An assessment of competitiveness of BRICS nations with special focus on India.

Rahul, Shalini ; Rahul, Manmohan ; Sahay, A. 等

Introduction

The competitiveness debate has been a topic of deliberation among scholars, academicians, policy makers and the like. For nearly four decades, there have been debates stretching from the definitions of competitiveness to measuring competitiveness of countries. The notion of competitiveness has for long been associated with the growth rate of a nation inspired by Adam Smith suggesting that specialization and division of labor triggers growth, while David Ricardo proposing that natural resources always impose a binding limit on growth opportunities of a nation. The contemporary understanding of competitiveness links it to global competition and integrated world economy. Moreover, the term being used in different contexts has resulted in providing different meanings to different people--on one hand it refers of a real exchange rate which would reflect a country's competitive strength in terms of its exports; while on the other hand it may mean a company's ability to win a market share without eliminating competition, since an expanding market can make room for more firms. Being an elusive and a controversial phenomenon, the notion of competitiveness has also become a rallying flag for governments and a battleground for real life economists opposing academic model makers (Castells, 2000). However, there is no denying the fact that, the importance of the concept of competitiveness has grown and has now become a central preoccupation of both advanced and developing economies. It is in this context that the Global Competitiveness Reports serve a useful purpose of examining and understanding economic issues underlying competitiveness of nations.

Objective of the Study

The BRICs (Brazil, Russia, India and China) have been acclaimed as lands of great opportunities and development by the Goldman Sach's Report published in 2003. Their growth rates, consumer spending and the currency evaluation was compared to the G6 nations and the BRICs have been predicted to surpass the G6 nations by the year 2050; thereby suggesting the importance of these 4 emerging economies in terms of shaping the global economy in near future. However, we propose that by analyzing a host of other indicators of competitiveness along with the macroeconomic conditions, we can fully appreciate the growth and opportunities of a nation. The paper aims at presenting a comparative analysis on competitiveness of BRICs countries on the basis of the 'Global Competitiveness Report' published in the year 2005. The study has been organized under the following heads--Section III describes the notion of competitiveness; section IV and V deal with the importance of competitiveness for BRICs; section VI describes the methodology and approach towards measurement of competitiveness; comparative rankings for the BRICs have been given under section VII; finally section VIII ends with the discussion and conclusion.

Defining Competitiveness

In early days, the concept of competitiveness was considered as a country's share of world markets for its products. Prof. Michael Porter (Porter: 2005) says that this view though being intuitive is deeply flawed because then competitiveness becomes a zero-sum game; as one country's gain comes at the expense of another. A deeper insight into this reveals a vicious cycle, that is--a country designs its policies to provide subsidies, hold down local wages, and devalue currency; to expand exports; but the end result is an unattractive standard of living. The concept of productivity is central to the understanding of competitiveness as it determines the standard of living of citizens. Productivity is measured by the value of goods and services produced per unit of the nation's human, capital and natural resources. Hence, productivity becomes the unit of analysis for determining competitiveness of a nation. Various authors have thus defined competitiveness in a number of ways--two of the most acceptable and quoted ones are given below:

Stephen Cohen, a great debater on competitiveness states

"Competitiveness has different meanings for the firm and for the economy. A nation's competitiveness is the degree to which it can, under free and fair market conditions, produce goods and services that meet the test of international markets while simultaneously expanding real incomes of its citizens. Competitiveness at the national level is based on superior productivity performance by the economy and the economy's ability to shift output to high productivity activities which in turn can generate high level of real wages".

The most often quoted definition has been given by the World Economic Forum, which says that, "Competitiveness is Collection of factors, policies and institutions which determine the level of productivity of a country and that, therefore determines the level of prosperity that can be attained by an economy". (Lopez-Claros: 2005, xiii)

So, competitiveness becomes the fundamental determinant of the level of prosperity a country can attain and therefore, it is measured by productivity which allows a nation to support high wages, a strong currency and attractive returns to capital all leading to a high standard of living. Thus we see that the world economy is not a zero sum game; and, the challenge for a country to improve its economic development is to create conditions for rapid and sustained productivity growth.

Importance of Competitiveness

Though Porter (2004) suggested that the traditional focus on macroeconomic stabilization and market opening is insufficient for understanding a nation's rising productivity; still most of the discussion on competitiveness and economic development is focused on the macroeconomic, political, legal, and social circumstances that underpin a successful economy. These broader conditions are necessary but not sufficient. They provide an opportunity to create wealth but do not themselves create wealth. Wealth is actually created at the microeconomic level of the economy, rooted in the capabilities of a nation's companies, as well as in the quality of the microeconomic business environment in which these companies compete. Macroeconomic policies encouraging high rates of capital investment will not translate into rising productivity unless the forms of investment are appropriate, the company skills and supporting industries are present to make the investment efficient and strong competitive pressures and adequate corporate governance provide the needed market discipline. Sound monetary and fiscal policies and removal of distortions in exchange rates and other prices will eliminate impediments to productivity, but microeconomic foundations must be in place if productivity is to rise.

The prudence of foreign debt levels also depends on exactly where the foreign capital is invested, together with the microeconomic fundamentals surrounding its deployment and governance. Similarly, high rates of public investment will not pay off unless a nation's microeconomic circumstances create the demand for skills in companies. Privatizations will not boost prosperity unless companies can improve efficiency and are pressured by local competition. Thus we see that a sound economic development is a process whereby a country not only has to improve its macroeconomic conditions but also has to simultaneously bring about microeconomic reforms.

