selected Comparators
Table 3.A Overall GCI and Subindexes Global Competitiveness Basic Efficiency Innovation and
Index 2009-2010 requirements enhancers sophistication factors
Economy Rank Score Rank Score Rank Score Rank Score
Malaysia 24 4.87 33 5.12 25 4.76 24 4.43
China 29 4.74 36 5.09 32 4.56 29 4.23
India 49 4.30 79 4.18 35 4.52 28 4.24
Indonesia 54 4.26 70 4.30 50 4.24 40 4.03
Brazil 56 4.23 91 4.04 42 4.41 38 4.08
Russian Federation 63 4.15 64 4.43 52 4.20 73 3.47
Vietnam 75 4.03 92 4.02 61 4.08 55 3.72
Philippines 87 3.90 95 3.94 78 3.91 74 3.45
Pakistan 101 3.58 114 3.53 92 3.69 84 3.39
BRC 56 4.37 64 4.52 42 4.39 38 3.93
Developing Asia (excl. India) 79 4.02 92 4.20 76 3.89 74 3.54
Lower middle income (excl. India) 92 3.84 89.5 4.06 91.5 3.69 92 3.32
OECD 18.5 4.92 23.5 5.28 18.5 4.91 18.5 4.67
Basic 1. Institutions 2. Infrastructure 3. Macroeconomic 4. Health and
Table 3.B Basic Requirements Requirements Stability Primary Education
Economy Rank Score Rank Score Rank Score Rank Score Rank Score
Malaysia 33 5.12 43 4.53 26 5.05 42 5.00 34 5.90
China 36 5.09 48 4.39 46 4.31 8 5.93 45 5.72
Russian Federation 64 4.43 114 3.23 71 3.62 36 5.24 51 5.65
Indonesia 70 4.30 58 4.00 84 3.20 52 4.82 82 5.20
India 79 4.18 54 4.21 76 3.47 96 4.23 101 4.82
Brazil 91 4.04 93 3.50 74 3.50 109 3.93 79 5.24
Vietnam 92 4.02 63 3.93 94 3.00 112 3.86 76 5.28
Philippines 95 3.94 113 3.24 98 2.91 76 4.54 93 5.07
Pakistan 114 3.53 104 3.31 89 3.06 114 3.81 113 3.95
BRC 64 4.52 93 3.70 71 3.81 36 5.03 51 5.54
Developing Asia (excl. India) 92 4.20 73 3.76 89 3.38 76 4.65 82 5.01
Lower middle income (excl. India) 89.5 4.06 97 3.57 80 3.28 78 4.48 86.5 4.92
OECD 23.5 5.28 22.5 4.93 19.5 5.16 41.5 4.98 22 6.05
Table 3.C Efficiency Efficiency 5. Higher Education 6. Goods Market 7. Labour Market 8. Financial Market 9. Technological 10. Market
Enhancers Enhancers and Training Efficiency Efficiency Sophistication Readiness Size
Economy Rank Score Rank Score Rank Score Rank Score Rank Score Rank Score Rank Score
Malaysia 25 4.76 41 4.49 30 4.77 31 4.74 6 5.38 37 4.51 28 4.70
China 32 4.56 61 4.09 42 4.47 32 4.74 81 4.05 79 3.38 2 6.63
India 35 4.52 66 3.96 48 4.42 83 4.23 16 5.10 83 3.33 4 6.07
Brazil 42 4.41 58 4.14 99 3.87 80 4.27 51 4.47 46 4.06 10 5.63
Indonesia 50 4.24 69 3.91 41 4.49 75 4.30 61 4.30 88 3.20 16 5.21
Russian Federation 52 4.20 51 4.30 108 3.75 43 4.67 119 3.27 74 3.45 7 5.78
Vietnam 61 4.08 92 3.54 67 4.20 38 4.70 82 4.05 73 3.45 38 4.55
Philippines 78 3.91 68 3.92 95 3.92 113 3.89 93 3.85 84 3.32 35 4.57
Pakistan 92 3.69 118 2.86 83 4.00 124 3.52 64 4.25 104 2.87 30 4.67
BRC 42 4.39 58 4.17 99 4.03 43 4.56 81 3.93 74 3.63 7 6.01
Developing Asia (excl. India) 76 3.89 69 3.54 83 4.11 75 4.31 71 4.11 85 3.15 38 4.11
Lower middle income (excl. India) 91.5 3.69 94 3.56 85 3.98 97 4.11 94 3.83 93.5 3.09 79 3.57
OECD 18.5 4.91 17.5 5.09 19.5 4.83 28 4.72 27.5 4.75 20.5 5.17 28.5 4.88
Table 3.D Business Sophistication and Innovation and 11. Business 12. Innovation
Innovation Factors Sophistication Factors Sophistication
Economy Rank Score Rank Score Rank Score
Malaysia 24 4.43 24 4.80 24 4.06
India 28 4.24 27 4.76 30 3.73
