India Economic Summit2008

India Economic Summit
Securing India’s Future Growth
New Delhi, India 16-18 November 2008

Report

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Contents

Page 3
Preface

Page 4
Executive Summary: Securing India’s Future Growth

Page 8
Global Shifts

Page 12
Managing Risks

Page 16
Inclusive Growth

Page 20
Future Competitiveness

Page 24
Acknowledgements

1 | India Economic Summit

Preface

The 24th India Economic Summit, under the theme In this spirit of generating insight and shaping India's
Securing India's Future Growth, took place in a agenda, the India Economic Summit programme
context of global uncertainty. At the outset of the tapped into the collective intellect, on-the-ground
Summit, the impact of the global financial crisis had experience and global insight of its community of
experts correcting growth forecasts for 2008-2009 to stakeholders. For the third year in a row, the Summit
less than 8% as the current account deficit widened served as an occasion to launch the India@Risk report
and exports began to fall. This represented a stark in collaboration with the Confederation of Indian
contrast from the simple average growth rate of 9.2% Industry (CII). And, for the fourth consecutive year, the
over the last three years. Schwab Foundation for Social Entrepreneurship
presented the India Social Entrepreneur of the Year
Notwithstanding the global and domestic challenges, Award. We look forward to continuing to build on
even these lower forecasts place India among the these successful initiatives in the coming years.
world’s fastest growing economies. India's vast
domestic consumer market and large pool of highly As you read the key points and data presented in this
skilled talent speak to the country's tremendous report, we welcome your thoughts and suggestions as
potential to weather changing realities. Its demographic we prepare the programme for the 25th India Economic
dividend, with one of the world's youngest populations, Summit, which will take place on 8-10 November 2009.
holds the promise to further transform India into a The challenges faced by India – and the world, for that
manufacturing and agricultural powerhouse. matter – are more complex, interrelated and intractable
than ever before. With 25 years of commitment to
In this context, the mood at this year's Summit was not addressing these challenges, we hope that the India
characterized by quot;doom and gloomquot; but, rather, a sense Economic Summit will continue to serve as an important
of urgency and commitment to ensure that leaders platform for stimulating thought and creative solutions.
across India act quickly to capitalize on its competitive
advantages. As the first major international gathering We would also like to express our shock and sadness
of leaders from business and government following the at the terrorist attacks that took place in Mumbai one
G20 Summit in Washington DC, discussions focused week after the Summit, representing a futile attempt to
on requirements to step up productivity, upgrade undermine peace, stability and growth in India. Our
infrastructure, reform healthcare and education systems thoughts are with the victims, whose tremendous loss
and improve the financial architecture. And, although will not be forgotten.
deliberations examined these near-term challenges,
securing India's future growth was also discussed in
terms of the measures required to balance India's Sushant Palakurthi Rao
growing energy needs, protect the environment, better Director, Head of Asia
regional relations and drive inclusive growth. World Economic Forum


Executive Summary:
Securing India’s Future Growth

“Even if you take growth at 7%, it is 2% The Summit highlighted how much of the agenda for
India to grow and prosper remains the same, the
less than what we have had but still
financial crisis and the terrorist attacks
higher than what we had four years notwithstanding. The priorities include the need to
ago. This is not an Indian crisis. We are address the lack of adequate infrastructure, the
being impacted by a global crisis.” importance of pushing reforms to create an authentic
single market, and the critical necessity of investment
in education and skills development. Even as
Montek S. Ahluwalia, Deputy Chairman, Planning Commission,
recession hits developed countries and some
India
economies in Asia, India is still expected to have
relatively strong growth. “This is not the time to have a
The 24th India Economic Summit was the second wake,” said Rajat M. Nag, Managing Director-General,
World Economic Forum regional meeting since the Asian Development Bank, Manila. It is imperative, he
outbreak of the global financial crisis in September added, that India continues to invest in infrastructure,
when investment bank Lehman Brothers collapsed, health and education, “rather than panicking and
triggering turmoil in international markets. More than forgetting the future.” He warned, however, that it is
650 business, government and civil society leaders crucial that India and other Asian nations pay attention
from 35 countries gathered in New Delhi under the to people living at subsistence level; the crisis may
theme of “Securing India’s Future Growth” to discuss push them below the poverty line. Inclusive growth is
not just the quickly unfolding situation but also the a paramount concern.
long-term impact of what has been described as the
worst economic slump since the Great Depression. In
“What the country needs today is a
addition, they discussed the many other risks to
India’s continued high growth, including terrorism. focused, single-minded policy on
Days later, the terrorist attacks in Mumbai shocked the
agriculture, not a fragmented policy.”
nation and the world, underscoring the danger to
India’s stability and progress from such asymmetric
threats. Rajshree Pathy, Chairman and Managing Director, Rajshree
Sugars & Chemicals, India