Importance of BRICs

In the last few years, other than the developed nations, certain large developing countries such as Brazil, Russia, India, and China (BRICs); have acquired an important role in world economy as producers of goods and services, receivers of capital, and potential consumer markets (Cassiolato and Lundvall: 2005, 1). These four countries went through major institutional transitions and changes in their economic structure in the recent history. Around the middle of the twentieth century China witnessed its communist revolution, India became independent, and Brazil went into a period of 21 years of military regime, while the former Soviet Union came out of the Second World War as a major rival to the United States. Later on, during 1950's to 1970's, all these countries became inwardly focused and rather centrally planned their development strategies, but during 1980's and 1990's these were replaced by gradual integration in the global economy.

Goldman Sachs published a report in October of 2003, which focused the attention on the current and future global importance of Brazil, Russia, India and China. The report suggested that by 2050 the sum of the GDP of the four countries might surpass the sum of the G6 countries' GDP. By 2025, they could account for over half the size of G6. In 2003, they were estimated to be around 15 percent. They were worth US$3.1876 trillion (2002) in GDP and account for approximately 9 percent of the world's GDP. While these figures may not necessarily be large, they account for a large share of the world's total land area and population, approximately 29.7 percent of the world's total land (approximately 3,973 square kilometers) and approximately 43.3 percent of the world population (approximately 2.7 billion people, 2003). Furthermore, all countries are also endowed with natural resources such as mineral and biological resources. The following table 1 summarizes the shares of BRICs in GDP, land, population and other indicators

Quite recently, these 4 countries have made the investors take notice of them because MCSI Barra, a Morgan Stanley majority owned company has created a new equity index for BRICs, known as MSCI BRIC Index that includes 202 securities with a total market capitalization of about $420 billion (EM Investor, 2006). In a similar vein, Goldman Sach and Allianz Global have also set up BRIC funds, which indicate a wide acceptance of the BRICs concept and an investor appetite for opportunities in the 4 emerging economies. Also their increasing economic and geopolitical importance, and because of territorial and population size; they represent an enormous potential consumer market (Cassiolato and Lundvall: 2005, 3). The BRICs market could contribute 1.8 billion new consumers within the next twenty five years, as they are becoming increasingly wealthy, and wages and consumer spending is on the rise. This should result into a growth of middle class population, which is predicted to increase four fold in the next decade (Marketing week, 2006). China's affluent middle classes alone account for half a billion people, roughly equivalent to the size of the European Union.

A few other indiactors that prove that BRICs are having a growing impact on the world economy are that, between 2000 and 2005 BRICs contributed roughly twenty eight percent of global growth and fifty five percent in purchasing power parity terms. More than thirty percent of total world demand in past five years originated in the BRICs economies. Among the BRICs nations, intra-trade has gone up to eight percent of total trade from five percent in 2000. These nations hold thirty percent of world reserves, with China being the dominant contributor. Despite this reserve accumulation, real exchange rates in each country have appreciated over the last two years reflecting the group's key role in the healthy surplus savings. Nearly fifteen percent of the world FDI is flowing to these nations, up three times from 2000 levels. Also FDI outflow has risen more than six-fold to more than three percent of the global total. BRICs account for eighteen percent of global oil demand and their share is moving steadily (O'Neill, 2006).

Over the last few years the importance of these countries became even more evident as China took a lead role in world economic growth. Already at the end of the 1990s China ranked first in the world in the production of crude steel, coal, cement, fertilizer and TV-sets and second in the production of electricity, chemical fiber and cotton. Earlier these countries were primarily seen as sources of low-cost producers, but now they represent substantial growth opportunities for both MNC's and locally based firms. A survey conducted by the Price Waterhouse Coopers (2005) of 1410 CEO's worldwide revealed that China leads in cost reduction and increasing capacity. In second place, India with its relatively low labor cost levels outpaces Brazil and Russia as an expense-reducing destination. And it is India that ranks highest for accessing a highly skilled talent pool. An overwhelming 71 percent of CEO's said their company planned to do business in at least one of the BRICs countries over the next three years. 78 percent view china as the most significant market opportunity, followed by India (68 percent), Russia (48 percent) and Brazil (46 percent). China and India are also seen as posing the greatest competitive threat.

Research Methodology

It is in this interesting context, that a comparative study of the competitiveness of BRICs countries is required with a special focus on India. For this purpose we have used the Global Competitiveness Reports for the years 2004-2005 and 2005-2006, because the methodology adopted by these reports have a solid theoretical foundation and combines publicly available information and the results of an Executive Opinion Survey that was designed specifically for the needs of the study (Fendel and Frenkel: 2005, 29). GCR allows measurement and benchmarking of many critical factors like set of institutions, policies, and set of sustainable current and medium--term levels of economic prosperity. It is built around nine different pillars, each of which is critical to driving productivity and competitiveness in national economies.

These pillars are

1. Institutions,

2. Infrastructure,

3. Macro-economy,

4. Health and primary education,

5. Higher education and training,

6. Market efficiency,

7. Technological readiness,

8. Business sophistication,

9. and innovation.

