India is an emerging global economic power, with over a decade of solid economic growth and a 1.6% increase in global output to show for it (Schiff 1-2). From 2000-2005, India contributed towards 50% of Asian domestic demand growth (Schiff 1-2). In 2005, India contributed towards 25% of global portfolio flows to emerging markets (Schiff 1-2). All of this can be attested to India's marked opening of its economy, in 1991, when India allowed foreign competitors and companies to become a part of the economy. From 1990-2002, imports rose 18% (Schiff 1-2). From 2003-2005, imports rose 39% (Schiff 1-2). From then on, exports have risen by 37% every year (Schiff 1-2).
What is really commendable is that India's economic growth has remained on a steady path upwards even in the face of the Asian economic crisis and disappointing monsoons, which many citizens depend on for their primarily agriculturally based income. The amount of poverty, which is a major social and economic issue in India, has also dropped to 30% in recent years as a result of India's steady economic growth (Schiff 2), despite it still having a long way to go. The main reason India's economy took off the way it did, post the opening, is the result of India's almost unbeatable cost advantage in manufacturing. The problem is, however, that their edge on cost competition can only take them so far. What is really essential to India's continual economic growth is non cost competition. Thus, while India's grip on cost competition is beneficial, India's lack of footing in terms of non cost competition can harm the potential effectiveness of government implemented programs that intend to link reduction of poverty to economic growth.
For any country, maintaining a grip in the cost competition market is incredibly important, and there is no doubt that India has a very strong foothold in that matter. In fact, India is 2nd to only Indonesia in terms of lowest manufacturing costs out of the top 25 exporting countries (Bhattacharya 11). Additionally, India has a very large resource base in terms of labour availability because of the large population. Since there is ample availability of labor workers, the competition increase between the workers is inevitable, resulting in lower wages for the people and lower costs for the employers. India also succeeds in cost competition because of how easily accessible raw materials are. There is an abundance of cotton, steel, coal, and downstream petrochemicals, so they are not as expensive to get (Bhattacharya 18).
On the other hand, India does not fare as well in the non cost competition market. Non cost competition is essentially a marketing strategy in which methods are used to attract investors other than lower prices. Examples of non-cost competition include ease of doing business in a particular location, political favor, and corruption perception in that economy (Economist). The matter of corruption hurts India's economy and it's people, while the corruption perception other countries hold of India derails all efforts to attract Foreign Direct Investment (FDI). For example, there is a system in place in India that allows the poor to buy necessities from store owners at a lower cost that normal. The Indian Government gives the store owners the goods for free and the store owners are supposed to sell the goods for a low rate to the poor. Instead, the store owners sell the goods to the highest bidder, like black market buyers, and keep the profits themselves (Gopinath). Furthermore, this black market dealing has had significant negative environmental and health-related repercussions. For example, black market dealers take advantage of subsidized kerosene by mixing it with harmful petrochemicals and selling the final product to the poor. This is not only harmful to their health and environment, but it is also dangerous. (George) Another place where the corruption is evident is in the program, the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA). Although its intent is to give poor people work and pay for 100 days at a time, its efforts are often proven to be in vain by those who oversee the work the poor people do. These corrupt overseers cheat the poor workers out of the money they rightfully deserve at every chance they get. The overseers may only pay the poor a small portion of their deserved wages and pocket the rest. The overseers have also been known to create fake “poor” identities and take money through that (Gopinath). Aside from this issue of corruption, India just collectively ranks low on non-cost competition rankings overall. For example, India ranks #130 in terms of ease of doing business (DoingBusiness), #57 in terms of business environment (Bhattacharya 13), #70 in getting electricity (DoingBusiness), and #94 in corruption perception (Bhattacharya 14).
Clearly, there is much improvement needed in the non-cost competition market. The Indian Government first and foremost needs to fix certain problems that pertain to day to day life. The most major changes that need to come about involve highways, labour reforms, taxation, credit mechanisms, and making certain aspects of the conduction of business easier (Bhattacharya 15). Something the government can do to improve business conduction is to instill a firm bankruptcy policy. A lack of one can prove to be an issue when corporations borrow from national banks. When the projects the companies had started shut down, the banks, due to the close relationships built between the companies and the banks, keep giving extensions on the loan term. Because of this continual cycle, both the banks and companies end up saddled with debt. A possible solution to this issue is to find a way to liquidate the company's assets without destroying their value (Gopinath). In the end, the goal of improving non-cost competition techniques is to attract more FDI, and there are certain actions the Indian government can take to promote that, like deregulation of the economy and improving bureaucratic effectiveness. The deregulation of the economy entails fewer regulations mandated by the government in the matter of trade and investment. When the central government is not as heavily involved in the trade-related decision making, there is an increase in competition, higher productivity, and lower costs all around. Improving the efficiency of bureaucracy would likely be beneficial because, as of now, it is near impossible to get anything done that deals with government offices in India, such as getting permits or applying for some documentation (Gopinath). There are also certain sectors that could be helped by import substitution industrialization (ISI). ISI means that it is better to manufacture some goods domestically rather than import them from abroad. For example, there is a high demand for electronics and aerospace products but due to absurd regulations and high importing costs, India is losing out (Bhattacharya 18).