“We have to look at how the growth issues, given the limited membership of the G7. This
was an important message, given the enormity of the
process affects every section of society.
crisis and the need for global cooperation to address
The real India is also 300 million people its impact. To adequately address the economic
[living on] less than one dollar a day.” turmoil and other urgent international priorities, “we
must have multistakeholder involvement,” stressed
Klaus Schwab, Founder and Executive Chairman of
Kamal Nath, Minister of Commerce and Industry of India
the World Economic Forum. “You cannot solve all
global issues on the basis of defending only national
The Summit was also the first opportunity for interests and making compromises later. We need
participants to hear directly from senior Indian global solutions.”
government leaders after the G20 meeting on the
financial crisis in Washington DC. Both Finance The India Economic Summit, convened in partnership
Minister Palaniappan Chidambaram and Montek S. with the Confederation of Indian Industry (CII), was
Ahluwalia, Deputy Chairman, Planning Commission, organized under four sub-themes: Global Shifts,
India, stressed that the G20 has become the premier Managing Risks, Inclusive Growth and Future
forum for global action on economic and financial Competitiveness.

“We should not forget that the system “The G7 has recognized belatedly that
of free markets and liberalization they alone don’t have the solutions to
enabled billions of people to move out all the problems. The G20 has come to
of poverty. The future will be the age of stay as the single most important forum
entrepreneurship.” to address the financial and economic
issues of the world.”
Klaus Schwab, Founder and Executive Chairman, World
Economic Forum Palaniappan Chidambaram, Minister of Finance of India


Managing Risks
“What we have is a few things that went
wrong, risk management issues that
The global financial crisis and terrorist attacks in major
have gone bad.”
Indian cities illustrate how India must cope with the
multiplicity of risks, both known and unknown.
Jeffrey Joerres, Chairman and Chief Executive Officer,
• The unfolding global financial crisis and threat of
Manpower, USA; Co-Chair of the India Economic Summit
terrorism will be major tests of India’s economic and
social resilience in the coming months.
Global Shifts • The risk picture presented by government officials
differed to varying degrees from that painted by
The unfolding international financial crisis is likely to business and civil society. This suggests a
transform the global economy and accelerate the shift divergence in perception that may undermine India’s
of economic power and influence to Asia, particularly effectiveness in managing risks.
the high-growth economies of India and China. • Political risk is a another concern as India heads
towards a general election at a time when it is
• India and other emerging economies are already confronted by multiplying risks generated by the
poised to surpass developed markets as a economic crisis and heightened concern for
percentage of the world economy. security.
• While global growth could moderate to just 2.2%,
India’s growth will also slow from 9% to about 7%.
“It will get worse for quite a while
The problem factors that caused the crisis in the US
longer. Unemployment will worsen for
are not present in India.
the next six months. It is inevitable.”
• For India to be a global leader and maintain its high
level of growth, business and government must partner
to develop skills-based educational programmes Henri A. Termeer, Chairman, President and Chief Executive
that entice Indians to stay, or return, home. Officer, Genzyme Corporation, USA; Co-Chair of the India
• India’s young politicians are leading a host of Economic Summit
changes in the economy and society, from
redesigning the education system to the
development of new sources of energy.


“Competitiveness will be the key driver;
Inclusive Growth
protectionism will be dangerous if it
India lags behind other major emerging markets in the
comes in the way of entrepreneurship.”
percentage of its population living in poverty.

• To foster inclusive growth, business, civil society B. Ramalinga Raju, Founder and Chairman, Satyam Computer
and government must collaborate to redesign Services, India; Co-Chair of the India Economic Summit
education curricula, democratize and improve
healthcare and harness growth industries such as
tourism and mobile communications to include a
broad range of social sectors.
• As the Indian economy shifts from domination by
agriculture to more services and manufacturing, a India ranks 50th in the World Economic Forum’s latest
new generation of rural Indians needs a new set of Global Competitiveness Index. To improve its
skills. performance, the country must address the
• Malnutrition and the lack of affordable healthcare infrastructure deficit, invest in education and training to
remain significant challenges for India. narrow the skills gap, remedy inefficiencies in the
• Government alone cannot carry the burden; agriculture sector, improve governance to allow for
business needs to be involved. more coherent policies and implement reforms to
• New drivers of growth such as mobile telephony create an authentic single market.
and tourism could hold the key to spreading the
benefits of Indian prosperity more widely. • India needs to better harness its considerable talent
pool.
• The country has to address its gaping infrastructure
“India will continue to be a magnet
deficiencies, including its IT networks and the
for capital.” connectivity of its population.
• Reforms in India are implemented slowly due to a
bottom-up approach that often leads to half-baked
James H. Quigley, Global Chief Executive Officer, Deloitte, USA;
policies. Real implementation requires investment.
Co-Chair of the India Economic Summit
• To increase its global competitiveness, India must
not only create an authentic single market within its
borders, but must also tap the synergies it shares
with its South Asian neighbours.


