Date: 07/12/2022

Relevance: GS-3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment, Inclusive growth and issues arising from it.

Key Phrases: Competitiveness Roadmap for India@100, market distortion, Fundamental dimensions of competitiveness, In the Dark: How Much Do Power Sector Distortions Cost South Asia report, PM Schools for Rising India (PM Shri).

Context:

• Recently, a report Competitiveness Roadmap for India@100 was launched by the Economic Advisory Council to the PM and the Institute for Competitiveness, India.
• The report calls for reforms in India’s distorted markets to enhance India’s competitiveness.

Country has taken commendable strides in the Competitiveness fundamentals

• A country’s competitiveness fundamentals constitute the bedrock of its society, and India has made significant strides in this arena.
• There have been notable developments in a range of sectors, including expanding access to education, infrastructure development and enhancing the quality of our business environment.
• Electricity and related Infrastructure
  • As per World Bank data a massive expansion in the electricity network took place and the percentage of the population with access to electricity has jumped from 83.9% in 2014 to 99% in 2020.
  • As compared to the period between 2007 and 2014, over five times electrification was achieved during 2014-21.
  • Leisang village in Manipur became the last village to be included in the national power grid in April 2018.
• Transport infrastructure
  • Country has augmented its transport infrastructure extensively.
  • Since the beginning of the Pradhan Mantri Gram Sadak Yojana, nearly 700,000km road length has been completed and 99% of targeted habitations have been provided all-weather road connectivity.
• Education
  • From 2014 to 2020, the number of universities in India increased from 723 to 1,043.
  • The gross enrolment ratio in higher education stood at 27.1% in 2019-20 against 24.3% in 2014-2015.
  • In the last five odd years, student enrolment in higher education witnessed an increase of 11.4%.
• Food production
  • Food production has registered a rise from around 252 million tonnes in 2014-15 to 316 million tonnes in 2021-22.

Needs to address Market structures: a key competitiveness challenge

• India has focused more on improving inputs, the market structures which translate these inputs into actual outcomes, especially at a firm level, experience distortions at several points.
• Electricity sector
  • A World Bank report titled, ‘In the Dark: How Much Do Power Sector Distortions Cost South Asia’, suggests that India’s “efficiency” gap is about 4% of gross domestic product (GDP) a year.
  • The report reveals that the entire power supply chain points to electricity subsidies, inefficient power generation, transmission, and distribution as some of the factors contributing to power shortages.
  • India has made significant efforts on improving the transmission and distribution infrastructure and enhancing operational efficiency through various schemes such as UDAY, Market-based economic dispatch (MBED) etc.
• Education Sector
  • Although inputs in terms of infrastructure facilities, and enrollment, have seen positive trends, these inputs can deliver better results with greater emphasis on the quality of education.
  • This emphasis would make higher enrolment translate into better learning outcomes.
  • A recently approved centrally sponsored scheme PM Schools for Rising India (PM Shri) aims to develop over 14,500 select schools to provide high-quality education keeping inclusivity and equitable outcomes central.
  • The scheme’s focus on students’ diverse backgrounds, multilingual needs and different academic abilities could have a positive impact on learning outcomes in India.
• Business Environment
  • Market distortions drive up the cost of doing business and thus reduce competitiveness.
  • In the past emphasis was given on individual rules but the underlying structures and capacity of the public sector behind the regulatory burden were weak.
  • In the recent years various steps have been undertaken to ease regulatory burdens and improve the ease of doing business in India.
  • Online registration for Micro, Small and Medium Enterprises (MSMEs) via the Udyam portal and the National Logistics Policy are some measures among a range of initiatives taken to make market structures more efficient.

Way forward

• Focus on Research & Development
  • Research & Development plays a significant role in improving the quality of products to match up to the international standards, and enables greater innovation.
• Investment in Intangible Assets
  • India needs better and higher investment in intangible assets such as health and education, accompanied by ‘future friendly’ skills building.
• Reduce tax burden on the MSME sector to improve their profitability.
  • More support to enhance the skills of the workers is needed from the government.
• Action is also needed on non-tariff factors; incentivize innovation, strengthen the intellectual property regime, reduce logistical costs and ease the running of a business.

Conclusion

• India has made real progress and investments have been channelized in the right direction, but market distortions can potentially deliver less than optimum outcomes.
• Therefore there is a need for the country to build on the robust contours of its competitiveness fundamentals and future reforms to deliver outcomes with maximum efficiency which calls for fixing the market distortions with greater vigour.

Source: Live Mint

Mains Question:

Q. India has directed investments in right channels and made plenty of progress in almost all economic spheres but market distortions persist that are acting as economic drags, critically evaluate. (150 words).