It must come as a relief to many Indians, that Harvard
University's Michael Porter and Jeffrey Sachs have brought to light many
unobvious parameters with which to evaluate a nation's economic potential.
Evaluation of an economy's prospects is not a simple exercise based on a
rule-of-three. Frenetic investments in material assets like factories,
roads, hotels and airports do not necessarily lead to either sustainable
growth or even short term big growth. What drives an economy in the long
run, are factors that will enable increasing efficiencies of capital.
India may have stumbled on to the growth road ahead of
China. For all those staring at this statement in disbelief, evidence
It seems that competitiveness is the key to success. And
that does not depend - in fact cannot- depend on capital flood. Rather an
economy builds its competitive edge by cultivating or championing
education, creativity, innovation, openness of systems, global
outlook and the like. And these lead to better productivity of capital
employed. The authors do not list democracy, experimental arts, freedom of
expression etc as elements too, but these are probably implied.
Too subtle, qualitative and vague?
The venerable World Economic Forum [WEF] has published
the Global Competitiveness Report 2000, authored by Porter and Sachs, in
which they rigorously marshal numbers to create a frame of reference. The
report is to be an annual exercise that will enable rankings to be tracked
To put their methods on a scientific basis, Porter and
Sachs have devised two indices: Current Competitive Index [CCI] and Growth
Competitive Index [GCI]. Simply put, CCI is about whether a nation can
sustain what its economy is now achieving, and GCI is about whether it can
exceed the current growth rate. They aim to assign ranks on an annual
basis. As a nation climbs higher, its potential will appear to have been
No prizes for guessing who leads the lists. The west and
a few Asian tigers dominate the top third of about 60 nations. The point
of interest is however the race between India and China. It is now almost
a routine for the world to marvel at China and be dismissive of India.
This gets a lot of Indians in a defeatist mood. In this race between two
billion-pop nations, is India a no-hoper?
Porter and Sachs disagree.
For the year 2000 India places 37th against China's 44 in
CCI . India is a close 49 to China's 41 in GCI. In very lay terms, this
means that while India may sustain its current growth rates, to improve
its position in GCI, India needs more reforms in government and private
sectors. If interest rates, corporate governance, infrastructure etc fall
in line with world benchmarks, India will climb higher in GCI ranking too.
For a very succinct summary of the findings of the
report, do read a
review in Outlook by Paromita Shastri and Shantanu Guha Ray.
Their article also carries a bonus: a peek into a survey conducted by the
A.T. Kearney Global Business Policy Council. This survey polled 1000 chief
executives world-wide on key issues regarding nations' potential. India
gains plus marks for all that will endure: emphasis on education,
technical capability, large markets, ability to absorb technology etc. The
points that India scores poorly at, are mercifully correctible over time:
obdurate bureaucracy, high interest rates, infrastructure
Finally, the July 8,2001 issue of BusinessWorld carries a
gem of a column by Niranjan Rajadhyaksha who clinches the verdict in the
India v. China debate in India's favour: "The Indian economy has
grown at an average rate of 6.4% since 1992. China has done far better:
its economic growth rate has been close to 10% right through the 90s. The
differential in growth rates has ensured that India has been dismissed as
a loser for long....
"But look at the comparative record in a more subtle
way. How much investment was required to propel these growth rates?
India's gross domestic investment as a proportion of GDP has been about
24% China's corresponding rate has almost been 39%. Besides that China
pulls in some $40 billion of foreign direct investment every year, or 4%
of its GDP. In contrast India gets hardly $3 billion a year in foreign
"What does all this add up to? China has been
growing about 55% faster than India though it invests 80% more. The only
conclusion I can arrive at is that India uses capital more
In all fairness, it must be noted that there are several
respectable scholarly voices that disagree with competitiveness
indices developed by Porter and Sachs. Sanjaya Lall of Queen Elizabeth
College, Oxford is a serious critic. In a paper [available
at this link as a PDF file] , Lall concludes that,
"competitiveness indices have weak
Lall also questions the methods: "While it is
true that many relevant pieces of information cannot be quantified, it is
surprising that those that can are not. The extensive use of responses
from businesses across the world conceals many ambiguities and weaknesses.
These questions are posed in an ambiguous manner and
relate to questionable hypotheses. They are combined into indices at
various levels using weights that are difficult to justify. The resulting
indices are presented as magisterial pronouncements
on various aspects of performance. They are subjected to statistical
analysis to prove their validity and to provide insights into
sustainability, under-performance and so on and so to provide policy
makers with further guidance on areas of competitive weakness. This
impressive pyramid of analysis and results rests on a rather small,
inadequate and often suspect base."