Global Shifts

“From our young sportsmen, our young The unfolding global crisis will bring many changes
both within and beyond India. If appropriately met, the
businessmen, our young politicians,
current challenges present the country with enormous
hopefully we are going to have more opportunities to assert itself as a global leader. India
than one Barack Obama!” and other emerging economies are already positioned
to surpass developed markets as a percentage of the
world economy. Closely tied to this economic shift is a
Rahul Bajaj, Chairman, Bajaj Auto; Member of Parliament, India
rapidly changing labour market and an internal political
realignment in India, paralleling developments in the
“This is probably the first transformational crisis of our West, in particular the United States.
globalized age, and many things will change,” said
Klaus Schwab, Founder and Executive Chairman, The International Monetary Fund estimates that global
World Economic Forum, during his closing remarks at growth could moderate to just 2.2%. While India will
the World Economic Forum’s Annual Meeting of the surely slow down from the 9% of recent years, it still
New Champions 2008 last September in Tianjin, outpaces most developed markets. Some observers
People’s Republic of China. “The future will be the age worry that India could succumb to the spreading
of entrepreneurship,” he added in New Delhi on the crisis. Yet many others see strong investment
opening day of the Indian Economic Summit. And opportunities, resulting from more reasonable
India, with a vibrant entrepreneurial sector and a valuations. “In every adversity there is an opportunity,”
young population, is positioned to lead in that future. said Ghanshyam Dass, Managing Director, NASDAQ,
India.

The rise of emerging economies In contrast to other credit markets, India’s financial
sector is tightly regulated and well capitalized,
Share of global GDP
(real GDP US$ trillions at 2005 prices and PPP)
,

particularly as one-third of all bank deposits are
160 CAGR
Emerging markets
(2007-2030)
parked with the government. “The fundamentals that
Developed markets
140

led to the global crisis do not exist in India,” declared
120

61%
100 4.6%

80

“I’m very grateful to be sitting here in
57% `

60
48%
this market compared to many others.”
40 41%
39%
38%
2.1%
43%
20
52%
59%
62%
0
L. Brooks Entwistle, Managing Director and Chief Executive
1990 2000 2007 2020F 2030F

Office, Goldman Sachs, India
Source: Economist Intelligence Unit


“Seven to eight per cent GDP growth is Fundamentally, the crisis will increase India’s relative
value within the global economy. And as transnational
still a wonderful place to invest capital.
principles of transparency and accountability are
People would be crazy to walk by this.” hashed out, India should be a part of the
conversation. “This economy needs India at the table,”
said James H. Quigley, Global Chief Executive Officer,
Stephen J. Rohleder, Chief Operating Officer, Accenture, USA
Deloitte, USA; Co-Chair of the India Economic
Summit. “It’s about the G20, not about the G7 or G8.”
K. V. Kamath, Managing Director and Chief Executive
Officer, ICICI Bank; President, Confederation of Indian Nominally, India’s chief exports remain textiles and, of
Industry (CII), India. L. Brooks Entwistle, Managing course, tea. But of far greater value are the five million
Director and Chief Executive Office, Goldman Sachs, Indians working abroad at any given time. This export
India, added: “I’m very grateful to be sitting here in of human resources has led to what Jeffrey Joerres,
this market compared to many others.” Chairman and Chief Executive Officer, Manpower,
USA; Co-Chair of the India Economic Summit, labels
Nevertheless, Indian credit markets have suffered, “India’s global brand”. Declared Joerres: “India is the
capital flow will slow down for the next 24 months and place for talent.”
pessimism lingers. “I strongly believe that we are in the
midst of a huge crisis,” said Pramod Bhasin, President And yet, conversely, massive emigration has left the
and Chief Executive Officer, Genpact, India. “If you go Indian homeland with a marked talent shortage. An
around and talk to people in small-scale enterprises, outmoded educational system means that Indian
the story is dismal.” workers are woefully unprepared for the needs of the
modern Indian economy. “There are hundreds of
But for smart entrepreneurs and savvy investors, India thousands of history graduates who don’t have any
remains attractive. “For those companies who’ve employability,” lamented Arbind Singh, Executive
worked on their scale and ‘deleveraged’ their balance Director, Nidan, India. Meanwhile, the Indian
sheets, it’s a superb time,” said Manish Kejriwal, construction and nursing industries have seen most of
Senior Managing Director, Temasek Holdings, India; their best and brightest migrate overseas.
Young Global Leader. “Seven to eight percent GDP
“In every adversity there is an
growth is still a wonderful place to invest capital,” said
Stephen J. Rohleder, Chief Operating Officer, opportunity.”
Accenture, USA. “People would be crazy to walk by
this.” Ghanshyam Dass, Managing Director, NASDAQ, India