China 29 4.23 38 4.54 26 3.93
Brazil 38 4.08 32 4.64 43 3.52
Indonesia 40 4.03 40 4.49 39 3.57
Vietnam 55 3.72 70 4.00 44 3.45
Russian Federation 73 3.47 95 3.59 51 3.35
Philippines 74 3.45 65 4.06 99 2.84
Pakistan 84 3.39 81 3.80 79 2.98
BRC 38 3.93 38 4.26 43 3.60
Developing Asia (excl. India) 74 3.54 70 3.96 75 3.12
Lower middle income (excl. India) 92 3.32 88.5 3.75 100 2.90
OECD 18.5 4.67 19 4.99 18.5 4.35
Source: World Economic Forum 2009a
10 | The India Competitiveness Review 2009

13. Tables 3.A to 3.D report the ranks and scores for Compared with the mixed performance in the other
India and a number of comparators in the main two Subindexes, India’s performance in the two
components of the GCI 2009-2010, while a detailed most complex areas of competitiveness, Business
profile of India's performance is presented in Sophistication and Innovation, is remarkable. The
Appendix B. Given its present level of development, country ranks 27th for the sophistication of its
India’s performance exhibits an unusual pattern. As businesses and 30th for its innovation capacity. This
explained above, countries might be expected to reflects, to a large extent, the brisk development of
move through a sequence of development steps to India’s private sector and of a few particular
build up their competitiveness, starting with the industries (e.g. automotive, information technology
more basic factors and moving to more complex (IT), pharmaceuticals).
ones. Currently, what matters most for India are the
first four Pillars that form the Basic Requirements This is encouraging for several reasons. First, it
Subindex, which together account for 60% of the indicates that economic liberalization is bearing fruit,
overall score. Interestingly enough, it is in this as the emergence of competitive Indian
general area that India presents the greatest multinationals would have been difficult under the
shortcomings. The country underperforms in the previous system. Second, business sophistication
areas of health and primary education (101st), and innovation will become increasingly important
macroeconomic stability (96th) and physical for India and its competitiveness as it moves to more
infrastructure (76th). More positive is India's 54th advanced stages of development. Third, there is no
rank for the quality of institutions. Although there is doubt that the success stories represent a source of
room for improvement in this area, the fact that the inspiration for Indian entrepreneurs. Yet, at present,
country can rely on fairly well-functioning institutions these two categories account for just 5% of the
can be taken as an encouraging sign. overall GCI score because they are not yet the
engine of India’s economic productivity, unlike for the
India’s performance in the second Subindex of the United States, Japan or Switzerland. This is because
GCI, Efficiency Enhancers, is better, albeit uneven. India can still significantly enhance its productivity
This Subindex accounts for 35% of India’s overall through improvements in the more basic areas
score in the GCI and is of particular importance to measured by the Index.