The other important aspect of the Global CI is that it takes into account the fact that countries around the world are at different levels of competitiveness and economic development, and accordingly it treats the country by providing higher weightage to those sets of pillars, which are more important at that stage of development. Therefore, while all nine pillars may matter for all countries, the importance of each for national competitiveness depends on a country's particular stage of development. So, pillars are organized into 3 sub-indexes, each critical to a particular stage of development. The 3 sub-indexes are composed as follows Basic

Requirements Sub-index (Stage 1: Factor-driven)

* Institutions (pillar 1)

* Infrastructure (pillar 2)

* Macroeconomy (pillar 3)

* Health and basic education (pillar 4)

Efficiency enhancers Sub-index (Stage 2: Efficiency-driven)

* Higher education and training (pillar 5)

* Market efficiency (pillar 6)

* Technological readiness (pillar 7)

Innovation and Sophistication factor sub-index (Stage 3: Innovation--driven)

* Business Sophistication (pillar 8)

* Innovation (pillar 9)

We have taken data for many economic indicators and Global competitiveness Index for Brazil, Russia, China and India and then critically analyzed each factors individually for these BRIC's nation. The comparative tables have been prepared to show that which BRIC nation is doing well on different competitiveness indicator and what are the advantages and disadvantages they are having on similar economic factors. India's economic factors and its ranking along with its competitiveness index have been highlighted and then critically examined amongst BRICK's nation to assess India's competitiveness amongst BRIC nations.

The Competitiveness Ladder

The World economic Forum has been measuring national competitiveness and producing reports on competitiveness since 1979. Over these years, the methodology used to measure competitiveness has evolved, as nations have increasingly realized that successful economic development is a process of successive upgrading in which a nation's business environment evolves to support and encourage increasingly sophisticated and productive ways of competing by firms based there. Porter (1990) had also suggested that nations progress in terms of their competitive advantages and modes of competing, from being a factor driven economy to innovation driven economy, thus enhancing competitiveness at each stage.

[FIGURE 1 OMITTED]

Factor-Driven Stage

At the most basic level of economic development, resources, such as low-cost labor and access to natural resources, determine competitive advantage. Many developing countries and most of the least developed countries are mired in this stage. The export mix is extremely narrow and typically limited to low value-added products. Dependence on international business intermediaries is high, and margins are low and susceptible to swings in prices and terms of trade. Technology is assimilated through imports, imitation and foreign direct investment (FDI). At this stage the policy-makers usually design policies to attract capital investment and invest the proceeds of economic growth into the wider determinants of national competitiveness, specifically health, education and infrastructure. Such an economy is highly sensitive to world economic cycles, commodity prices, and exchange rate fluctuations. The factor driven stage includes countries that have GDP per capita below US$ 2,000 (India and China fall in this category).

Investment Driven Stage

This stage is a level above the factor-driven stage, where countries begin to develop competitive advantage by improving their efficiencies and developing increasingly sophisticated products. Improvements are made to imported technologies; there is extensive joint venturing and heavy investment in trade related infrastructure (roads, telecommunications and ports). The policy makers try to improve the business environment through revisions in regulatory arrangements (customs, taxation and company law). These help the prospective exporting firms to extend their capabilities within the international value chain. As the production shifts from commodities to manufacturing, sector level strategies seek to support greater value-addition nationally within the value chain. An investment driven economy is concentrated on manufacturing and on outsourced service exports. It is susceptible to financial crises and external, sector specific demand shocks. The efficiency driven stage includes countries with per capita income of US$ 3,000 to US$ 9,000 (Brazil and Russia fall under this category).

Innovation Driven Stage

At the final stage of competitiveness process, the country's competitive advantage lies in its ability to innovate and produce products and services at the frontier of global technology. The country strategy aims at technological diffusion and on establishing an increasingly efficient national environment for innovation. The emphasis is on supporting institutions and extending incentives that reinforce innovation within the business sector. Companies are encouraged to compete on the basis of unique strategies. The development of service export capacities is the priority objective. An innovation driven economy has a high share of services in the economy and is resilient to external shocks. The countries in the innovation driven stage have GDP per capita higher than US$ 17,000.

However, as pointed out by Peter Cornelius at the Executive Forum (2002) of the World Economic Forum "the transition through the different stages is not necessarily linear or gradual. Nor does it happen automatically" (Von Kirschbach: 2003). The nations have to make deliberate efforts to move up the competitiveness ladder.

This index also takes into account the fact that international competitiveness is subject to continuous changes. The fast development of ICT and simultaneous decline in communication costs have led to a sharp increase in the speed of economic integration in the world. Firms are increasingly being forced to base their decisions and strategies in a global perspective and have to respond creatively to such challenges. It is a robust index which represents an 'intelligent compromise between the need for complexity, reflecting the multiplicity of factors affecting the evolution of growth, on one hand; and the need for a structure that is transparent and simple enough that it can be estimated for a large number of countries' (Lopez-Claros et al: 2005, 21). For the year 2005--2006, the Global CI has been calculated for 117 countries of the world.

India Under Lens

India ranks 50th on the GCI (among the 117 countries) for the year 2005 as compared to last year, when it ranked 55. Let us now see how other BRICS-nations have performed on the GCI in the last two years (table-II).

