Financial Daily from THE HINDU group of publications
Thursday, Jan 13, 2005
Competitiveness begins at home
The repression of the internal markets for human minds and muscle, money and materials has earned India a global rank of 45 in the dimension pertinent to the freedom of internal markets. As a consequence, the domestic business environment has been undermined. India's domestic business environment is ranked 44 in the world. Therefore, not surprisingly, India's global competitiveness rank is 44.
Towards improving its global competitiveness, India should first set its internal markets for enterprise, resourcefulness and rewards free. It should unshackle the markets for capital and credit, information and business intelligence, and raw materials, intermediates and finished goods.
Plans and policies aimed at reinforcing India's global strengths should be predicated on unleashing India's internal strengths. The unleashing of its internal strengths will result from unshackling the internal markets.
Unshackle the internal markets
The statistical analysis of economic relationship governing the internal markets, business environment and global competitiveness of 54 nations is educative (see Table). It shows that charity and competitiveness have much in common.
Competitiveness, like charity, begins at home. An externally competitive economy thrives on stirring its internal competitiveness. An economy that suppresses its internal competitiveness is most unlikely to be globally competitive. The global rank correlation coefficient between a nation's domestic business environment and freedom of internal markets is 0.83.
Nations that promote and support the freedom of internal markets engender supportive and favourable environments for their domestic firms and enterprises. The influence of the internal markets on the business environment is very strong. The rank correlation coefficient of 0.83 shows that a nation can strengthen its domestic business environment with a probability of success of 99.98 per cent. All it has to do is set its internal markets free.
The global rank correlation coefficient between a nation's domestic business environment and its global competitiveness is also 0.83. Nations that engender a favourable environment for their domestic enterprises achieve global competitiveness.
The influence of the domestic business environment on global competitiveness is very strong. The rank correlation of 0.83 shows that a nation can improve its global competitiveness by improving its domestic business environment. The probability of success of such effort is 99.98 per cent.
The global rank correlation coefficient between a nation's global competitiveness and freedom of internal markets is 0.95. This means that nations that promote and then protect the freedom of their internal markets become formidable competitors in the global markets.
The influence of internal markets on a nation's global competitiveness is extraordinarily strong. The rank correlation of 0.95 is somewhat unprecedented, but is not surprising. If India's internal markets are allowed to function freely and to do their job without any hindrance, disincentives and controls, India can improve its global competitiveness ranking with a probability of success of over 99.9983 per cent.
If India sets its internal markets free, the chances that it will begin to dominate the global markets are 999,983 in one million.
India's suffocating controls reflect its deep-seated discomfort with `the market'. They also signal India's deep-rooted distrust of the way in which markets allocate resources and then reward resourcefulness and risk-taking.
The discomfort and the distrust have over the last five decades spawned a belief among some influential political leaders, decision-makers and administrators that important social objectives will not be served if `the market' were `allowed' to work the way it is wont to. It is, therefore, not surprising that the control of the market has been the cornerstone of economic policy-making in India.
Though prefaced with purposes such as economic development and all-round growth, almost all statutes and rulebooks have one common thread: they weaken the autonomy of the private enterprise and punish the economic effervescence of the entrepreneur. The statutes and rulebooks are aimed at ensuring that the domestic market will work the way it is wont to.
Mind over markets
But India's controls have not served the principal social objectives. The poor continue to be lacking in most forms of empowerment. They are the typical victims of rent-seeking behaviour by the socially privileged and the economically powerful. The distortions in empowerment and the shackles in the internal market have produced all-pervading poverty.
India's modal per capita income is about $117 annually. Most households in India are poorer than those in the poorest countries of Africa. But the controls have not suppressed many of India's hardy and enterprising minds. They have gone on to set up valuable private enterprises in the incorporated and the unincorporated sectors.
It is fortunate that the controls have failed to quell enterprise wholly. However, the damage done to the internal market is serious; it should not be overlooked.
Internal markets may have been controlled by the repressive codes. But these repressive codes are quite powerless in the global markets.
Global markets respond favourably to global competitiveness. The question to ask is if India's entrepreneurs can stretch their proven but limited competitiveness into the global markets. The current empirical evidence shows that they may not be able to stretch much.
Commodity economy's compulsions
India has recorded some well-documented successes in the global market for information technology (IT) and business process outsourcing (BPO) services. These successes are yet too small to push the Indian economy ahead and its households into prosperity.
The IT and BPO sectors serve at best the economic aspirations of about 670,000 households. The Indian economy needs a `massive global opportunity' to pull nearly 200 million households into prosperity. That is, the concerns and ambitions regarding India's global competitiveness should keep in mind the economic future of the majority.
The global produce economy offers a massive opportunity to the majority. India's farmers, processors and dealers can showcase their competitiveness. Moreover, it is their competitiveness that India will have to rely on to make the best of free trade. Why?
India is not a notable producer of branded goods. Competitive strategies involving differentiation yield favourable results to countries and companies that invest in brands. Those that work at the commodity level of the global economy will have to drive their success by being low-cost producers.
India's global competitiveness in the context of the majority and the massive global opportunity will result from its uncompromising and honest pursuit of cost efficiencies in the produce markets.
Freedom and unhindered competition are the best means to trigger cost efficiencies. These would require the unshackling of the internal markets. The choice is clear: go for the leap.
(The author is a financial analyst. Feedback may be sent to email@example.com)
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