India Anti-Competition

If one looks at the political discourse, there is no discussion whatsoever over the last almost decade on what it would take to create and maintain India’s competitiveness in the long-run. First half of the decade we were basking in the glory of the global run and then in the second half dealing with the political drift of the government.

During this period the world has changed immensely, where while demand is local and can be altered by government (fiscal stimulus) and central bank (low interest rates) policies but the supply chains have become global. Steel plants compete with their counterparts in China, Textiles with Vietnam and Bangladesh, Paper from Malaysia and Indonesia and so on. Consequently, there are 4 key aspects which will determine long-term competitiveness of an economy:

• Infrastructure (e.g. container ships turnaround time at Indian ports can be 3-6x Singapore ports);
• Land & housing (e.g. land cost impact project costs, rentals, people cost);
• Healthcare (e.g. while in the US the high healthcare costs are a drag, in India the quality of impacts productivity);
• Education.

These are large costs (implicit or explicit) where international supply chains cannot replace Indian cost and efficiency. We have seen very limited government focus all these aspects with politicians (as globally) celebrating massive increase in land & house pricing as indication of Indian prosperity little realizing they are massive proportion of the cost (capex & opex) structure and sub-component of wages. While India has seen growth in educational institutions, industry continues to complain about quality of entry manpower.

In addition, we continue to shy away from opening variety of markets except consumption markets (cars, water, chewing gums, coffee etc) like:

• Agricultural markets;
• Education;
• Retailing;
• Power distribution;
• Coal mining;
• Defence production.

Each of the above examples imposes significant costs and holds back economic efficiency. While certain markets may require support from the government but support cannot be perpetual and to prepare industry it is best done with a clear roadmap. Then, we have reversals recently like power sector tariffs being subsidized in Delhi then in Maharashtra.

A good thing that has transpired in recent years is that some states have begun competing with one another for improving governance; however, there is no bench-marking one to international standards. It is India’s myriad of regulatory arbitrages that keeps a large part of the elite and the current power structure going and they play their role in keeping things in status quo.

A focus on the 4 key long-term competitive factors coupled with graded opening of markets will substantially boost employment and raise the long-term trend growth of the economy. Question, of course, will the self-interested political class act? This is in some ways a manifestation of the way Indian political party’s work where the political class seeks to avoid competition, running their parties like fiefdoms. Further, India needs to increasingly use its large market like the US (NAFTA) to create mutual self-interest with its neighbours.

Edward Luke in an interesting article written in 1990 titled, From Geopolitics to Geo-economics: Logic of Conflict, Grammer of Commerce, wrote,”…World Politics is still not about to give way to World Business….Instead, what is going to happen - and what we are already witnessing - is a much less transformation of state action represented by emergence of “Geo-economics”.”

We as a country wait for each economic crisis to act and seem to be happy with the given moment as long as it is going well with no desire or willingness to act for the future.