It is interesting to note from the above table that India is the only country which has shown an improvement in its rankings among all the BRICS-nations. The GCI comprises of 3 indices viz. technology index, public institutions index and the macroeconomic index. Each of these three indices further comprise of sub-indices as shown below in the figure-1:

The growth competitiveness index ranks countries quite comprehensively on parameters that contribute to the productivity of nations. A comparative ranking of the BRICS on the three major indices is as follows

Again we see that among all nations, India is the only nation that has shown an improvement in its rankings for Technology Index. The improvement in the ranking can be attributed to the increasing inflows of FDI to skill and technology intensive sectors in the past few years. India also tends to gain from the absorption of technology though it is still far from the technological frontier and therefore it still relies on more of transfer of technologyrather than innovation.

Let us see what the other two indexes--Public institutions index and the macroeconomic index reveal for the BRICS nations. Table-IV and table-V summarize

The Competitiveness Ladder

As seen from the above tables that though the position of India in terms of Public Institution rankings has remained stable; in case of Macroeconomic environment index, it has improved slightly. The institutional weaknesses of India have not been addressed properly the government in the recent years, but India has started showing slight improvement in the fiscal adjustments and eliminating distortions in resource allocations, which can be seen in its improved ranking in the macroeconomic index.

These facts can also be seen in the comparative country profiles given in tables in appendix I. It contains all the parameters on which each country has been ranked and whether the country's rank on that parameter suggests a competitive advantage or a disadvantage for it, among all other nations.

The Business Competitiveness Index (BCI) is a complement to the medium-term, macroeconomic approach of the Growth Competitiveness Index. It evaluates the underlying microeconomic conditions defining the current sustainable level of productivity in each of the countries covered, the underlying concept being that, while macroeconomic and institutional factors are critical for national competitiveness, these are necessary but not sufficient factors for creating wealth. Wealth is actually created at the microeconomic level by the companies operating in each economy. The BCI evaluates two specific areas, critical to the business environment in each country: the sophistication of the operating practices and strategies of companies, and the quality of the microeconomic business environment in which a nation's companies compete. The idea is that, without these microeconomic capabilities, macroeconomic and institutional reforms will not bear full fruit (Lopez-Claros: 2005, xvi). As it is seen from the above table that, India's ranking has remained stable, whereas for the other countries, it has deteriorated.

Discussion and Conclusion

Since the global competitiveness Report is the most comprehensive report on international competitiveness of individual countries, it can be extensively used to understand the implications of policy changes being brought about as of now and what needs to be done in future. The study of BRICS nations has attracted enough attention among investors because of the growth potential that these countries offer. However, even among them, India seems to be forging far ahead than other nations, because of the overall improvement in its rankings.

Though India and china rank almost close to each other--fifty and forty nine, China has dropped by five ranks in last two years and India has moved up by six ranks. In case of china, the main worry seems to arise on the technology front and the deterioration in the perceived quality of the public institutions. However, the biggest disappointment for china seems to arise from its deteriorating scorecard on macroeconomic environment. Brazil has fallen by ten positions to sixty seven, largely due to the plunging indicators of public institutions. Businesses seem to be affected by weakly performing public institutions and government related decisions. Russia has overall shown slight deterioration in all indicators.

Some of the specific aspects examined for the BRICs-nations also reveal some interesting information. This is derived from the survey conducted among the managers and from the relative rankings of an economy with respect to some official data that enter the study of the World Competitiveness Report

The five most problematic factors for doing business in the BRICs-nations are given in Table-VII.

BRICs need a strong government intervention to overcome the weaknesses highlighted in the table, if they desire to improve their rankings.

The economic progress of India is being continuously witnessed--the GDP grew at 6.9 percent for the FY2004-2005. This has been attributed to improvements in investment as reflected in the leading macro indicators, such as production and imports of capital goods, production of commercial vehicles, and nonfood credit off take. Though the agricultural expansion was slow, but the industrial growth was quite robust. Manufacturing expansion was broad based, and high growth in different segments of textiles and garments was noteworthy, as the sector needs to maintain its productive efficiency in order to remain competitive in the post-MFA world. Such broad-based manufacturing expansion was supported by strong growth in key infrastructure industries such as energy and cement. Buoyant industrial growth reflects primarily a pickup in investment and consumption demand. The strengthening of business confidence and other leading indicators such as growth in nonfood credit, especially housing credit, as well as other commercial sectors, suggests that the high industrial growth will continue for quite some time. The services sector despite showing a slight decline has continued to witness expansion.

On the other hand, at the policy level, the federal Government intends to carry forward the reform process "with a human face." Significant policy initiatives bear on the fiscal reform proposals in the FY2005 federal budget and on social and rural development programs, including the rural employment guarantee scheme. Reforms in foreign trade and investment policies, credit policy, and the existing Patents Act were also initiated. The FY2005 budget also marks a major change in federal fiscal relations vis-a-vis the states, based on the recommendations of the Twelfth Finance Commission. Much of the growth-oriented fiscal reform relates to revenues. Indirect tax rates and direct tax liabilities have been significantly reduced; the tax base has been expanded, especially in terms of the coverage of services taxation; and a slew of exemptions have been abolished. These exemptions had been earlier identified by several committees as one of the major factors accounting for India's porous tax system and a relatively low tax-to-GDP ratio of only sixteen percent.