the development of the industry and services
sectors. The country boasts a developed financial In the analysis that follows, India’s performance is
system (16th) with a particularly sound banking reviewed in greater detail. To place it in context, we
sector (25th). draw parallels with a number of countries: the three
other BRIC economies – China, Brazil and Russia –
Another competitive advantage is the size of its as well as Indonesia, Malaysia, Pakistan, the
market. India ranks fourth behind the United States, Philippines and Vietnam. These particular countries
China and Japan on the Market Size Pillar, which have been chosen for their economic significance,
combines measures of the size of the internal and their geographical proximity or similar characteristics
exports markets. The Indian goods market is also to India, and/or for their particular achievements in
fairly efficient (48th), thanks to fierce competition and certain dimensions of the GCI. Aggregate
despite the presence of important barriers to entry. performances also provide interesting points of
On a more negative note, the difficulty of hiring and reference. We therefore provide the average scores
firing employees makes the labour market rather and median ranks of Brazil, Russia and China (BRC),
rigid (83rd). The country’s technological readiness the Developing Asia region and the group of lower
(83rd) continues to be held back by low penetration middle income countries14.
rates for ICT, a problem that is typical of very large
developing economies. Firms, however, are generally
adept at adopting and using the latest technologies.
Finally, higher education in India (66th) is of relatively
good quality but access to it remains a privilege of
the few as shown by the low enrolment rates.
The India Competitiveness Review 2009 | 11

14. Table 4: The GCI Heat Map: Comparison between India and Selected Comparators
Table 4.A Difference in Scores
Macroeconomic Stability
Technological Readiness
Goods Market Efficiency
Business Sophistication
Labor Market Efficiency
Count of pillars where
Higher Education and
Health and Primary
India scores higher
Financial Market
Sophistication
Infrastructure
Market Size
Institutions
Innovation
Education
Training
GCI
India (score 1-7) 4.30 4.21 3.47 4.23 4.82 3.96 4.42 4.23 5.10 3.33 6.07 4.76 3.73
Score difference with
Malaysia -0.57 -0.32 -1.58 -0.77 -1.08 -0.53 -0.36 -0.52 -0.28 -1.18 +1.37 -0.04 -0.33 1
China -0.43 -0.18 -0.84 -1.70 -0.90 -0.12 -0.05 -0.51 +1.05 -0.05 - 0 .5 6 +0.22 -0.20 2
BRC* -0.07 +0.51 -0.34 -0.80 -0.71 -0.21 + 0. 3 9 - 0 .3 3 +1.17 -0.30 +0.05 +0.50 +0.13 6
Indonesia +0.04 +0.21 +0.28 -0.58 -0.38 +0.05 -0.08 -0.07 +0.80 +0.12 +0.85 +0.27 +0.16 8
Brazil +0.08 +0.71 -0.03 +0.30 -0.42 -0.18 +0.54 -0.05 +0.63 -0.73 +0.44 +0.12 +0.21 7
Russian Federation +0.15 +0.98 -0.14 -1.01 -0.83 -0.34 +0.67 -0.45 +1.84 -0.12 +0.29 +1.17 +0.38 6
Vietnam +0.28 +0.28 +0.47 +0.37 -0.46 +0.42 +0.22 -0.47 +1.05 -0.13 +1.51 +0.77 +0.28 9
Developing Asia* +0.28 +0.45 +0.09 -0.42 -0.19 +0.42 +0.31 -0.08 +0.99 +0.17 +1.96 +0.80 +0.61 9
Philippines +0.40 +0.98 +0.56 -0.31 -0.25 +0.04 +0.50 +0.33 +1.25 +0.01 +1.49 +0.70 +0.89 10
Lower middle income* +0.46 +0.64 +0.19 -0.25 -0.10 +0.40 +0.43 +0.11 +1.28 +0.24 +2.50 +1.01 +0.83 10
Pakistan +0.72 +0.90 +0.42 +0.42 +0.87 +1.10 +0.41 +0.71 +0.85 +0.45 +1.40 +0.96 +0.75 12
* Average score
Score difference: Key >1 >0.5 >0.1 >-0.1 >-0.5 >-1
India scores higher Compartor scores higher
Technological Readiness
Goods Market Efficiency
Table 4.B Difference in Ranks
Business Sophistication
Count of pillars where
Higher Education and
