India Economic Summit 2009 2

INDIA ECONOMIC SUMMIT 2009

Prepared for Prof. Shilpa Peswani St Francis Institute of Management and Research

Prepared by Mr. Noel D’souza Roll No: 94 MMS I

November 20th 2009

ABSTRACT The World Economic Forum is an independent international organization committed to improving the state of the world by engaging leaders in partnerships to shape global, regional and industry agendas. The World Economic Forum (WEF) is an institution located in Geneva, which holds yearly meetings of political leaders of various nations (prime ministers and presidents), eminent business leaders, distinguished intelligentsia and writers in Davos, Switzerland. The founder of World Economic Forum is Professor Klaus M. Schwab. World Economic Forum was incorporated in the year 1971. It was formed as an autonomous global institution, which functions as a non-profit seeking Swiss organization. This Summit marks the 25th year of the World Economic Forum’s engagement in India. Over the last 25 years, India has become a much more open and accessible economy. Beginning in the 1970s with significant acceleration in the 1990s the nation’s leaders adopted a bold yet thoughtful reform agenda, harnessing domestic and foreign capital and talent to launch the economy on a fast-growth trajectory. The results of that agenda have helped create a strong middle class and a competitive industrial sector, making India one of the world’s most attractive consumer markets as well as a solid base for production. The growth agenda has also helped spark entrepreneurship and higher levels of innovation throughout the nation. A track record of growth has enabled India to demonstrate strong macroeconomic credentials attributes that helped the country diffuse the shocks of the 2008-2009 global economic crisis. It has also brought global recognition of India’s potential and provided a sturdy launch pad for achieving future economic advantage.

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Under the theme, “India’s Next Generation of Growth”, the World Economic Forum celebrates 25 years of collaboration and active engagement in India. As a result of over two decades of close partnership with India, the annual India Economic Summit is regarded as the most effective platform for formulating an agenda to further India’s growth. The India Economic Summit was held at New Delhi from 8th-10th November 2009.

TABLE OF CONTENT 2

Sr. No

Topic

Page No.

1

Introduction

5

2

Promises

8

3

Region at risk

10

4

Green revolution

13

5

Bright Future

15

6

India-Heart of global economy

16

7

India- Innovation centre

17

8

Conclusion

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1. INTRODUCTION India Economic Summit is being organised jointly by the Confederation of Indian Industry (CII) and the World Economic Forum (WEF) on 8-10 November at Taj Palace Hotel, New Delhi. Over 700 delegates from India and 2

abroad will convene to discuss how India's competitiveness is driving global competitiveness. India is still holding its ground in the midst of the current global financial crisis. Its economy grew at 6.7% during the period 2008-09 outshining various developed economies. In order to achieve double-digit growth rate, India will have to build stronger and more vibrant internal structures to intensify its drive for global competitiveness. The discussions for this year will be spearheaded by the following confirmed Co-Chairs of the Summit: • Shumeet Banerji, Chief Executive Officer, Booz & Company, United Kingdom • Carlos Ghosn, Chairman and Chief Executive Officer, Renault SAS, France • William D. Green, Chairman and Chief Executive Officer, Accenture, USA • Baba N. Kalyani, Chairman and Managing Director, Bharat Forge, India • Chanda Kochhar, Managing Director and Chief Executive Officer, ICICI Bank Ltd, India • Indra Nooyi, Chairman and Chief Executive Officer, PepsiCo, USA India needs to capitalize on those gains, make use of emerging opportunities and remove the remaining obstacles that hinder efforts to shape future growth. Crucial though the earlier economic reforms may have been, the complexities and dynamism of the global economy require new thinking and new approaches. By ensuring that India’s growth is green and inclusive of all elements of society, the nation’s leaders can help put a human face on the next phase of economic development. Businesses, governments and civil society will have to work collaboratively if innovation is to properly provide those green and inclusive dimensions. Furthermore, collaboration and cooperation will be key to constructively engaging India’s partners in the region to better manage macroeconomic, ecological, health and other challenges of mutual concern. In many ways, India is very well positioned to shape its next phase of growth.