“For those companies who’ve worked such as Naveen Jindal, Member of Parliament, India;
Young Global Leader, and Deepender Singh Hooda,
on their scale and ‘deleveraged’ their
Member of Parliament, India, are leading change. But
balance sheets, it’s a superb time.” for India to break free from bureaucracy and realize its
full democratic potential, it will take a broad-based
movement. “What makes me a little more confident in
Manish Kejriwal, Senior Managing Director, Temasek Holdings,
my belief is you guys!” said Hooda. “You guys want
India; Young Global Leader
change. If enough Indians across all age groups want
change, change is going to happen.”
For India to be a global leader and maintain its high
level of growth, business and government must Like the US presidential polls this year, the Indian
partner to develop skills-based educational general elections in 2009 could be a turning point for
programmes that entice an indigenous workforce to the nation, although another coalition government is
stay, or return, home. expected to emerge. The financial crisis and the
impact of the Mumbai terrorist attacks have made the
The political shift in the United States has a parallel in outcome of the polls even harder to predict, raising
a small but growing realignment within Indian politics. questions about the future direction of domestic and
With a median age of 25.1 years, “the time is now for foreign policy. Member of Parliament Abhishek Manu
the youth,” said Rahul Bajaj, Chairman, Bajaj Auto; Singhvi, National Spokesperson of the Congress
Member of Parliament, India. “From our young Party, and fellow legislator Amar Singh, Member of
sportsmen, our young businessmen, our young
politicians,” added Bajaj, “hopefully we are going to
“There are hundreds of thousands of
have more than one Barack Obama!”
history graduates who don’t have any
employability.”
From redesigning the Indian educational system and
refocusing on family planning to developing nuclear
and hydroelectric power sources, young politicians Arbind Singh, Executive Director, Nidan, India


Young Parliamentarians Call for Change in India

While the youth vote in the United States carried Barack successive ages of bureaucracy, which resists change.
Obama to victory in November’s presidential election, But believe me, we are trying.” Naveen Jindal, Member
young Indian parliamentarians at the World Economic of Parliament, India; Young Global Leader, agreed: “In a
Forum’s 24th India Economic Summit called on their true sense, I feel that India is not even a democracy, it’s
countrymen to pursue the same spirit of change. a bureaucracy,” and administrators, not politicians, have
the power.
New leadership and new ideas are desperately needed
to address critical challenges faced by India. First Part of reasserting control over governance is
among these, said Deepender Singh Hooda, Member implementing a new design for the educational system,
of Parliament, India, is “the resurgence of divisions which is currently not a topic for political debate in India
based on caste, religion and region.” He pointed out as much as it is in Western democracies.
that, while India has enjoyed strong economic growth
overall, certain sectors of society have been left behind Jindal and Hooda both agreed on the need to
and rising inequality is increasing class tensions. consolidate national and state elections into five-year
cycles, and Hooda went a step further, saying that
Fundamentally, Hooda held, the Indian political system elections at the state and district levels should take
needs to evolve. “The difficulty that all of us face when place at the same time. Still, Hooda held out hope:
we try to bring a change,” he said, “is the whole “Politics is the art of the impossible,” he said.
momentum of our system that has been built over

“The fundamentals that led to the global
Parliament and General Secretary, Samajwadi Party,
India, agreed that there is now a more solid political crisis do not exist in India.”
consensus for better Indo-US relations, a key issue of
contention in past years.
K. V. Kamath, Managing Director and Chief Executive Officer,
“Relations between India and the United States are ICICI Bank; President, Confederation of Indian Industry (CII), India
unusually close,” said former US Secretary of State
Henry A. Kissinger, Chairman of Kissinger Associates,
USA. Largely thanks to what he called “the careful, what many other countries have been implementing is
thoughtful, precise analysis of Indian policy-makers of necessary to deal with the unfolding financial turmoil.
their national interest,” Kissinger predicted that “at this Current policies on infrastructure development would
moment, no matter which administration is in office in be continued after the polls, they reckoned. But D.
the United States, relations have been very close and Raja, Member of Parliament; National Secretary,
are likely to become even closer.” Communist Party of India (CPI), argued that some
government initiatives would have to be reviewed. The
Even as the elections loom, Singhvi and Singh agreed next government, he said, would need to address the
that there is general consensus among Indian persistent problem of bureaucratic inefficiency. Singh
politicians that a Keynesian liquidity injection similar to reckoned that state governments have to focus on
preventing terrorist attacks. The solution is greater
“I strongly believe that we are in the cooperation between the federal and state
midst of a huge crisis. If you go around administrations to improve law and order and tighten
up the country’s intelligence machinery.
and talk to people in small scale
enterprises, the story is dismal.”