A program that the government has put in place that aims to combat poverty and corruption, which are both issues that are destroying India's non-cost competitiveness, Jan Dhan Adhaar Mobile (JAM) (Bhattacharya 27). JAM is meant to enable the state to give money to those in need directly, without the need for middlemen, which would greatly decrease the potential for corruption from these middlemen. This is a quiet social welfare policy, meaning that it would not disrupt the current way of government too much. The term “Jan Dhan” is representative of Prime Minister Modi's plan which aims to grant access to financial services like banks, credit cards, and insurance to the poor people who normally could not afford such things. “Aadhaar” is the initiative to issue unique identification cards to all Indians. Every person has one ID card and one ID number. This way, no one can create fake identities. Mobile is the part of JAM which aims to give every Indian access to mobile technology to get the opportunity to use a bank and get insurance (George). JAM has the capability to get rid of corruption, thus making life for the poor easier. For example, JAM has the potential to eradicate all traces of corruption evident in MNREGA. With Aadhaar and the biometric identification card, you cannot fake identities and the money can go straight from the government or companies to the rightful beneficiaries, thus eliminating the need for corrupt middlemen (Gopinath). Fortunately, all the aspects of JAM are working and helping people. 118 Million bank accounts have been opened through Jan Dhan (George). 1 Billion people have been biometrically authenticated through Aadhaar (George). ½ of all Indians now have a mobile phone. (George). In the coming years, it is clear that JAM will continue to benefit the Indian economy by reducing subsidy burden, transferring resources directly to people, reducing corruption, salaries being received faster, decreasing poverty (George).
While JAM seems to be working, there are few problems that need to be addressed in order to move forward. For example, it is difficult to figure out how to correctly identify eligible beneficiaries because they need to figure out exactly how to decide whether someone is, by definition, poor, and link these beneficiaries to bank accounts. There also needs to be cooperation between state and federal governments which is currently not happening. This is evident in the situation of inaccessibility of technology in many areas in the countries because it is up to the state governments to figure out a way to make it possible for that to happen. Once citizens have been properly set up with JAM, there are few practical problems that will also arise towards the end of the process. Some poor people in rural areas live too far from banks, as there are only 40,000 rural banks for 600,000 rural villages (George). A way to fix this problem is to establish strong cellular networks to give those who live far away adequate access, again requiring cooperation from state governments. (George)
Another program launched by the government in recent years with the aim to improve the economy is called “Make in India”. The main goals “Make in India” was launched to reach were the intentions to make India a platform for global manufacturing, create millions of jobs, and make the conduction of business easier. The policies under Make in India primarily concern the New Initiatives, FDI, Intellectual Property Rights, and National Manufacturing. The New Initiative policy makes doing in business in India significantly easier in terms of increasing speed of transactions and increasing transparency. The government has already implemented policies such as the ability to seek environmental clearances, file income tax returns online, being able to hold an industrial license for 3 years (Nidhi), and replacing paper registers with electronic ones (Nidhi). The second area this program focuses on is that of attracting FDI, which is investing directly in production in another country, either by buying a company there or establishing new operations of an existing business. (Investopedia). The government has allowed 100% FDI opportunity in all sectors except for limitations of 49% in the defense sector (Nidhi), 74% in the space sector (Nidhi), and 26% in News and Media (Nidhi). Thirdly, the government has made policies to protect intellectual property rights of innovators upgraded and are upgrading infrastructure using innovative technology to keep track of everything. Lastly, the government aims to increase national manufacturing in the coming years, the goal is to increase manufacturing sector growth to 12%-14% per year (Nidhi). By 2022, the aim is to have manufacturing make up 16%-25% of the GDP (Nidhi). They also want to create 100 Million new jobs in the manufacturing sector by 2022 (Nidhi). A few other potential byproducts of the success of Make in India is to develop an appropriate skill sets among immigrants and poor for an all-inclusive national growth, increase domestic value and global competitiveness, and make sure growth does not interfere with environment (Nidhi).
India's grip in the non cost competition market will determine the success of programs, such Make in India and JAM, because both of them require resources only attainable through good non cost competition marketing, like FDI and an improved infrastructure. It is clear that India is on a path to success when one looks at the steps they are taking to emulate already successful countries. For example, India is in the process of trying to institute a goods and services tax (GST), which is already in place in Australia and Canada, among other countries. This is a very good thing as the proposed GST centers around efficient tax collection, reduction in corruption, and easy movement of goods, which are all known problems in the Indian government. This means that India recognizes the issue and is moving to fix it. The fact is that India has such a potential to grow and become a huge economic power in the world. The only thing that it is stopping itself from getting there, is itself.
India's grip in the non cost competition market will determine the success of programs, such Make in India and JAM, because both of them require resources only attainable through good non cost competition marketing, like FDI and an improved infrastructure. Looking forward, a few very crucial events must take place to attain the goals India has set for itself. The ease of doing business must improve. This entails corruption, infrastructure, and bureaucracy. FDI will only be attracted through a better market for businesses to grow and if the investing parties can see potential for growth in that country. The fact is that India has such a potential to grow and become a huge economic power in the world. The only thing that it is stopping itself from getting there, is itself.
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