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The country already benefits from a large and expanding talent pool, long-time English language skills, an entrepreneurial mindset, a new generation of strong and globally experienced business and political leaders, a vibrant civil society and growing influence in international affairs. But what is needed now is new insight into how to extract advantage from the interactions of those attributes. It is in this context that the 25th India Economic Summit is convening leaders from business, government and civil society under the theme “India’s Next Generation of Growth”. India’s recent economic performance has served the nation well, even during the global financial crisis and economic recession. In 2009, India is again set to emerge second only to China among the world’s fastest-growing major economies There is a growing consensus that the country’s economic growth is underpinned by strong fundamentals

As the global economy recovers from a deep downturn, it is a particularly opportune time to look anew at India's position in relation to that of its economic neighbours – and rivals. This document, prepared by Accenture, a Strategic Partner of the World Economic Forum, discusses the core issues that the nation will have to address as it starts to design its next phase of growth. These issues are broken out in detail under the Summit’s four thematic pillars: Resilient India, A Region at Risk, Green Growth and Inclusive Development and Tomorrow’s India.

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2. PROMISES India’s recent economic performance has served the nation well, even during the global financial crisis and economic recession. In 2009, India is again set to emerge second only to China among the world’s fastest-growing major economies There’s growing consensus that the country’s economic growth is underpinned by strong fundamentals. The next phase of growth will involve new challenges and new opportunities, implying that sustainable long term growth is by no means guaranteed. Volatile 2

commodity prices, excessive export competition in advanced economies and the possibility of sharp movements in values of currencies – all of these forces add new uncertainties, new risks and new protectionist pressures to the global economy. At the same time, India will find itself competing fiercely with other emerging economies for global capital and inward investment. With its growing integration into the world economy, India needs to rebalance the foundations of its growth to build the structures and capabilities that can help it withstand future economic shocks and sustain high growth rates far into the future. Specifically, India has yet to master some of the foundation factors – streamlined administrative processes and robust civic and business infrastructure, for instance – that are part and parcel of any leading global economy. The nation is still dogged by tough administrative hurdles and high costs of doing business. It continues to struggle with access to the best talent pools due to very low enrolment rates and lack of focused spending in the sphere of higher education.

And its transportation and communication infrastructures leave much to be desired. These challenges help to explain why India slipped a notch to 133rd place in the World Bank’s Doing Business 2010 Index, prepared by the World Bank and the International Finance Corporation. They also give a clue to why India lags behind the other BRIC (Brazil, Russia, India and China) economies in terms of FDI inflows. In 2008, India attracted US$ 42 billion in FDI, compared with US$ 108 billion in China, US$ 70 billion in Russia and US$ 45 billion in Brazil.

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3. REGION AT RISK On many levels, India’s economic destiny is intertwined with that of its neighbours. The stability and sustainability of its next growth phase depend to a large extent on how South Asian economies collectively and collaboratively mitigate the risks they share – risks as varied and far-reaching as social instability, climate change, resource scarcity and fast spreading epidemics. India has a proactive role to play in this process to safeguard its own growth. Taking a leaf out of the Association of Southeast Asian Nations’ (ASEAN) experience, the nation can benefit by working with its South Asian neighbours to increase points of engagement among businesses and government departments on key areas of risk. One possible area for immediate action: applying the South Asian Association for Regional Cooperation (SAARC)

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model to share best practices in fiscal and monetary management, with the goal of ensuring long-term regional economic balance.

Economic and Financial Imbalances in the Region The global economic downturn revealed the extent of the South Asia’s dependence on exports, primarily to Western economies (see Figure 4). That dependence has particularly significant implications for labor-intensive industries: during 2009, exports of textiles, clothing and leather from South Asia to Organization for Economic Co-operation and Development (OECD) countries may fall by as much as US$ 922 million2. The slowdown of such labor-intensive exports is expected to slow the annual growth rate of South Asia’s GDP from 6.8% during 2008 to 4.8% during 2009. India's relative success in riding out the global recession has had much to do with the country's growing domestic consumption. Yet there are many broader opportunities for increasing consumption, not only within India but throughout the South Asia region. Important areas of focus for the region’s policy-makers and business leaders include the need for improved infrastructure, access to credit, social safety nets and streamlined regional supply chains.The other issue of concern that transcends India’s borders is the state of the public finances. Across the region, high fiscal deficits, which rose further during the global downturn, bring risks of overheating economies and can affect longer-term economic growth rates. Even if its own financial house were in order, India would not be immune to financial dislocations elsewhere in South Asia. Few countries in the region have the fiscal, monetary or institutional bandwidth to properly manage their growth through major economic crises.