Pramod Bhasin, President and Chief Executive Officer,
Genpact, India


Managing Risks

Like a fast-moving virus, the financial crisis that economies are not present in India. Finance Minister
started with the bursting of the real estate bubble in Palaniappan Chidambaram told participants not to
the United States has spread globally. Only a couple dwell on the negative. “There are enough people to
of months after markets plunged following the spread doom and gloom; don’t join that bandwagon,”
collapse of American investment bank Lehman he advised. He reckoned that growth will moderate to
Brothers and the eleventh-hour bailout of insurance between 7% and 7.5% but then by the second half of
group AIG, economies across the world began to feel the 2009-2010 fiscal year, India would again be
the impact. For India, which has had to cope with the coasting at 9%. That was, of course, before the tragic
steep rise in food and energy prices, this was yet events in the country’s financial hub.
another “sudden” challenge to confront. And just days
after the World Economic Forum’s India Economic Chidambaram argued that many of the risks to India’s
Summit concluded in New Delhi, another shock to the growth are external. “We are not the cause of the
nation occurred when financial centre Mumbai was problem, but we are being invited to be part of the
rocked by coordinated terrorist attacks that killed solution.” Yet there was, at this year’s Summit, more
nearly 200 people. than a shade of difference discernible between the risk
picture painted by the government and that offered by
This series of serious jolts has clearly knocked Indians business and civil society participants. Chidambaram
off their stride – 9% growth with a China-like 10% in warned that inflation may still be a potential problem,
their sights – and undermined the confidence that has while others, such as economist Richard C. Levin,
built up in recent years, thanks to India’s strong President, Yale University, USA, suggested that India
economic performance as a result of its closer can afford to worry less about inflation and should pay
integration with the global economy. It highlights the more attention to stimulating domestic demand. The
difficulties that any country, let alone a large economy Finance Minister called on industrialists to lower prices
of more than a billion people, has in managing the to defend market share. Rahul Bajaj, Chairman, Bajaj
multiplicity of risks – the known and the unknown –
that globalization has unleashed.

The financial crisis and heightened terrorist threat will
Total Energy Consumption
be major tests for India’s resilience. Have the years of 18

Total Energy Production
robust growth and general stability strengthened the 15
Quadrillion British Thermal Units

country’s ability to withstand these economic, social 12

and geopolitical storms? And what of the risks to 9
growth and stability? Can India cope?
6

K. V. Kamath, Managing Director and Chief Executive 3

Officer, ICICI Bank; President, Confederation of Indian 0
1990 1992 1994 1996 1998 2000 2002 2004
Industry (CII), India, insisted that the factors that caused
the global financial crisis in the US and other developed Source: Energy Information Administration, United States Department of Energy (2008)


“No country positioning itself for a Per capita water availability in India

period of rapid economic growth can
4500
cubic meters per capita per annum

afford such a haemorrhaging of 4000
3500
human resources.” Forecasted
3000
2500
2000
1500
K. Srinath Reddy, President, Public Health Foundation Water Scarcity Level
1000
(PHFI), India 500
0

25

50
2

7

2

7

2

7

2

7

2

7
96

96

97

97

98

98

99

99

00

00

20

20
-1

-1

-1

-1

-1

-1

-1

-1

-2

-2
58

63

68

73

78

83

88

93

98

03
19

19

19

19

19

19

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19

19

20

Auto; Member of Parliament, India, begged to differ,
saying he has little room to manoeuvre on the pricing Sources: United Nations Food and Agriculture Organization (2008), National Institute of Hydrology,
India (2005)
of his company’s two-wheelers, with his margins
already thin.
been slow to urbanize, we have the opportunity to do
things right,” said Ajay Shankar, Secretary, Department
Not a time for doom and gloom? Pramod Bhasin,
of Industrial Policy and Promotion, Ministry of
President and Chief Executive Officer, Genpact, India,
Commerce and Industry, India.
had a different take, reporting that the situation for
SMEs is “dismal”. Then there are other threats to
Perhaps the starkest difference in the perception of
India’s high growth and sustained prosperity, such as
risk was over the state of the agricultural sector, in
the scourge of chronic disease and malnutrition: 40%
which two-thirds of India’s workforce is employed. The
of Indian children are malnourished and 76% are
Finance Minister hailed the robust pace of growth.
anaemic by international standards. “No country
“We will have a very substantial bumper crop,” he
positioning itself for a period of rapid economic growth
predicted. Yet in a session on agriculture, the focus
can afford such a haemorrhaging of human
was on how dysfunctional agriculture is and how
resources,” said K. Srinath Reddy, President, Public
urgently productivity needs to be increased. “We have
Health Foundation of India (PHFI), India.
to bridge the gap between farmers and the
government,” said Dhruv M. Sawhney, Chairman and
Energy security is also likely to be a problem, said Adil
Managing Director, Triveni Engineering & Industries,
Zainulbhai, Managing Director, India, McKinsey &
India. “We need to reach out to the small farmers.
Company, India. “If India sustains a growth rate of 7-
Improvement in institutional mechanisms and new
8%, there will be a huge energy shortage.” Water
forms of private extension services will help increase
stress is yet another major concern. Yet India may be
productivity.” Not mincing words, Rajshree Pathy,
in a better position to deal with these challenges
Chairman and Managing Director, Rajshree Sugars &
because of its relatively measured pace of growth
Chemicals, India, added: “What the country needs
compared to China. India’s energy consumption has
today is a focused, single-minded policy on
been moderate despite its rapid growth. “As we have


“We have to bridge the gap between
agriculture, not a fragmented policy. We need to have
a cohesive policy and commitment by policy-makers farmers and the government. We need
that doesn’t change whenever a new government is
to reach out to the small farmers.”
elected.”

