ECON 802 - Analyzing the Competitive Advantages of Indian Economy

This case study analyzes the competitive advantages of the Indian economy in the global market, comparing it with China. It examines the position of economic development in both countries, focusing on factors like GDP growth, infrastructure, foreign investments, and national savings. The study evaluates the competitive positions of India and China, considering their attractiveness to foreign investments due to their large market bases and developing spending habits. It also assesses India's competitive advantages in innovation and technology, as well as the barriers to economic development, particularly in the financial sector. The analysis highlights the need for India to improve its financial systems to efficiently allocate capital and sustain rapid growth. The document concludes by critically evaluating the article's clarity and effectiveness in conveying the theme of global competitiveness. Desklib provides access to similar case studies and resources for students.

THE COMPETITIVE ADVANTAGES OF INDIAN ECONOMY 1
THE COMPETITIVE ADVANTAGES OF INDIAN ECONOMY
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Executive Summary
In the current global markets where competition has gone to another level beyond normal
provision of goods and services as it was the case some decades ago, any economy which wishes
to stand on a safe ground must strive to have a unique factor that can enable it to outdo the
competitors in the market. Competitive advantages can be realized in various ways, right from
innovative approach in the production sector to uniqueness in service provision. It is through
competitive advantages that certain economies have posted high growth rates than others. This
paper scrutinizes some of the competitive advantages of India in the global market in comparison
of China.

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Table of Content
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1.0 Introduction................................................................................................................................4
2.0 Position of Economic Development in China and India...........................................................4
3.0 Overall Competitive Position of India and China......................................................................6
4.0 Evaluation Rule of the National Competitive Advantages of India and China.........................7
5.0 Compute the competitive advantages in Pillars # 11 and # 12 for India...................................8
6.0 Measure of the height of the barriers to economic development in India with respect to China
in Pillar # 8.......................................................................................................................................9
7.0 Critical Evaluation of the Article...............................................................................................9
8.0 Conclusion...............................................................................................................................10
9.0 References................................................................................................................................11

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1.0 Introduction
Although the average income in India and china has remained low for some time, their
enormous populations and impressive growth rates in their economies have placed them in the
category of extraordinary world powers whose economies compete in the level of United States.
Despite of the fact that these two countries have large slice of their total population living under
poverty, they have completely integrated into financial exchanges and world markets to an extent
of making them very important players in maintaining global markets peaceful (Contractor,
Kumar and Dhanaraj, 2015, p.160). The uniqueness of India and China in terms of economic
development can be traced back from the recession of 2008 which hit many economic giants to
an extent of failing to maintain sustainable economic growth. The two countries despite of this
incidence were among the few countries which recorded positive growth rate. When the two
economies are put on a weighing balance however, a profound difference in their development
phases comes out clearly.
2.0 Position of Economic Development in China and India
Having the basics of the historical factors which have the exceptional economic growth
rates in china and India as discussed above as well as having set out the challenges which must
be faced by the two countries in future, this part is dedicated to deeply analyze the different
levels of development in china and India so as to comprehend the current differences between
these two economies. The factors to be analyzed in this section are; PIL rates of growth, the

THE COMPETITIVE ADVANTAGES OF INDIAN ECONOMY 5
infrastructure, levels of foreign investments attracted (IDE), national savings rate and the total
volume of imports and exports (Narula, 2015, p.200).
Early fifties, both the economies of India and China were at same levels. Indian economy
in addition was performing better than that of India in terms of gross national product and per
capita. However, following the high foreign investments and other reforms which were
encouraged by the Chinese government in late seventies enabled the Chinese economy to have
an enormous growth to an extent of surpassing that of India. This extraordinary shift of the
Chinese economy has been termed as a “Chinese Miracle”. It was highly facilitated by the
manufacturing sector and which created industrial substrate which has sustained the economy of
chine up today. Statistics have indicated that the foreign investments of China in 2015 were
1.723 trillion USD, while that of India being 297.1 billion USD (Mahajan, Nauriyal and Singh,
2015, p.70).

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In regard to PIL, China has had exceptional growth rate in the last few years, and has
only begun to slow down recently. Conversely India, whose PIL growth in 2015 was 7.5%, has
surpassed China in terms of speed of growth of their own economy. In consideration to national
income per capita statistics of 2015, India was completely blown by China with 14.300 USD per
citizen while that of India being 6.300 USD. There are several which have encouraged the
growth of Indian economy: initial reforms on taxation system, light easing to control industries,
and the foreign trade encouragement. Indian economic development has also been facilitated by
the technological sector which has been very active
Lately both the economies of China and India have been facing similar challenges in
regard to economic growth. Both economies will have to reduce their reliance on foreign
commerce and pay more attention on promoting their economies to be far-reaching and extend
their major sectors to avoid the trap of international production in future. It has been predicted
that if Indian economy would look into their financial systems, it would surpass the Chinese
economy in the long term because financial systems of India have been their major point of
weakness (Hooda, 2018).
3.0 Overall Competitive Position of India and China
Both India and China are considered as major forces in the world economic market.
Though both countries are developing economies, their economies have major impacts on the
global trade. That has made majority of developed countries strive to expand their ties with the
two countries. This has been the case mainly because the two countries in the current scenario of
globalization are seen as wonderlands for investment (Bello et al, 2016, p.430). Thanks to their
huge market bases and their fast-developing habits of spending among their middle-class

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citizens, the two are preferred destinations for potential investors from major countries, including
United States, because the two have favorable business environments, good administrative
setups, attractive foreign policies and abundant skilled workforce which are accompanied by
attractive incentives to investors.