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Climate Change and Resource Security South Asia’s poor probably have the most to gain from regional cooperation on climate and resource issues. With its broad base of skills and its integration of academics, scientists and business leaders into the most crucial global conversations, India is well-placed to provide low-cost, innovative solutions that can be of benefit across South Asia. Climate change has already begun to have an impact on agriculture in South Asia – and to affect its citizens’ access to adequate nutrition and health resources. Inadequate and erratic rainfall followed by massive flooding across large parts of the region during 2009 poses serious risks to agricultural production, raising fears of inflation in food prices. According to the Institute for Food Policy and Research (IFPRI), South Asian agriculture will be hardest hit by climate change by 2050. Beyond the predictable projections of escalating costs of rice, maize, wheat, soybeans and the products derived from them, rising prices of feedstock are expected to push up the costs of meat. The knock-on effects are worrying: the IFPRI report concludes that, by 2050, climate change will mean lower calorie intake, jeopardizing the health of many South Asians. Climate change poses other grave resource risks for South Asia. The region could lose 54,900 km of wetland due to increased shrinkage, desiccation and desertification caused by increasing temperatures. It is clear that climate change and resource security must be thought about, discussed and acted upon with haste and wholehearted commitment. It is not simply about guaranteeing local access to clean water or to a village vaccination programmed. It is not even about national security. It is about the long-term economic security of an entire region Special Guest Shyam Saran, Special Envoy of the Prime Minister of India on Climate Change, Office of the Prime Minister, India 1

4. GREEN REVOLUTION It is not immediately obvious, but the issues of environmentally sustainable growth and inclusive development represent India's greatest challenges and, at the same time, its greatest opportunities. The country's rapid economic development has brought attention to the fact that a large section of the population is not included in the India growth story. And, it highlights the need to think through and plan for the environmental impact of this growth. In the worst case, India's massive, young and growing population will be characterized by mass illiteracy, ill health and low employment – with all of the unrest and instability that those forces imply. “Greening Growth”- At first glance, India appears to be headed for a grim ecological future. Rapid economic growth and the resulting changes in industrial production and consumption patterns are testing the carrying capacity of the country’s natural ecosystem. As acknowledged by the Ministry of Environment and Forests (MoEF) 70% of India’s surface water resources and a 2

growing percentage of its groundwater reserves are already contaminated by biological, toxic, organic and inorganic pollutants. The MoEF warns that the rapid pace of industrialization in the next few years is expected to increase India’s electronic waste from about 147,000 tons in 2005 to 800,000 tons. Yet India has outstanding potential to solve many of its own environmental challenges – and to develop blueprints for “greening” growth that can benefit the rest of the world. The Indian government now has a strategy and action plan on climate change and is clarifying specific objectives on discrete issues such as renewable energy. The country boasts a wealth of diverse climatic conditions that provide a natural laboratory for breakthroughs in environmental science and technology. Its business community has a highly entrepreneurial spirit, and there is a national cultural instinct for respecting the environment. Indian enterprises such as Suzlon – a global leader in wind turbine technology – are demonstrating that developed countries do not always have the edge when it comes to green industries. In short, India is positioned to attract scientists, policymakers, green businesses and venture capitalists to build an ecosystem that enables the country to tackle some of its own challenges while building premium assets and capabilities that can find ready markets worldwide. For instance, the Indian government’s Integrated Energy Policy Document estimates that the total demand for power in India will exceed 950,000 megawatts by 2030, if India’s economy is to grow by 8% a year. The environmental cost of generating those levels of power can be reduced significantly by using renewable sources of energy to bridge the deficit. A recent study shows that, with proper incentives, wind power can meet more than 24% of India’s energy needs by 2030. At the same time, India has an opportunity to reinvigorate its manufacturing industry by developing climatefriendly technologies. Static at around 15.5% of GDP for the last decade, the Indian manufacturing sector has long been considered the “big sleeper” of the economy. According to the United Kingdom’s Department for Business Reform 2

and Regulatory Enterprise, India is the third largest market for low carbon and green goods and services, with a 6% share of the US$ 4.32 trillion global market11. The nation’s grain deficit offers further opportunities for green growth. There is a clear opening for greening India’s agricultural sector. The global market for green agricultural products reached US$ 46 billion in 2007 and is expected to grow rapidly in the coming years.