Political risk was something of an elephant-in-the-
Dhruv M. Sawhney, Chairman and Managing Director, Triveni
room throughout the Summit. With general elections
Engineering & Industries, India
next year and now with the fallout from the Mumbai
attacks, the whole risk picture for India will surely shift
continuously over the coming months. Managing those multiplying risks – both the ones that have been
on India’s radar screen for a long time and those that
are only now coming into sharper focus – will be
“Why not get inundated by Indian especially challenging for its current and future
goods? They might be cheaper!” leaders, as well as for local business and the many
global investors who have come to view India as an
integral part of their international business strategy.
Abdul Razak Dawood, Chairman, Descon, Pakistan


India@Risk 2008 Report

The turmoil in the global economy will affect India’s markets The report finds that many of the issues facing India in the
and growth outlook, according to the World Economic four highlighted areas will require considerable investment on
Forum’s India@Risk 2008 report. Prepared in conjunction the part of India’s public and private sectors over the long
with the Confederation of Indian Industry (CII), the report term. Decision-makers in government and business will be
finds that the risk to India’s economy will be higher if a forced to make trade-offs as to where spending and
deeper retrenchment from globalization follows. “This could investments are allocated. However, a tighter environment
manifest itself not only through decreased trade but also may also help speed reforms and encourage greater
through countries taking tougher stances on global issues efficiency. A great deal of political will and dialogue with
such as climate change, resource management and the role different stakeholders will be required, but India’s growth is
and reform of international organizations,” said Irene still strong relative to other economies, and its growth will
Casanova, Associate Director of the Forum’s Global Risk continue to unfold over decades rather than years.
Network and co-author of the report.

Launched at the India Economic Summit, the report
presents the latest insights into trends, potential
consequences and mitigation strategies relevant to key risk
areas facing India:
• Economic Security: how the global financial crisis is likely
to affect India and how the country will manage the
current financial turmoil
• Energy Security: considering means by which India can
improve its energy supply network and become a low
carbon economy
• Agriculture and Food Security: improving agricultural
productivity, addressing the problem of malnutrition and
managing water resources
• National Security: how India can establish itself as a force
for stability in the region and contain and address internal
sources of instability


Inclusive Growth

“I don’t think that the formula in the GDP per capita, PPP (current US$), 2005

Western world has succeeded.”
Russia

Brazil
Kapil Sibal, Minister of Science and Technology and Earth
China
Sciences of India Indonesia

India

“We are going to enter a life of contradictions,” said Vietnam
Pakistan
Bhimrao Ramji Ambedkar, head of the Drafting
Bangladesh
Committee of the new Indian Constitution, on the eve
0 2,000 4,000 6,000 8,000 10,000 12,000
of its signing in 1949. “In politics we will have equality
and in social and economic life we will have inequality.” Source: World Development Indicators, World Bank (2007)

Today, despite a strong growth rate that exceeded 9% for
the fiscal year 2007-2008, that contrast between rich and
poor, and between rural and urban, has become starker. affects every section of society,” said Kamal Nath,
Minister of Commerce and Industry of India. “We’ve
To be sure, since Ambedkar’s day, there has been a tapped one India; now we need to tap the other India.”
significant reduction in the percentage of the Indian
population living in absolute poverty. But, overall, India That quality education is key to mobility is axiomatic.
lags behind Brazil, Russia and China, three other large India now faces significant challenges in updating an
emerging markets that, with India, are popularly educational system mired in bureaucracy so that
referred to as the BRICs. “Development needs a students are better prepared for the global
paradigm shift,” said Narendra Modi, Chief Minister of marketplace. “It’s not just about education,” said
Gujarat, India. “For us in India, poverty and deprivation Manvi Sinha, Resident Editor, New Delhi Television
remain the biggest challenge. Since the country is (NDTV), India, “it’s about ‘skilling’ to meet the new
growing, the challenge to create conditions in which needs of the new Indian economy.”
the poor can participate in the process of
development is all the more important.” One-third of all Indians are under the age of 14, and
two-thirds live in rural communities. Increasing the
To foster inclusive growth, business, civil society and productivity of the agriculture sector is a critical goal.
government must collaborate to redesign educational B. S. Yeddyurappa, Chief Minister of Karnataka, India,
curricula, democratize and improve healthcare, and outlined a seven-pronged strategy for achieving inclusive
harness growth industries such as tourism and mobile growth. The first step: to boost rural growth and
communications to include a broad range of social prosperity by increasing agricultural income. His
sectors. “We have to look at how the growth process government, he told participants, would concentrate


