Written Assignment One
India's Competitiveness Crisis
1. Primary causes for the deterioration in India's competitiveness.
Maintaining a strong competitiveness relies primarily on well-functioning public and private institutions, well-developed infrastructure, stable macroeconomic environment and healthy workforce that has received at least a basic education.
First of all, India’s growth rate is currently struggling. Many populations in India still live in extreme poverty, such a low standard of living will result in low purchasing power, which is a negative element that prohibits economic development. High inflation, deficient institutions and closeness in India are all ...view middle of the document...
Because of the cumbersome operation, long registration time and high taxes, it becomes much harder and more costly for either running a business or investment. Furthermore, the labor market is inefficient and rigid, the overall business environment and market efficiency are undermined by protectionism, monopolies, and various distortionary measures including: subsidies and administrative barriers to entry and operation.
Approximately half of India’s economic output and 90% of its employment belong to informal sectors. It will undoubtedly cost more when integrating more businesses into the formal economy. Besides, policies of India’s government are constantly changing. Investment rules and policies are ambiguous so that investors are concerned that too many risks are being taken, and thus, discouraging willingness of investment.
In addition, as a result of the lack of technological readiness, India is one of the world’s least digitally connected countries. Therefore, high cost, high risk and lack of advanced equipment will make investors consider India’s firms to be not very attractive and not worthy of investment. Both domestic and foreign investors will lose confidence to the economy of India over time.
3. Lessons taken from the Indian experience.
a. Other emerging markets need to build well-functioning institutions and improve institutioanl framework to better build clean, diligent, efficient and pragmatic institutions.
b. Increase market efficiency and business environment. It’s important to have an open...