The Competitive Advantages of the Indian Economy

Running Head: THE COMPETITIVE ADVANTAGES OF THE INDIAN ECONOMY
The Competitive Advantages of the Indian Economy
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Date: 7th October, 2018

THE COMPETITIVE ADVANTAGES OF THE INDIAN ECONOMY 2
Executive Summary
The World Economic Forum prepares the Global Competitiveness Index of the 137
countries which are based on the level of their productivity. The Indian bureaucrats prepared
a report based on the GIC. The report prepared by them was not convincing and the governor
of the RBI is curious about the competitive position of India with respect to Innovation and
Business Sophistication and also in assessing the barrier of development of India with China
in the financial market development pillar.
The purpose of the paper is to present a true picture of the India’s competitive
position by evaluating the GIC computed by the World Economic Forum. The
competitiveness and barriers are calculated and compared with that of China and the result is
then compared with the one presented by the Indian bureaucrats.
Key words: development, growth, global competitiveness, national competitiveness, barriers,
financial development, etc.

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Introduction
Competitive advantage is a condition that allows a firm, an organisation or a country
to produce a good or service at an opportunity cost lower than its competitors. The paper here
provides the national competitive advantages of India and China within the subindex 3, i.e.
pillars of innovation and business sophistication. It also discusses the position of India and
China on the economic development path. Let us understand the meaning of each of these
terms in the context of the paper:
Economic development is different from economic growth. Economic development
considers all the factors that define growth and development of a country. It takes both the
monetary factors and non-monetary factors into account. It focusses more on the standard of
living and wellbeing of its citizens. It encapsulates both welfare and growth.
Economic Development path as defined by Michael Porter encapsulates three types of
economies or three stages of economies. Stage 1 of the economy is a factor driven economy,
stage 2 is an efficiency driven economy and stage 3 is an economy driven by innovation.
Some economies are in the phase of transition - for example an economy can be transiting
from stage 1 to stage 2 or from stage 2 to stage 3. The different development phases are
segregated by the time intervals. The threshold or the interval of each time period is
segregated by the GDP per capita of the country. If an economy’s GDP per capita is less than
$2000, then it is a factor driven economy (stage 1) and if an economy’s GDP per capita is
greater than $17000 the it is innovation driven (stage 3).
The Global competitive position of the economy is defined by the overall productivity of
the economy. To measure the overall productivity, not only the ranks are considered but
focus is also put on the score of the economy. The aggregation is done for the pillars, indexes

THE COMPETITIVE ADVANTAGES OF THE INDIAN ECONOMY 4
and sub-indexes. The competitive index helps in the assessment of the economic
development barriers of one country with respect to the other countries.
Analytical development
1. Establish the position of India and China on the economic development path
The economic development path can be segmented into three stages. The GDP per capita
of China is $8113.3 and that of India is $1723.3.
Stage 1 is the stage of a factor driven economy where the country competes with its
competitors on the basis of the factor endowments like natural resources and labour. The
stage 1 has four pillars namely- pillar of Institutions, pillar of Infrastructure, pillars of
macroeconomic environment and the pillar of health and primary education.
Stage 2 is the stage of efficiency driven economy where the productivity rises and the
wages are in synchronisation with the development of the economy. An efficiency driven
economy has better quality products and efficient production techniques. The wages rise but
the prices don’t. The competitiveness in this stage is primarily determined by the pillars of
higher education and training (5th pillar), pillar of goods market efficiency (6th pillar), pillar of
labour market efficiency (7th pillar), pillar of financial market development (8th pillar), pillar
of technological readiness (9th pillar) and the Market size pillar (10th pillar).
The third stage is innovation driven and the wages are so high that it is sustainable only if
there is innovation (11th pillar) combined with sophisticated production techniques (12th
pillar).
These three stages determines the development path of an economy. Since India’s per
capita GDP is less than $2000, so we can say that India is a factor driven economy and is in
the Stage 1 of economic development path. China’s per capita GDP is in between $3000 -