on developing organic farming, promoting sustainable Reforming the very design of government-led
and efficient use of water, expanding employment education remains a critical, yet overlooked, challenge.
opportunities for citizens living in rural areas and Naveen Jindal, Member of Parliament, India; Young
upgrading rural infrastructure. Global Leader, suggested a type of voucher system
wherein instead of government schools providing
Infrastructure development across the nation is also subsidized education, students’ families would receive
crucial to achieving inclusive growth, especially a sum directly and be given the freedom to choose
through employment. But India’s infrastructure has been where to send their children. “The stress is on quality
a persistent problem that successive governments have education and accountability,” explained Jindal.
failed to address. Infrastructure development, said
Member of Parliament N. K. Singh, suffers from According to the World Economic Forum’s India@Risk
“chronic diseases” and “new infections.” Meaningful 2008 report, one-quarter of India’s population is
reform has long been difficult. Now, the high cost of malnourished and living below the poverty line, and
borrowing is a new hurdle to overcome. “Our policy is over one-third have no access to modern medicine. At
decisively behind the reality curve,” Singh lamented. the same time, India trails the other BRIC countries in
Montek S. Ahluwalia, Deputy Chairman of India’s public health spending, allocating less than 1% of
Planning Commission, stressed that fast-tracking GDP to healthcare.
infrastructure projects that are already in the pipeline
would help economic growth to rebound. India needs to pursue affordable healthcare that does
not compromise on quality. “I don’t think that the
As the Indian economy continues a gradual yet steady formula in the Western world has succeeded,” said
transition away from agriculture to services and Kapil Sibal, Minister of Science and Technology and
manufacturing, a new generation of rural Indians needs Earth Sciences of India. “We need to look at a
a new set of skills. In 2004, the Confederation of different paradigm, a different formula for healthcare.”
Indian Industry (CII) launched the Skills Development
Initiative to meet the need: “We have a model which is Early childhood healthcare is particularly critical, as
workable,” said Kamath, “now we need to scale it.” malnutrition in childhood leads to permanent
India needs to increase manufacturing growth from 9% deficiencies. Health literacy needs to be scaled up,
to 13%. Technology is driving only 9% of manufacturing, and trained community health workers need greater
said Ashwani Kumar, Minister of State for Industry, support from the government.
Ministry of Commerce and Industry, India. “What is
needed is training in the use of technology and high But government alone cannot carry the burden. “The
technology. It’s clear we need technology to improve,” message is quite clear,” said K. Srinath Reddy,
he stressed. President, Public Health Foundation of India (PHFI),


“It’s not just about education; it’s about
Public Health expenditure, 2005 (% of GDP)

‘skilling’ to meet the new needs of the
4 3.48
3.22 3.13

new Indian economy.”
2.91
3
1.82
2
0.95
1

0
Manvi Sinha, Resident Editor, New Delhi Television (NDTV), India
India China Brazil Mexico Russia South Korea

Source: World Development Indicators, World Bank (2007)

be a surprise as to what people will do. But let’s be
India, “Business must leverage health so that health crystal clear that it will have effects we haven’t
can leverage business.” India is already a leader in understood on behaviour. I’m not sure if institutions
developing drugs to combat pandemics that plague are ready for this upheaval.”
the developing world, such as HIV and malaria. “The
Indian pharmaceutical industry is a global presence,” India’s receipts from tourism have grown steadily over
said Douglas Alexander, Secretary of State for the last few years – and the number of tourists visiting
International Development of the United Kingdom, “and I India (5.7 million in 2007) is predicted to grow by 8.8%
think the real focus of the discussion should be how to over the next decade: the travel industry can provide
set that presence to work for the global public good.” benefits across many sectors of Indian society.

Despite global financial woes, at least two segments With 135 new tourist sites coming online in rural India,
of the Indian economy remain strong and hold the travel industry should be a focus for economic
promise for greater social and economic inclusion: inclusion initiatives. Adequate training in the hospitality
mobile communications technology and tourism. industry remains in widespread deficit; and middle and
upper income tourists are often discouraged from
Mobile technology is already revolutionizing Indian visiting due to a perceived lack of services.
agriculture. Naimur Rahman, Director, OneWorld
International South Asia, India, described his “We’ve done a great job with Incredible !ndia, but
organization’s provision of personalized agricultural about 17 years too early,” said Suhel Seth, Managing
advisory services to 100,000 Indian farmers. Partner, Counselage India, India. “We don’t have
adequate infrastructure; we don’t have the civic sense
“This is more about social-economic liberation than to make our cities clean and tourist-friendly.”
technical revolution,” said Ben J. Verwaayen, Chief
Executive Officer, Alcatel-Lucent, France. “There will


“Since India is now growing very fast, the challenge to
create conditions in which the poor can participate in the
process of development is all the more urgent. We cannot
have pockets of wealth and corridors of poverty coexisting.”