Health and Primary
India ranks higher
Financial Market
Macroeconomic
Labour Market
Sophistication
Infrastructure
Market Size
Institutions
Innovation
Education
Efficiency
Training
Stability
GCI
India (rank out of 133) 49 54 76 96 101 66 48 83 16 83 4 27 30
Rank difference with
Malaysia -25 -11 -50 -54 -67 -25 -18 -52 -10 -46 +24 -3 -6 1
China -20 -6 -30 -88 -56 -5 -6 -51 +65 -4 -2 + 11 -4 2
Indonesia +5 +4 +8 -44 -19 +3 -7 -8 + 45 +5 +1 2 +13 +9 8
B r az i l +7 +39 -2 +13 -22 -8 +51 -3 +35 -37 +6 +5 +13 7
BRC* +7 +39 -5 -60 -50 -8 +51 -40 +65 -9 +3 +1 1 +1 3 6
Russian Federation +14 +60 -5 -60 -50 -15 +60 -40 +103 -9 +3 +68 +21 6
Vietnam +2 6 +9 +18 +16 -25 +26 +1 9 - 45 +66 -10 +34 +4 3 +14 9
Developing Asia* +30 +19 +13 -20 -19 +3 +35 -8 +55 +2 +34 +43 +45 9
Philippines +38 +59 +22 -20 -8 +2 +47 +30 +77 +1 +31 +38 +69 10
Lower middle income* +43 +43 +4 -18 -15 +28 +37 +14 +78 +11 +75 +62 +70 10
Pakistan +52 +50 +13 +18 + 12 +52 +35 +41 +48 +21 +26 +54 +49 12
* Median rank
Rank difference: Key >20 >10 >5 >-5 >-10 >-20
India ranks higher Comparator ranks higher
Note: see text for details
Source: World Economic Forum 2009a
The GCI heat map presented in Table 4 complements India’s score (4.3, see first row) in the overall GCI
Tables 3.A through 3.D, in that it allows for a reading (first column) is 0.6 lower than that of Malaysia but
of India’s performance in the GCI in relative terms. It 0.3 better than the average for Developing Asia.
provides a sense of the distance – as measured by Similarly, Table 4.B indicates that India does
the difference in scores (Table 4.A) and ranks (Table significantly better in terms of business sophistication
4.B) – that separates India from any given (12th column) than all countries except Malaysia.
comparator. Blue-shaded cells and grey-shaded
cells indicate that India scores or ranks respectively The heat map mirrors India’s atypical competitiveness
higher or lower than the comparator, while no pattern described above. On the right side of both
shading means there is no significant divergence. tables, cells are overwhelmingly blue, while the
The darker the nuance, the greater the difference in patches of dark grey in the centre of the table reveal
performance. Table 4.A shows, for instance, that the areas of relative underperformance, namely
12 | The India Competitiveness Review 2009

15. macroeconomic stability, health and primary Notably, the protection of property rights, public ethics
education, labour market efficiency and technological standards and the efficiency of public administration
readiness. The figure shows that China is stronger in are taken into account, together with the security
10 out of the 12 Pillars. On the other hand, India situation in the country. The Private Institutions
systematically outperforms its neighbour Pakistan in Subpillar, in turn, measures the quality of corporate
all Pillars and by a margin of 20 ranks or more in ethics and accountability displayed by firms.
nine of the 12 Pillars.
India ranks 54th in the Institutions Pillar, ahead of most
1st Pillar: Institutions of the comparators and clearly standing out within its
region and income group. Only Malaysia (43rd), China
A transparent, efficient and reliable institutional (48th) and Korea (53rd) – just barely – do better. India’s
environment provides the framework within which all performance is similar in each Subpillar, ranking 55th
stakeholders of the society – individuals, businesses and 51st for the quality of public institutions and
and the government – are able to interact efficiently private institutions, respectively.