Though the national competitiveness balance sheet shows an improvement over the last year's; still India needs to take care of many other perceivable risks viz. the impact of new pay commission, high interest rates, rising criminality in Indian politics, and terrorist attacks among many others. However, many economists believe that these risks can be easily overcome by India, observing the strong economic fundamentals. They believe that the impact of the new pay commission would be just 1 percent of GDP; whereas a bigger damage to public finances--of around 2.5 percent of GDP--was caused by the move towards market determined interest rates and reductions in taxes that were part of tax reforms. Moreover, even a ten percent disinvestment in the listed Public Sector Enterprises could fetch around Rs. 63,000 crores; which is almost two percent of GDP (Ram Mohan: 2006, 10). It is also feared that the rising interest rates may spike growth. But as seen from the figures, investment has risen by nearly 8 percentage points over that in 2001--2002 whereas the interest rates have risen by little over 1 percentage point. An improvement in the public finances creates a downward pressure on rates. Talking of rising criminality in politics and terrorist attacks, economists believe that India has weathered greater threats in its history--linguistic riots of 60's, Naxalite revolt in 70's, Sikh separatism in 80's, and communal and caste tensions in the 90's. Also the nexus between the criminals and politics is not new to India, only that it has become more overt in the near past. But, sensitizing the public towards such undesirable linkages has started which in turn has created pressures on ruling parties to clean up the mess.

A comparative statement of the BRICs on the Growth Competitiveness Index showing the competitive advantages and disadvantages are shown in table-VIII:

India has started gaining attention of the world because of its growth rate of over seven percent, which has also contributed to reduction in poverty. It has also brought about significant improvement in its business environment and in the degree of sophistication in the private sector. However, the concern areas that need immediate attention are--high level of illiteracy and low enrollment rates; extent of bureaucratic red tape and excessive regulations; poor infrastructure; and, fiscal deficit problem.

China seems to be struggling on the macroeconomic front. Its ranking on the access to credit variable has dropped considerably and the strength of the demand has resulted in an acceleration of inflation in 2004. Also, low penetration rates of new technologies (mobile telephones, personal computers, internet use), and low enrollment rates for higher education. China has been particularly successful in elimination gross distortions in resource allocation and move to more open and better policies. China has also introduced several structural transformations including a massive process of urbanization, but it needs to address its institutional deficiency at the earliest.

Brazil continues to be plagued by the quality of its public institution. Business confidence may have been adversely affected by a weakening of the ruling party's coalition in the wake of bribery scandals and other events, which have cast the underlying strength of the country's public institutions in an unfavorable light. Therefore, Brazil also depicts a weak performance with regards to judicial independence, wastefulness of government spending and favoritism in the decisions of government officials.

Russia too needs to look seriously into its institutional and structural reforms, to improve its public institutions and judicial and legal climate. But Russia's most notable strength lies in her world-class research in basic sciences, especially mathematics and physics.

Table-IX finally summarizes the competitive strengths and weaknesses for BRICs for various items, considered important for promoting business competitiveness

Challenges for the BRICs ...

Though India and china continue to maintain a high single digit real GDP growth, Brazil and Russia lag behind. A major reason for both these countries to have a slower growth could be their immense dependence on commodities at the expense of value-added sectors. Commodities could support these economies for the time being but sooner they would have to diversify into more productive areas. Russia could also face a problem of declining population which the UN believes could fall by twenty two percent from 143.2 million in the year 2005 to 111.8 million by 2050.

For BRICs, the emergence of a sizeable middle class is an important determinant of durability of economic growth and reform. Middle class has been believed to be a force of stability and driver of domestic and import consumption. A decline in the middle class can lead to political instability and threatened reform process as it happened in Russia in 1990's. An observation by Business Monitor International is that even though the BRICs may join the world's top 10 economies, their citizens will still be poorer than the average citizen in the traditional G7 economies on the per capita basis. However, the sheer number of consumers in BRICs countries may command a greater influence on global consumption patterns than those in the G7.

BRICs are all quite huge in size and exhibit economic inequalities among regions. China's growth is largely driven by cities in the southeastern seaboard, leaving most of the western and central regions underdeveloped. Same is the case with India, where few states are considerably well off and the rest are extremely poor and have made no initiative to embrace IT revolution. Some cities like Mumbai signify new India but the rest are struggling to meet the growing demands for the citizens and are plagued by infrastructural problems. Agriculture still generates twenty two percent of India's GDP and provides livelihood for two-thirds of population. In Brazil, the richest regions are around Sao Paulo and Rio de Janeiro, whereas the rest are still poor. Thus infrastructure offers one way of reducing imbalances but the cost is prohibitive.

Given the size of the BRICs and their multiethnic culture, they seem quite vulnerable to separatism, fragmentation and ethnic/religious disputes. China has already witnessed fragmentation, and Russia consisting of different nationalities has faced issues of separatism. India has been known for its multi-language and multi-religious tolerance, but had to face communal violence a number of times in recent years. Such issues might constrain the economic growth to a certain extent.

The Global Competitiveness Report provides a comprehensive understanding of the competitiveness of a nation, because of its sound theoretical and detailed empirical investigation. Our attempt to discuss the relative performance of India among the BRICS nations has revealed some very interesting insights. Among the BRICS--nations, India seems to be doing better than others on almost all the indicators. Over the last year, its rankings on all parameters have either improved or remained stable. Inspite of this fact, all the four BRICs nations need to improve a lot all the indicators of competitiveness--the quality of public institutions, macroeconomic environment and the use and absorption of technology.

