EAC-PM report flags regulatory hurdles

India needs to strengthen and reframe its enterprise, competition and business environment policies to enable more productive firms to emerge and scale up for sustainable job creation, said a report which flagged unfit regulatory frameworks that are holding the country back.

The report, 'The Competitiveness Roadmap for India@100', jointly published by the Economic Advisory Council to the Prime Minister (EAC-PM) and the Institute for Competitiveness, was released by the EAC-PM chairman Bibek Debroy on Tuesday.

It said India's headline GDP growth has been strong and even accelerating but weak social progress, increasing inequality and a lack of convergence across regions suggest that this growth has failed to translate into the expected improvements in quality of life for many Indians.

The report, authored by Amit Kapoor, chair, Institute for Competitiveness, and Professors Michael E Porter and Christian Ketels of Harvard Business School, said India has become fully integrated into the global economy through significant global trade and foreign direct investment (FDI) inflows.

"India needs to strengthen effective market competition, a more central element of its efforts to upgrade business environment conditions," it said.

Deeply distorted market structures in many sectors lead to poor outcomes, undoing the significant gains made in factor input conditions, said the report.

"India needs to launch a new set of sector- and location-specific growth initiatives to reframe some of its key industrial and regional policies," said the report. "Sector- and location-specific initiatives can identify the specific needs of individual clusters and regions and then select from generic policy tools to pursue a coherent strategy for growth and competitiveness upgrading."

The report also said that India needs enabling social policies that enhance the employability of labour market entrants and reduce barriers for job seekers. These policies will address urgent social needs across the country and trigger job creation opportunities, it said.

While poverty in India has fallen over time, inequality has increased with high gains for individuals at the top of the income distribution, it said. "Social progress is lagging behind average prosperity, with dramatic weaknesses in environmental quality and the quality of basic education. Social policies have become less distortive, more targeted, and more focused on mobilizing bottom-up upgrading," said the report.

India's productivity growth has seen robust increase over the years and matched the gross domestic product (GDP) growth, it said, but labour mobilisation remains low, especially for women. "(Labour mobilisation) has been falling over time, especially since 2005 when job creation dramatically decreased... Large firms have driven productivity growth but not job creation and the majority of employees are stuck in small, low productivity, and low growth firms," said the report.

It also said that India has made headway in many areas. For instance, the country now produces sufficient electricity to serve nationwide demand, it said, and in education, enrolment rates have been going up and more children are being offered the opportunity of schooling.

"But the benefits of these improvements too often fail to materialize because of distorted market structures or inefficient governance and incentive systems," said the report.

It also pointed out that India performs well in terms of sophisticated dimensions of competitiveness, which usually include high skill industries like technology.

The report said that those industries that already have the assets and capabilities to compete globally are doing well. "Those that depend on more basic qualities of the business environment, however, find it hard to take the first steps towards the modern economy," it said.