and create wealth. Economic activity does not take
place in a vacuum. The quality of institutions has a The business community is fairly positive with
strong bearing on competitiveness and growth. It respect to government efficiency. India ranks above
influences investment decisions and the organization most comparators in the rule of law, particularly
of production, and plays a central role in the ways thanks to a relatively well-functioning and
societies distribute the benefits and bear the costs independent judiciary. On a less positive note,
of development strategies and policies. Given this intellectual property protection is perceived as
prominent role, the GCI includes the quality of mediocre (61st). This is an area to be strengthened,
institutions within the basic requirements of given the importance of the IT and business process
competitiveness, crucial for factor-driven economies outsourcing sector in India (see 12th Pillar below).
such as India15. Further, reminiscent of the license raj era,
government regulation continues to be perceived as
The Institutions Pillar has two components, gauging burdensome. India ranks a low 95th on this indicator
the quality of public and private institutions, with a score of 2.9, below the regional average of
respectively. The Public Institutions Subpillar 3.3. This signals the need for further reforms to
assesses different dimensions related to the quality eliminate red tape.
and efficiency of the national institutional environment.
Figure 5: The Most Problematic Factors for Doing Business in India
% of responses
0 5 10 15 20 25 30
Inadequate supply of infrastructure 24.6
Inefficient government bureaucracy 14.0
Corruption 11.0
Restrictive labour regulations 10.6
Access to financing 9.8
Tax regulations 8.0
Policy instability 6.0
Tax rates 4.0
Poor work ethic in national labour force 3.8
Inadequately educated workforce 2.6
Foreign currency regulations 2.3
Inflation 1.0
Government instability/coups 0.9
Poor public health 0.9
Crime and theft 0.4
Source: World Economic Forum’s Executive Opinion Survey 2009
The India Competitiveness Review 2009 | 13

16. The results also reveal that the business community demonstrate a need for well enforced auditing and
has limited trust in its politicians (79th), while accounting standards to better constrain and
bureaucratic and administrative corruption, and rent- unmask such behaviour in the future.
seeking by a large public sector, continue to restrain
its confidence. Indeed, the respondents to the World 2nd Pillar: Infrastructure
Economic Forum’s 2009 Executive Opinion Survey
selected “bureaucracy” and “corruption”’ as, Well-functioning and extensive infrastructure plays a
respectively, the second and third most problematic fundamental role in enhancing the growth prospects of
factors for doing business in India after “inadequate an economy. Good infrastructure plays an important
infrastructure” (see Figure 5)16. Supporting this role in raising private sector productivity, particularly
assessment, Transparency International ranked India the quality of roads, the functioning of roads,
85th out of 180 economies in its 2008 Corruption railroads, ports and air transport, as well as a reliable
Perceptions Index17. The government has taken electricity supply and developed telecommunication
steps to eliminate some major sources of corruption, network. Widespread quality infrastructure can also
for instance, by removing import licenses18. In the greatly reduce income inequality and poverty,
fight against corruption, India can rely on its vibrant connecting poor communities to important markets,
democracy and press freedom, which help to bring allowing children in remote areas to go to school
many such cases to light. and improving health standards by providing potable
water, among other benefits.
The threat of terrorism is another major concern in
that it imposes significant costs on businesses, with India ranks 76th in the Infrastructure Pillar with a
India ranked 117th on this measure. Among the score of 3.5 out of 7. China ranks 30 places ahead
comparators, Pakistan (131st, third to last) and the at 46th, while Malaysia is in a league of its own in
Philippines (124th) appear lower, as do the United 26th place. The entire region suffers from a severe
States (121st) and Spain (119th). However, India’s infrastructure deficit, with an average score of 3.4,
score of 4.7 (out of 7) remains well above the score even lower than that of India. Since 2003, business
of 2.6 of last ranked Colombia. The attacks on leaders responding to the Executive Opinion Survey
Mumbai in 2008, the rising tensions in the region, as have consistently ranked “inadequate supply of
well as frequent reports of foiled terror plots infrastructure” as the most problematic factor for
contribute to a general fear of future attacks and doing business in India (see Figure 5). In fact, in
maintain a climate of insecurity. In addition, none of the other comparator countries have
corporate interests, especially Western companies, respondents put infrastructure so high and so often
are seen to represent a prime target. On a more on their list.