However, given the fact that the Indian economy is improving, the policy makers can further this improvement by undertaking necessary steps to promote higher productivity and competitiveness. Simply by looking at the competitive strengths and weaknesses profiles, the policy makers get enough indication of the areas where reforms may be necessary to bring about the desired change. For instance, investment in infrastructure and modifying the bureaucratic set up could result in making India move up higher in the competitiveness ladder.

References

1. Cassiolato J. and Lundvall Bengt-Ake, The BRICS-Project: First Draft of Position Paper, at www.globelics.org, 2005.

2. Castells, M, 'the Rise of the Network society' Vol 1, Pg. 98-99, Blackwell Publishing, USA, 2000.

3. Emerging Markets Monitor, July 4, Vol. 11, No. 13, pg. 1-2, 2005.

4. Export Focus, June 2006, pg. 59.

5. Fendel R. and l Frenkel M., The International Competitiveness of Germany and other European Economies: the Assessment of the GCR, Intereconomics, Jan/Feb 2005; 40, pg. 29-36, 2005.

6. India, Asian Development Outlook, pg. 140-146, 2004-2005.

7. Insight Brics-Emerging onto the world stage, Marketing Week, vol.30, Feb.2, 2006, pg. 30-31.

8. Lopez-Claros A., Executive Summary, Global Competitiveness Report 2005-06, pg. xiii-xxvii, 2005.

9. Lopez-Claros A., Blanke J., Drzeniek M., Mia I., and Zahidi S., Policies and Institutions Underpinning Economic Growth: Results from the Competitiveness Indexes, Global Competitiveness Report 2005-2006, pg. 3-37, 2005.

10. O'Neill, J, (2006) 'The World, BRICs Dream and India', Siliconindia, May 10-11, 2006.

11. Porter M., Building the Microeconomic Foundation of Prosperity: Finding from the Business Competitiveness Index, Global competitiveness Report 2005-2006, pg. 43-47, 2005.

12. Ram Mohan T T, Risks to economy not worrisome-The Big Picture, Economic Times, March 23, 2006, pg. 10.

13. Von Kirchbach F., 'A Country's competitive Advantage', International Trade Forum, Issue 1, pg.6-7, 2003.

14. Wilson, D, (2005), 'The BRICs Have Arrived: A growing New Force in Global Markets' Institutional Investor International Edition, vol. 30, issue 3, Mar 2005.

Ms Shalini Rahul FPM Scholar, Management Development Institute, Gurgaon.

Dr Manmohan Rahul Associate Professor, Ansal Institute of Technology, Gurgaon.

Prof A Sahay Chairperson(Strategy), Management Development Institute, Gurgaon.

Table-I
Percentage share of the BRICS nations in global GDP, land,
population, oil production, coal production and exports.
All the figures are taken for the year 2004.

percent share Brazil Russia India
in Global (percent) (percent) (percent)

GDP 1.41 1.68 1.64
Land 5.93 13.76 2.48
Population 3 2 17
Oil Production 0.94 6.07 0.47
Coal Production 0.06 4.67 6.91
Exports 1.11 2.37 0.73

percent share China Total
in Global (percent) (percent)

GDP 4.07 9.23
Land 6.67 29.70
Population 20 43
Oil Production 1.44 9.25
Coal Production 36.23 52.88
Exports 7.28 12.01

Source: World Economic Data Year 2006

Table-II
Comparative GCI Rankings for BRICS

Nations 2005 2004

Brazil 67 (DOWN) 57
Russia 75 (DOWN) 70
India 50 (UP) 55
China 49 (DOWN) 46

Source: World Competitiveness Report Year 2006,
published under Global Competitiveness Institute

Table-III
Comparative rankings on Technology Index

Nations Technology Innovation Technology Information and
 index sub-index transfer communication
 sub-index Technology
 sub-index

 2004 2005 2005 2005 2005

Brazil 42 50 68 18 52
Russia 67 73 29 76 62
India 63 55 76 6 67
China 62 64 75 43 60

Source: World Competitiveness Report Year 2006,
published under Global Economic Forum

Table-IV
Comparative rankings of the BRICS on Public Institutions Index

Nations Public Contracts & Law Corruption
 Institutions Sub-index Sub-index
 Index

 2004 2005 2005 2005

Brazil 50 70 77 62
Russia 89 91 109 76
India 52 52 37 78
China 55 56 62 50

Source: World Competitiveness Report Year
2006, published under Global Economic Forum

Table-V
Comparative Rankings of the BRICS on Macroeconomic
Environment Index

Nations Macroeconomic Macroeconomic Government Country
 environment Stability Waste Credit
 Index Index Rating

Years 2004 2005 2005 2005 2005

Brazil 80 79 81 111 62
Russia 56 58 42 93 54
India 52 50 41 63 53
China 24 33 27 44 37

Source: World Competitiveness Report Year 2006,
published under Global Economic Forum

Table-VI
Comparative BCI Rankings for the BRICS

Nations Business Company Quality of the
 Competitiveness operations and national business
 Index strategy rankings environment ranking

 2004 2005 2004 2005 2004 2005

Brazil 38 49 29 32 44 52
Russia 61 74 62 77 60 70
India 30 31 30 30 32 31
China 47 57 39 53 47 58

Source: World Competitiveness Report Year 2006,
published under Global Economic Forum

Table-VII
The Five Most Problematic Factors in d Business in BRICS Nations.