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The two countries score above other economies in terms of investment ideal destinations
mainly due to their vibrant democratic setups, which are aptly underpinned by broad legal
frameworks and independent judicial systems. Other than these factors, presence of vast network
of banks, financial institutions, and organized capital markets have contributed to making the
two economies attractive destinations for foreign investors.
These two countries boast of having vast networks of both technical and management
institutions with international standards. Such institutions produce excellent human resource. The
two countries also have strong base of English-speaking population to facilitate business
interactions (Pradhan and Das, 2015, p.240). Strategic locations of these two countries in the
context of third world markets along with supportive infrastructure also provides these countries
with competitive advantages over other countries in terms of attracting foreign investments. The
governments of both countries have taken several approaches in attracting foreign investments in
different sectors. For instance, they have established several attractive schemes as well as
policies to lure investors. The governments have also been allowing foreigners to investment
directly in these country's firms by acquiring shares and debentures. This favorable initiative has
given the two countries an edge over several other countries for investments (Kale and Singh,
2017, p.160).
4.0 Evaluation Rule of the National Competitive Advantages of India and China
The criterion used to evaluate the competitiveness of China and India on the global
market was their turnover compared to that of other countries at the same economic level. The
comparison made it possible to see the market share held by the two countries; if the two

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countries were among the global market leaders and see their attractiveness to foreign
investments. Competitiveness refers to the ability of an economy to face competition and
succeed when facing competition from other economies (Hooda, 2018).
Evaluation was made according through two disciplines: i) neoclassical economics whose
main focus was on the trade success of the two countries through their real exchange rates,
comparative advantage indices as well as their export and import indices; ii) strategic
management approach, whose main emphasis was on the economies structures and strategies.
According to the second approach, competitiveness of an economy was seen as the cost non-
price supremacy and leadership, where competitiveness was measured according to cost
indicators, productivity and efficiency. Main emphasis was however given to productivity which
was considered as the main part of competitiveness.
5.0 Compute the competitive advantages in Pillars # 11 and # 12 for India
Globally, India has currently been ranked among the top 100 innovative countries. This is
out of its trend in the last ten years of coming up with new technologies to make work easier.
The good thing about innovation is its ability to increase productivity and making work easier.
India being at the cream of most innovative countries, it has been utilizing the opportunity in
coming up with ideas to increase its productivity as well as replace outdated technologies which
are still dominant in some countries (Latukha, 2018, p.70).

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The technology being used in India is considerably higher than in most of the countries.
In consideration to the fact that most countries have shown their interests in entering the digital
world fully, most of these countries have been more willing to allow high technological countries
to invest in their countries so that such a technology can be passed to their local firms to increase
productivity. For that matter, India has had walkovers when it comes to foreign investments
because it has always been preferred over other countries whose innovative culture is low.
In addition to that, India has taken advantage of its innovative culture to produce quality
products which find it easy to sell in the global market. This is in comparison with the products
which are mostly produced manually through human labor (Thite, Wilkinson, Budhwar and
Mathews, 2016, p.440). Extending on this point, the country has also taken advantage of its
innovations to produce goods at low costs which enables it to sell those goods at low prices
compared to competitors and hence getting huge markets because of the price factor.

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6.0 Measure of the height of the barriers to economic development in India with respect to
China in Pillar # 8
Although the financial system of India has followed a similar growth roots to that of China,
today India is facing different problems. The country is now pursuing a growth strategy based on its
relatively free markets, yet its financial system needs to sustain its rapid and efficient growth in future.
The distinct economic development facing India’s financial market is its inefficient allocation of
capital. The government of India has distorted the financial system of this country to achieve social
ends and to fund the persistently huge budget deficits and the rural investment priorities
The Indian government policies have had unfortunate consequences in the country’s
economy: such as wasteful investments and restricted options of funding private companies and that
are key drivers of growth (Pereira and Malik, 2015). The state ownership levels of financial
institutions in this country also limit competition and lead to lower efficiencies in production, limited
growth in the country’s underdeveloped corporate bond markets and limited choices of consumer
based financial products.
To be on the save side, India will have to improve its current financial sectors to be able to
allocate capital efficiently and meet the demands of savers. Reforms in the financial market will
achieve the objectives currently being used to substantiate capital diversion from the financial system
by the government. Urgent and more reaching reforms in the country’s financial system should be
given the highest priority in India.
7.0 Critical Evaluation of the Article
In this article, Klaus Schwab managed to pass his message clearly in regard to the theme
of global competitiveness because of various reasons. First of all, his research on the matter was

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not limited at all as it can be seen in his attempts to collect as much data as possible from one
country to another (Schwab, 2017). This was a clear indication that in whichever the case, his
report had escaped the bias problem which has been a common problem in many reports due to
limited research. Secondly, he was detailed in all his tackles across the research and did not leave
any stone unturned. Through that his report can be dependable.
8.0 Conclusion
From the above report, it has been set clearly that the disparities noticeable in the
economic growth trends of China and India are as a result of competitive advantages which are
enjoyed independently. It therefore dawns that for an economy to grow, it must first strive to
have a competitive advantage over the other economies in the global market. Some of the
competitive advantages which have been emphasized in this report are and not limited to
Innovations, favorable policies and government interventions.