Date: 04/11/2022

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: Economic growth, Competitiveness, Dimensions of competitiveness, Labour productivity, Challenges to India’s Competitiveness, Improving Business Environment, Growth Trends

Context:

• The Indian economy is among the few nations which 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%.
• To strategize and sustain the prosperity growth in the coming decades, it is important to learn from the standards set worldwide by different peers in various areas to fulfil our unique potential.

How to elevate our overall competitiveness performance?

• Looking at the world’s best competitiveness performers and learning from them and then persevere on the basis of our specific strengths and opportunities can help us.
• At present, India is classified as a lower middle-income country with an average prosperity level of $2,000.
  • 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.
• While there is scope for improvement across different areas, India should lay emphasis on key fundamentals.

Focus on skills and education

• Leveraging the pool of human resources available is critical for an economy.
• 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.
  • 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.
• The transition from education and skilling to employment is relatively smooth, especially on the back of a strong tertiary education system which can be learnt from countries like Switzerland, Singapore, Denmark and Sweden etc.
• The government under the umbrella of Samagra Shiksha, aims at integrating vocational education with general academic education in secondary and senior secondary schools to enhance employability among students.

Harnessing the link between education and employment

• 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 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.
• Thus in the coming years, India must work towards elevating its labour productivity levels further.

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 to improve the overall environment for businesses and individuals.
• We should learn from Countries like Singapore that have been consistently successful in providing a business-friendly environment for entrepreneurs.

Challenges to India’s Competitiveness

• India’s under-developed transport and logistics infrastructure pose many problems to exporters including congested ports.
• Underdeveloped manufacturing sector and lack of investment into cutting-edge sectors like robotics and aerospace.
• Local smaller businesses are often hesitant in adopting digital solutions due to limited understanding and inadequate training.
• Poor trade support, gaps in export infrastructure, basic trade support, lack of access to financial facilities and low export credit lead to low exports.

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.
  • In the post-Covid world, India needs to create its own niche in the global market which calls for more developed states to expand their focus towards improving R&D infrastructure, with the view to create that niche.
• Investment in Intangible Assets
  • India needs better and higher investment in intangible assets such as health and education, accompanied by ‘future friendly’ skills building.
  • The potential of promoting peoples-first public-private partnerships should be leveraged to raise funding to cover health, jobs and skills, and ensure efficient implementation in consultation with all stakeholders.
• Focus on Free Trade Agreements (FTAs)
  • The FTAs help the industries participate in global supply chains.
  • Intra- and inter-sectoral firm-level cooperation and participation must be encouraged.
  • The FTAs should also complement PLI schemes so that the products whose manufacturing is incentivized domestically can compete at a global level.
• 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

• 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.
• 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.

Source: Live-Mint

Mains Question:

Q. Despite its great emphasis on “Made in India”, India‘s competitive spirit is overpowered by its underdeveloped manufacturing sector, infrastructural and logistics challenges and lack of research & development, Discuss. (250 words).