S.no. Brazil

1 Tax Rates
2 Tax Regulations
3 Inefficient Government Bureaucracy
4 Access to financing
5 Restrictive labor regulations

S.no. Russia

1 Corruption
2 Tax Regulation
3 Inefficient government bureaucracy
4 Access to financing
5 Government Regulation

S.no. India

1 Inadequate supply of infrastructure
2 Inefficient government bureaucracy
3 Restrictive labor regulations
4 Corruption
5 Tax regulations

S.no. China

1 Corruption
2 Inadequate supply of infrastructure
3 Access to financing
4 Inefficient government bureaucracy
5 Policy instability

Source: World Competitiveness Report Year 2006,
published under Global Economic Forum

Table-VIII
The Growth Competitiveness Index for BRICs
(competitive advantage and disadvantage)

Notable Competitive advantages and Brazil
Disadvantages

* A advantage and D disadvantage Rank AorD

Real Effective Exchange Rate, 2004 8 A
Recession Expectations 42 A
National Savings Rate, 2004 43 A
interest Rate Spread, 2004 115 D
Wastefulness of government spending, 2004 111 D
Inflation, 2004 83 D
Access to Credit 69 D
Government surplusldeficit, 2004 68 D
Country credit rating, 2004 62 D
Government debt, 2004 59 D
Quality of Competition in the ISP sector 27 A
Company spending on R&D 29 A
FDI and Technology Transfer 31 A
Internet hosts, 2003 36 A
Prevalence of Foreign Technology licensing 37 A
Universityhndustry research collaboration 40 A
Laws relating to ICT 44 A
Firm-level technology absorption 46 A
Utility Patents, 2004 50 A
Government prioritization of ICT 75 D
Gross tertiary enrollment 74 D
Internet access in schools 64 D
Cellular telephones, 2003 64 D
Government success in ICT promotion 58 D
Internet users, 2003 57 D
Personal Computers, 2003 57 D
Technological readiness 56 D
Telephone lines, 2003 55 D
Organized Crime 99 D
Irregular Payments in tax collection 74 D
Judicial independence 72 D
Favoritism in decisions of government officials 69 D
Property rights 60 D
Irregular Payments in exports and imports 58 D
Irregular payments in public utilities 58 D

Notable Competitive advantages and Russia
Disadvantages

* A advantage and D disadvantage Rank AorD

Real Effective Exchange Rate, 2004 111 D
Recession Expectations 83 D
National Savings Rate, 2004 20 A
interest Rate Spread, 2004 77 D
Wastefulness of government spending, 2004 93 D
Inflation, 2004 103 D
Access to Credit 61 D
Government surplusldeficit, 2004 9 A
Country credit rating, 2004 54 D
Government debt, 2004 19 A
Quality of Competition in the ISP sector 81 D
Company spending on R&D 43 A
FDI and Technology Transfer 98 D
Internet hosts, 2003 52 D
Prevalence of Foreign Technology licensing 101 D
Universityhndustry research collaboration 42 A
Laws relating to ICT 79 D
Firm-level technology absorption 63 D
Utility Patents, 2004 39 A
Government prioritization of ICT 91 D
Gross tertiary enrollment 12 A
Internet access in schools 55 D
Cellular telephones, 2003 65 D
Government success in ICT promotion 99 D
Internet users, 2003 66 D
Personal Computers, 2003 52 D
Technological readiness 77 D
Telephone lines, 2003 46 A
Organized Crime 101 D
Irregular Payments in tax collection 69 D
Judicial independence 102 D
Favoritism in decisions of government officials 106 D
Property rights 108 D
Irregular Payments in exports and imports 83 D
Irregular payments in public utilities 78 D

Notable Competitive advantages and India
Disadvantages

* A advantage and D disadvantage Rank AorD

Real Effective Exchange Rate, 2004 63 D
Recession Expectations 3 A
National Savings Rate, 2004 38 A
interest Rate Spread, 2004 60 D
Wastefulness of government spending, 2004 63 D
Inflation, 2004 57 D
Access to Credit 1 A
Government surplusldeficit, 2004 116 D
Country credit rating, 2004 53 D
Government debt, 2004 69 D
Quality of Competition in the ISP sector 24 A
Company spending on R&D 27 A
FDI and Technology Transfer 34 A
Internet hosts, 2003 99 D
Prevalence of Foreign Technology licensing 7 A
Universityhndustry research collaboration 36 A
Laws relating to ICT 43 A
Firm-level technology absorption 19 A
Utility Patents, 2004 56 D
Government prioritization of ICT 9 A
Gross tertiary enrollment 91 D
Internet access in schools 49 A
Cellular telephones, 2003 108 D
Government success in ICT promotion 11 A
Internet users, 2003 95 D
Personal Computers, 2003 99 D
Technological readiness 28 A
Telephone lines, 2003 95 D
Organized Crime 43 A
Irregular Payments in tax collection 75 D
Judicial independence 23 A
Favoritism in decisions of government officials 53 D
Property rights 32 A
Irregular Payments in exports and imports 72 D
Irregular payments in public utilities 83 D

