CALL OF DUTY: INDIA NEEDS TO ENHANCE ITS COMPETITIVENESS

CALL OF DUTY: INDIA NEEDS TO ENHANCE ITS COMPETITIVENESS

Syllabus: 

GS 3:

  • Effect of liberalization on the economy.
  • Economic Competitiveness.

Why in the News?

India’s growing focus on productivity, global competitiveness, and economic resilience has gained renewed importance amid global geopolitical disruptions, particularly after the Iran-U.S. conflict and release of the State of India’s Competitiveness Report.

 

INDIA’S STRUCTURAL ECONOMIC TRANSFORMATION

●      Agriculture To Industry Shift: Sustainable development requires labour movement from low-productivity agriculture toward manufacturing and modern services.

●      Formalisation Of Economy: Greater formalisation can improve tax collection, labour productivity, social security, and economic efficiency.

●      Urbanisation Importance: Planned urbanisation supports industrialisation, innovation, infrastructure growth, and job creation opportunities.

●      Global Value Chains: Integration into global supply chains is crucial for export competitiveness and industrial diversification.

●      Demographic Dividend: India’s youthful population can become a competitive advantage through investments in skills and employment generation.

UNDERSTANDING THE CONCEPT OF COMPETITIVENESS

  • Productivity Foundation: Economic competitiveness depends upon how efficiently a country utilises its labour, capital, and natural resources to generate sustainable growth.
  • Institutional Framework: Strong institutions, sound policies, infrastructure, innovation ecosystems, and skilled human resources determine long-term economic competitiveness.
  • Link With Prosperity: Higher competitiveness improves GDP growth, per capita income, employment generation, and overall standards of living.
  • Resilience Against Shocks: Competitive economies possess stronger capacity to absorb external shocks such as wars, supply-chain disruptions, and financial instability.
  • Global Economic Position: Competitiveness increasingly determines a country’s role within global value chains, technology ecosystems, and international trade networks.

INDIA’S PRODUCTIVITY PERFORMANCE

  • Improving Output: India’s output per worker grew by nearly 8% annually during 2010-24, outperforming many advanced economies such as the United States and European Union.
  • Low Absolute Productivity: Despite growth, India’s productivity level remains significantly lower than countries such as China, Vietnam, and Indonesia.
  • Gap With Developed Economies: India’s output per worker remains far below advanced economies because of structural inefficiencies and technological limitations.
  • Uneven Industrial Efficiency: Productivity gains remain concentrated in select sectors, while large parts of agriculture and informal employment continue to suffer low efficiency.
  • Need For Structural Transformation: Sustained productivity improvement requires movement of labour from low-productivity sectors toward manufacturing and modern services.

CHALLENGES TO INDIA’S ECONOMIC PROSPERITY

  • Low GDP Per Capita: India’s GDP per capita remains significantly lower than both advanced and several emerging economies despite rapid growth rates.
  • Limited Economic Participation: India’s employment-to-population ratio stands relatively low, reflecting underemployment and inadequate labour force participation.
  • Agriculture Dependence: A significant share of India’s gross value added (GVA) still comes from agriculture, indicating incomplete structural transformation.
  • Weak Manufacturing Base: India’s manufacturing share remains modest compared with countries like China and Vietnam, limiting industrial competitiveness.
  • Service Sector Constraints: Although services dominate India’s economy, productivity and value addition remain uneven across segments.

SOCIAL PROGRESS AND HUMAN DEVELOPMENT CONCERNS

  • Low Social Progress: India ranked relatively low on the Social Progress Index, highlighting weaknesses in translating growth into broader well-being.
  • Double Disadvantage: India faces both low material prosperity and insufficient improvements in healthcare, education, and quality of life indicators.
  • Regional Disparities: Uneven development across States creates disparities in infrastructure, skills, employment opportunities, and social outcomes.
  • Human Capital Deficit: Inadequate investments in education, healthcare, nutrition, and skilling reduce labour productivity and competitiveness.
  • Inclusive Growth Challenge: Economic growth without parallel social development weakens long-term sustainability and societal resilience.

GLOBAL CHALLENGES IMPACTING INDIA’S COMPETITIVENESS

  • Geopolitical Disruptions: Conflicts such as the Iran-U.S. war disrupt supply chains, increase energy prices, and affect economic stability globally.
  • Climate Change Risks: Climate-related vulnerabilities threaten agricultural productivity, infrastructure resilience, and efficient utilisation of natural resources.
  • Artificial Intelligence Revolution: Rapid growth of AI technologies is transforming employment patterns, skill requirements, and industrial competitiveness.
  • Technological Competition: Global competition in emerging technologies increasingly determines economic leadership and strategic influence.
  • Global Trade Uncertainty: Protectionism, economic fragmentation, and changing trade alignments create uncertainty for export-driven growth strategies.

THE 4Ts FRAMEWORK FOR ENHANCING COMPETITIVENESS

  • Talent Development: India must strengthen education, vocational training, skilling ecosystems, and workforce capabilities to improve labour productivity.
  • Technological Evolution: Greater investments in research and development, digital infrastructure, AI, and advanced technologies are essential.
  • Transforming Innovation Systems: India requires stronger collaboration among academia, industry, startups, and government to build innovation-driven growth.
  • Transition To Sustainability: Climate-resilient growth strategies and green technologies are necessary for long-term economic competitiveness.
  • Long-Term Preparation: Competitiveness requires sustained institutional reforms and strategic planning rather than short-term policy interventions.

KEY STRUCTURAL BOTTLENECKS

  • Infrastructure Deficit: Inadequate logistics, transport systems, and energy infrastructure increase transaction costs and reduce industrial efficiency.
  • Labour Market Rigidities: Informal employment, skill mismatches, and low female labour force participation hinder productivity growth.
  • Regulatory Complexity: Bureaucratic hurdles, policy uncertainty, and compliance burdens discourage innovation and private investment.
  • Innovation Gaps: India’s expenditure on research and development (R&D) remains significantly lower than major global competitors.
  • Regional Imbalances: Uneven industrial development and governance capacities across States affect national competitiveness outcomes.

WAY FORWARD FOR ENHANCING INDIA’S COMPETITIVENESS

  • Strengthen Manufacturing: Policies such as Production Linked Incentive (PLI) schemes should focus on deepening industrial capabilities and exports.
  • Invest In Human Capital: Greater investments in education, healthcare, and skilling are essential for productivity enhancement.
  • Promote Innovation Ecosystem: India should strengthen startup ecosystems, university-industry linkages, and technology-driven entrepreneurship.
  • Accelerate Green Transition: Climate-resilient infrastructure and renewable energy adoption must become central to economic planning.
  • Improve Governance Quality: Simplified regulations, faster approvals, and institutional reforms can enhance ease of doing business and investor confidence.

CONCLUSION

India has demonstrated remarkable economic resilience and productivity growth in recent decades, yet significant gaps remain in its journey toward becoming a globally competitive economy. Low productivity levels, weak manufacturing capacity, limited labour participation, and inadequate social progress continue to constrain long-term prosperity. At the same time, emerging challenges such as climate change, geopolitical disruptions, and the AI revolution are reshaping the global economic order.

SOURCE:

MINT

MAINS PRACTICE QUESTION

“Competitiveness is not merely an economic objective but a structural necessity in a rapidly changing global order.” Discuss in the context of India’s economic transformation and emerging global challenges.