positive note, India does not display particularly high
levels of other forms of crime and violence. Its score The poor state of India’s infrastructure, and the lack
(5.2) is not too far from that of China and – even of it, is among the most serious structural problems
more telling – of the OECD average (both 5.4). This holding back the country’s competitiveness and
performance sharply contrasts with the rest of the economic development. Without adequate infrastructure,
region (average of 4.4), most notably Pakistan (3.2, India will find it difficult to sustain – let alone increase –
119th), but also Brazil (3.3, 118th). its current pace of development. The situation penalizes
local businesses and deters foreign investors. Delays
As mentioned above, the GCI also assesses the in shipping, power outages, water shortages,
quality of private institutions. Although its commuting times, to only name a few of the adverse
performance has worsened considerably over the consequences, seriously undermine productivity.
past year, India continues to rank at a reasonable
51st place. It is possible that the weaker Looking ahead, infrastructure has also been cited as
assessment is related to recent scandals such as one of the main obstacles to the transition from an
the accounting fraud perpetrated at Satyam, which agrarian economy to a manufacturing-based
shook the confidence of the business community in economy, a transition that will be needed to create
India and around the world. This would seem to new jobs for the growing working-age population.
14 | The India Competitiveness Review 2009

17. Even the most basic manufacturing activities at a In addition to low profitability, the sector remains
minimum require a reliable source of electricity and heavily regulated and dominated by public utility
decent roads. companies – a drag for investors. Things could get
worse, as the demand for electricity is expected to
Electricity is perhaps the biggest infrastructure challenge. grow at least as fast as the GDP – and possibly
India ranks 106th for the quality of the electricity faster if the share in the economy of the energy-
supply, lower than all comparators. A 2006 survey by intensive manufacturing sector increases.
the World Bank found that 29% of managers identified
electricity as a “major” or “severe” constraint to the Road infrastructure also needs upgrading. India
growth of their business19. In 2007, demand ranks 89th for the quality of roads, far behind China
outstripped supply by almost 15%20. As Figure 6 (50th) and Pakistan (65th) but ahead of Indonesia
shows, electricity production per unit of GDP (94th) and the Philippines (104th). Roads are of
increased until 2000 but has been declining steadily paramount importance to India’s development: they
since then. The ratio is now close to one kilowatt hour carry 65% of freight and 85% of passenger traffic23.
per unit of GDP. For China, the situation is almost the Yet, the 3.4 million kilometre-long network – the
reverse and appears much more favourable. world’s second largest and 50% longer than China’s –
is in poor condition, with half of it unpaved24. It is also
Not only does India suffer from serious electric congested and dangerous. In 2007, 130,000 people
under-capacity, but much of its production is lost in perished in car accidents, 60% more than in China
transmission and distribution. Figure 6 reveals that, where there are four times as many cars25. Without
in 2006, a staggering 25% of India’s electricity infrastructure improvements, the situation is likely to
production was lost before reaching destination. get worse, as the government projects an annual
Although improving since 2001 when the figure was increase of 12-15% in traffic in the comings years.
29%, it is four times the amount in China (6.3%).
Inevitably, this has a negative impact on profitability; India’s port infrastructure is also in need of
the government estimated that, in 2007, it did not upgrading. According to a report by Ernst & Young
receive any revenue for 34% of the power pumped (2008), Indian ports are operating at more than 90%
into the grid because of theft or leakages21, although capacity. The Indian ports sector has lined up a
this is admittedly an improvement from 2000, when major capacity overhaul, but low productivity and
an OECD study put this figure at 40%22. infrastructure bottlenecks continue to stifle the
performance of the country's major ports. Handling
capacity is insufficient, turnaround times are too
Figure 6: Electricity Production and Losses
Production Loses
India
China
kWh per unit of GDP % of losses
Indonesia
1.5 30%
1 20%
0.5 10%
0 0%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: Authors’ analysis based on World Bank 2009a
The India Competitiveness Review 2009 | 15