5. BRIGHT FUTURE In so many ways, India is the new economic frontier. It is at once a highly successful market-led mixed economy and a laboratory for new technologies, new approaches to consumer markets, new ideas for public-private partnerships and new thinking about climate change and access to resources. Few nations have the growth potential that India already enjoys. Its amalgam of professional skills, entrepreneurial zest, global engagement, youthful population and free market economics – just some of its attributes – holds the promise of truly sustainable growth. But, if the nation is to deliver on that promise, its policy-makers and civic and business leaders have plenty of work to do. They have to act more as regional and global standard-bearers and less as advocates largely for India’s advantage. They have a golden opportunity to position India as an innovation hub. And there is ample room to capitalize on the nation’s rich mix of cultures, languages and religions in the service of long-term economic success.

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6. INDIA-Heart of the Global Economy Over the past 25 years, India has made enormous progress. It has become a major economic and political player on the global stage, making its voice heard in G20 debates and World Trade Organization sessions alike. It has earned the right to sit at the top table, assuming a vital role in global discussions on complex and impassioned topics such as international trade, finance, global imbalances and climate change. However, with rights come responsibilities. In the next 25 years, other nations will increasingly look to India to step up its role as a global citizen. That will require India to make greater efforts to find solutions to global imbalances and contribute to international peace and cooperation. Others will also expect India to become an active leader in regional and global financial affairs – in particular, around the smooth functioning of an international financial architecture. As such, India’s policy-makers and leaders of institutions and enterprises will succeed if they shift their focus away from short-term wins and losses for India and towards ensuring that their nation becomes a trusted and respected co-leader in global political and economic forums. The odds are in their favour.

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7. INDIA – Innovation Centre India is already proving itself as a centre for cost innovation for domestic and foreign companies alike. The Tata conglomerate’s US$ 2,000 Nano car is forcing automakers worldwide to rethink the nature of consumer markets as well as the economics of production and distribution. Smaller domestic companies are innovators, too: India’s Idea Forge Technology has developed a mechanical mobile phone charger (one minute of cranking powers about three minutes of talking) that has obvious appeal for extending communications networks without having to rely on electrical distribution infrastructure. Multinationals are choosing India as a key node in their innovation networks. One of the best examples: General Electric chose to pioneer development of a US$ 1,000 electrocardiogram machine in India. Although the primary target markets were in rural India, GE is now selling the device in the United States. India is also perfectly placed to drive innovation in business models. LifeSpring Hospitals, a Hyderabad-based maternity and paediatric healthcare provider, demonstrates that even small fees can be the basis of a scalable economic model with the potential to return a profit and serve an important public need. LifeSpring’s fee for a normal birth at one of its small private hospitals is roughly 20% of the charge at neighbouring public hospitals in southern India. The company’s focused approach results in a smaller cost base

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than at larger rivals that offer a wider range of specialties. LifeSpring also controls its costs by outsourcing lab tests, cleaning and pharmacy services It is only a short step to imagine India as a test bed for innovative business models for companies around the world.

India is uniquely equipped to become a hub for all kinds of innovation. Its heritage of strong English language skills and a widely recognized entrepreneurial spirit have created a unique business environment that is very open to global ideas and tightly woven into the global economy, as illustrated by the significant investments of multinationals and exemplified by the IT services industry. Although the central government has tripled the nation’s research and development (R&D) allocation in its 2007-2012 spending plans, India still has a long way to go before it features prominently on the global innovation map. Developed countries’ investment in R&D averages 2.5% of GNP; India’s target is 2% by 2012.

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8. CONCLUSION As the global economy emerges from its worst crisis since the Great Depression, India has consolidated its position as the world’s fastest growing major economy after China. With a democratic setup and a young population, the country is poised play a pivotal role in shaping the next generation of global growth. As one of the fastest growing economies and the country with the second largest population, India has many challenges and opportunities in its future. Although important gaps in the infrastructure, water supply, and healthcare have slowed the country’s progress, experts predict that India will become a global superpower in the next 50 years. India is on the march. The country that just six decades ago was taking its first independent steps is now striding out in confident new directions. So, what will the country’s economic complexion look like in another 25 years? What topics will be top of the agenda at an India Economic Summit in 2034? It is a reasonable bet that India will have mastered many of the foundation factors that currently inhibit stronger growth, ridding itself of much of the unnecessary bureaucracy that currently entangles businesses and deters investors. It is also fair to expect that Indian companies and Indian sources of expertise will be at the forefront of the next phase of green growth. And, as the mid-century approaches, India is very likely to have established itself as a hotbed of innovation. Is such a transformation possible immediately? Probably not. Does India have the will and the wherewithal to begin making those changes soon? 2

Absolutely.

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