Global Competitiveness of India

Definition of Competitiveness
World Economic Forum defines competitiveness as “the set of institutions, policies,
andfactors that determine the level of productivity of a country.” Productivity determines
the ability to sustain the level of income of a nation as well as it decides the return on
investment.
Return on investment in turn decides the economic growth potential of a nation.

Pillars of Competitiveness
World Economic Forum has identified 12 pillars of global competitiveness. These are:

1. Institutions

The legal and administrative framework within which the government, firms and
individuals interact with each other determines the institutional environment of a nation.
The quality of institutions have a strong impact on the way corporate and government
decisions are made, the growth drivers are decided and policies are formulated. Thus,
investment on factors of productions and productive processes are governed by the
institutional mechanism. Government’s commitment to growth and competitiveness,
inclusive growth, corruption, innovation, intellectual property rights, foreign players,
infrastructure building etc. affects the overall macroeconomic outlook of a nation.

2. Infrastructure

Efficient functioning of market economy, distribution of corporate outputs require

effective and extensive infrastructure. Infrastructure also decides the kind of industries
and sectors that will drive the economy. Transportation and communication are two basic
infrastructures for economic growth. Road, rail, air and port connectivity ensures trading
of goods and services within and across nations.

3. Macroeconomic Stability

Instable macroeconomic conditions like too high interest rates; high inflations, uncertain
price fluctuations, fiscal deficit etc. are detrimental to the economic health of a nation.

4. Health and Primary Education

Health of the productive human resource is an important asset to the organization.

Workers with illness and health problems could drag the growth rate down. Primary
education level makes workers more productive and improves their ability to perform on
critical situations.

5. Higher Educations and Training

The rapidly changing business environment requires qualified workforce who can adapt
to the ever-changing business environment and can act as change catalysts within the
organization. Again nations that strive to move up the value chain from the simple
production sectors to complicated processes and products.
6. Goods/Services market efficiency

Market efficiency encourages productive players to participate in economic activities that

could generate value for the nation. Market efficiency ensures that taste, choice and
preferences of the consumers are reflected in the market. Efficient trading of goods and
services encourages both domestic and foreign players to play roles in the market system.
This increases competition, which ultimately makes the market system more competitive.

7. Labor Market Efficiency

Labour market efficiency creates a level playing field for the workers in order to attract
best of the talents. It also ensures effective allocation of human resource and motivates
labors to give their best performance.

8. Financial Market Sophistication

Sophisticated financial market generates faith in the investors through information

symmetry. Financial market channelizes the savings of budget surplus players of the
economy towards the budget deficit players with the ability to generate maximum returns
for the economy. Sound banking sector, well regulated exchange boards, effective central
bank etc. makes the financial market efficient.

9. Technological readiness

Agility with which a nation and its industries adapt to the changing technology is crucial.
Up gradation of the system to fit into the new technology helps to achieve an edge over
others. It is more crucial when it comes to Internet and Telecommunication Technology
as these technologies have their impacts on almost all industrial sectors.

10. Market Size

Bigger market size is instrumental to achieve economies of scale. With globalization it is

possible to explore foreign markets to reap the benefits of scale.

11. Business Sophistication

Quality of countries’ overall business networks and quality of firms’ individual

operational excellence and strategy decides overall business sophistication. It helps to
foster responsiveness and innovation.

12. Innovation

Innovation is inevitable for long-run benefits. Investment on Research and Development

(R & D) activities brings innovation. Innovation is more important as countries approach
frontiers of knowledge.