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AseanAffairs Magazine July - August 2010

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                                                         INDIA AND ITS COMPETITIVE STRENGTHS

Four India watchers weigh in

Please outline what you believe are the competitive strengths of India.

Chaudhry: Four ingredients are working in India’s favour. India’s manpower is younger and more productive than in the past. Since 1980, nearly 60 percent of India’s growth has come from the rise in what is called “total factor productivity” - the highest in the world over this period. There is a perception that India and Indians are likely to rank among the smartest countries. Money - to fund investment as well as consumption.

Indian households save more than the Chinese, which ensures availability of vast investment resources. India’s savings rate at 37.9 percent in 2007-2008, continues to show robust signs of increasing – even as both investment and consumption rise.Growth in India is neither a product of government spending, nor a factor of export boom. Indian growth is triggered by Investment and Indian consumer spending. Other factors are: confidence and entrepeneurship, ferocious competition in the domestic market.

Romanov: As a foreigner, for the last three decades I have had the privilege of observing India’s steady rise to become a global economic and political player …Yes, it has definitely become much stronger in many ways. And just like before – India’s people, or rather its population growth is both a phenomenal strength and a dangerous weakness, all at the same time. Surprisingly, India’s shortage of energy resources in certain ways can also be viewed as a certain “competitive advantage” – for the simple reason that India doesn’t carry the “curse” (like Russia, for example) of having it’s economic strength heavily dependent on revenues from it’s vast resources of oil and gas.

Friederich: I think a country has no competitive strength, but their companies do. As such we see a few strong (mostly family owned and politically well connected players which have found their niche market. They acted boldly and sometimes shrewdly in their expansion strategy (i.e Mittal, Tata etc). But we have an increasing number of medium sized players, which flourish on the basis of a strong and huge domestic market.

Sanz: The main factor of competitiveness in India is the quality of its human resources. Technically Indians are very good, and the proof is that Indian companies in sectors like IT or biotechnology are competing around the globe with great success. I believe that India is developing its industrial potential. India has many millions of people working on agriculture. If we take a look at other Asian countries, they all have grown thanks to the development of industry. Manufacturing companies can create many jobs, and this is what India, like many other countries, needs in the near future.

 What still needs to be addressed? By whom, how and within what time span?

Chaudhry: The government needs to force the pace of infrastructure development – which thankfully is now a national priority. Social infrastructure improvement is also the crying need, encompassing improved primary education, improved healthcare and growth with equity, not the growth that is based on exploitation of the poor majorities. Skilling the population so that they are ready to take up the jobs that will come up in future, is a top priority. Romanov: Modern forms of education. The talents and skills of the young people in India demonstrate the potential for India to become one of the world’s major “brain centers”, if one can describe it that way. And time is of essence – not because other countries may “outperform” in this sphere, but because millions (not to say - hundreds of millions!) of young Indians are entering this world and will need to find their way in life.

Friederich: Bureaucracy, infrastructure, social aspects of the poor, education at basic and medium level. No one party can solve the mega tasks alone. It requires joint and cooperative efforts from all sides. The government needs to balance legislative control and economic freedom.

Sanz: I believe that India is doing things very well, but in order to improve the situation I would suggest the following: facilitate the processes of implantation of foreign companies by eliminating the excess of bureaucracy, unify even more the legal and tax system in the whole territory and improve the productivity in the agricultural and industrial sector by means of the incorporation of new technologies.

What challenges do you think may arise over the next decade?

Chaudhry: Failure to successfully deal with the key issues above could lead to new challenges of internal social discontentment. I do not expect people in India to accept that “poverty is destiny”. Apart from that, we have also to deal with internal strife that is the result of inequitable development in various parts of the country. On the economic front, the major challenge is to further strengthen the independent regulators in the telecom and insurance sectors, financial sector and stock markets, so that they all function in relative transparency. The intellectual property rights regime rapidly needs to approach global standards.

Romanov: The challenges may prove to be more in the sphere of culture, traditions, religion, and rapid erosion of what one can call the “social texture” – as the young India dashes into the modern world – the challenges of maintaining its unique identity are growing. A challenge of a different nature – the overwhelming growth of Indian cities, pollution, poor infrastructure – basically the same maladies that many countries have faced in the 60s and 70s, but at a different scale

Friederich: In a way the problems are all known and they will not go away overnight.Thus, I believe we will discuss more or less the same agenda in 10 years from now - as we did 10 years ago. Most pressing are the fight against poverty, access to clean water/air and education.

Sanz: It is not an easy problem, since infrastructure projects are expensive and, as we are experiencing during the current economic crisis, it is necessary to have a good control of public finances to avoid to fall down in debt problems. The public - private partnerships (PPP) are probably a good solution, but the investment has to be attractive for the foreign company, the criteria of selection must be transparent and the projects have to be announced with sufficient anticipation. Many companies in Spain are telling us that the period for presentation of documents in biddings is too short.......


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