Notable Competitive advantages and China
Disadvantages

* A advantage and D disadvantage Rank AorD

Real Effective Exchange Rate, 2004 54 D
Recession Expectations 26 A
National Savings Rate, 2004 2 A
interest Rate Spread, 2004 22 A
Wastefulness of government spending, 2004 44 A
Inflation, 2004 59 D
Access to Credit 105 D
Government surplusldeficit, 2004 57 D
Country credit rating, 2004 37 A
Government debt, 2004 28 A
Quality of Competition in the ISP sector 40 A
Company spending on R&D 31 A
FDI and Technology Transfer 57 D
Internet hosts, 2003 93 D
Prevalence of Foreign Technology licensing 71 D
Universityhndustry research collaboration 26 A
Laws relating to ICT 56 D
Firm-level technology absorption 37 A
Utility Patents, 2004 58 D
Government prioritization of ICT 56 D
Gross tertiary enrollment 85 D
Internet access in schools 54 D
Cellular telephones, 2003 69 D
Government success in ICT promotion 40 A
Internet users, 2003 70 D
Personal Computers, 2003 80 D
Technological readiness 68 D
Telephone lines, 2003 58 D
Organized Crime 65 D
Irregular Payments in tax collection 59 D
Judicial independence 65 D
Favoritism in decisions of government officials 59 D
Property rights 71 D
Irregular Payments in exports and imports 47 A
Irregular payments in public utilities 52 D

Source: World Competitiveness Report Year 2006,
published under Global Economic Forum

Table-IX
Competitive Strengths and Weakness for BRICs for Promoting Business
Competitiveness)

BRAZIL

Competitive Strengths Competitive Weaknesses

Company spending on R&D Nature of competitive
 advantage
Breadth of international markets Presence of value chain
Local availability of Degree of customer orientation
 process machinery
Stringent environment regulations Duality of math and science
 education
Locally available specialized Duality of public schools
 research and training services
Low business cost of terrorism Extent and effect of taxation
Prioritization of energy efficiency Efficiency of tax system
Agricultural policy costs Burden of government regulation
Financial market sophistication Business costs of crime and
 violence
Extent of business Internet use High informal sector
Effects of privatization on Hiring foreign labor-difficult
 competition and the environment
Postal efficiency High diversion of public funds
Prevalence of corporate Low flexibility in wage
 environmental reporting determination
 High diversion of public funds
 Public trust of politicians
 Ineffective law making bodies
 Unreliable police services
 High trade barriers

RUSSIA

Company spending on R&D high Low prevalence of foreign
 technology licensing
High capacity for innovation Value chain presence
Extent of incentive compensation Nature of competitive advantage
Locally available process machinery Protection of minority
 shareholders' interest
High quality of math and High foreign ownership
 science education restrictions
Highly developed railroad High business costs of
 infrastructure corruption
Flexible wage determination Agricultural policy costs
Hiring and firing practices Effects of privatization on
 competition and environment
Quality of scientific Importance of environment on
 research institutions business planning
Pay and productivity Burden of government regulation
Locally available specialized High informal sector
 research and training services
Efficacy of corporate boards Difficulty in hiring foreign
 labour
Availability of scientists Government ineffective in
 and engineers reducing poverty and
 inequality
 High money laundering through
 banks
 Low grass-root involvement
 in development projects
 Impact of rules on FDI
 Protection of ecosystem by
 business
INDIA

Prevalence of foreign Low extent of regional sales
 technology licensing
Breadth of international markets Nature of competitive advantage
Value chain presence Low customer orientation
Availability of scientist Low Internet users
 and engineers
Easy access to equity markets Poor quality of electricity
 supply
Effects of privatization on High business costs of
 competition and environment terrorism
Extent and effect of taxation Agricultural policy costs
Business cost of crime and violence Burden of government regulation
Law-making bodies effective High informal sector
Quality of management schools Difficulty in hiring foreign
 labour
Intensity of local competition Low public trust of politicians
High quality of scientific High tax burden
 research institutions
Freedom of press Hiring and firing practices
Centralization of economic Medium term business impact
 policy making of HIVIAIDS
Locally available process Medium term impact of
 machinery tuberculosis
Strong auditing and Private sector employment
 accounting standards of women
 Irregular payments in public
 contracts
 Bureaucratic red tape

CHINA

Company spending on R&D Prevalence of foreign
 technology licensing
Breadth of international markets Low reliance on professional
 management
High capacity for innovation Poor quality of electricity
 supply
Locally available process machinery Bureaucratic red tape
Government procures advanced Low protection of minority
 technology products shareholders' interest
Centralized economic policy making Efficacy of corporate boards
Energy efficiency considered Financial markets lacking
 priority sophistication
Agricultural policy costs Effect of privatization on
 competition and environment
Burden of government High tax burden
 regulation--low
High public trust of politicians Trade barriers still high
Hiring and firing practices Freedom of press
High local competition Weak auditing and accounting
 standards
Pay and productivity Soundness of banks doubtful
Government effective in Access to loans difficult
 reducing poverty and inequality
Locally available specialized Environmental regulation weak
 research and services
 Access to local equity
 markets difficult