Narendra Modi, Chief Minister of Gujarat, India

“This is more about social-economic liberation than
technical revolution. There will be a surprise as to what
people will do. But let’s be crystal clear that it will have
effects we haven’t understood on behaviour. I’m not sure if
institutions are ready for this upheaval.”

Ben J. Verwaayen, Chief Executive Officer, Alcatel-Lucent, France

Inclusive Growth

To make India’s vast workforce partners in the country’s challenge, he noted, is to bring the price of training
growth, education and skills training need to be ramped down to a level that rural workers can afford. He said
up. As the economy grows, there will be sizeable the NIIT model involves the private sector, the
displacement of workers between sectors for which government, NGOs, sundry sponsors and rural workers
they will have to be provided the necessary skills, said as stakeholders. Companies provide training
Kamal Nath, Minister of Commerce and Industry of scholarships for rural students, who then join these
India. And as the economy becomes increasingly companies as workers. The government provides
knowledge-oriented, he said, workers will have to be infrastructure – often existing buildings and equipment
imparted newer, more complex skills. that have fallen into disuse.

Jeffrey Joerres, Chairman and Chief Executive Officer, Regarding what is being done to upgrade India’s
Manpower, USA, explained that India should take a government schools, K. V. Kamath, Managing Director
multifaceted approach to skills creation by placing and Chief Executive Officer, ICICI Bank; President,
emphasis on education and vocational and job training. Confederation of Indian Industry (CII), India, said
interventions are being made to provide vocational skills
Partnering with the private sector is the way forward, at the right age so that even students who drop out of
according to Nath. He endorsed the efforts made by school leave with a certain employable set of skills. He
NIIT Group, India, which its chairman, Rajendra S. added that, while rural India is just beginning to engage
Pawar, shared at the India Economic Summit. He said with “market India”, tomorrow it will become a driver of
the first step is to identify and catalogue the thousands change. In that scenario, it will begin to pay for the skills
of skills required and available. The next step is to it needs to acquire.
develop a system to upgrade these skills. The third



“We have seen how a crisis of greater competition and the proliferation of mobile
phones, which Deepak Puri, Chairman and Managing
confidence is paralytic to economies.
Director, Moser Baer, India, predicted would soon be
Any crisis of confidence in sharing, made in India. The Indian pharmaceutical industry has
trading or collaborating online can established a global footprint. And of course, India has
easily become like that.” made an international name for itself in business
process outsourcing, particularly with call centres and
software development and programming.
Matt Bross, Chief Executive Officer, BT Innovate, and Group
Chief Technology Officer, BT, United Kingdom
Yet India still has a long way to go. For example,
“India needs to catch up in global branding,” said
At 50th place in the World Economic Forum’s Global Allen Ma, President, BT Asia Pacific, BT, Hong Kong
Competitiveness Index for 2008-2009, India ranks just SAR. The question is whether India can foster the
above Russia and Malta and below Jordan and Italy. human resources to achieve this and other goals.
Summit participants freely offered their views on how “There is amazing, world-class talent here,” Shailesh
the country can improve that performance in coming Rao, Managing Director, Google India, India,
years. While the unfolding global financial crisis is observed. “The question is: how do you take the
expected to drag growth down from 9% to around technological talent of the country and set it up to
7%, it is not expected to alter significantly the agenda take risks that might lead to failure?” Remarking that
that India must pursue if it is to enhance productivity. Indian patent applications have declined, Rao argued
Among the key priorities: address the infrastructure deficit, that “this isn’t to do with skills but mindset. There
invest in education and training to narrow the skills gap, need to be incentives to create new products.”
remedy inefficiencies in the agriculture sector, improve
governance to allow for more coherent policies and According to many participants, the potential for India
implement reforms to create an authentic single market. to harness its considerable talent pool effectively and
translate those assets into competitive advantages is
To be sure, India has come a long way in recent enormous. As Nandan M. Nilekani, Executive Co-
years. Take automobiles: “India has created a sector Chairman, Infosys Technologies, India; Member of the
of excellence in the small-car sector, which is world Foundation Board of the World Economic Forum, put
class,” reckoned Steven J. Veldhoen, Managing it, “Population is not a burden, but human capital.”
Director, Asia, Booz & Company, Japan. The India, for example, is positioned to be a global leader
liberalization of telecommunications has resulted in not just in the life sciences but also in healthcare


“What is needed is training in the use of
delivery, said Hari S. Bhartia, Co-Chairman and
Managing Director, Jubilant Organosys, India. “Look at technology and high technology. It’s
[Bengaluru]; look at Delhi; look at Hyderabad; look at
clear we need technology to improve.”
Pune: there are many such clusters which have
evolved and you’re starting to see innovation happen.”
Ashwani Kumar, Minister of State for Industry, Ministry of
Malvinder M. Singh, Chief Executive Officer and Commerce and Industry, India
Managing Director, Ranbaxy Laboratories, India;
Young Global Leader, agreed: “There has been a
significant increase in investment in healthcare. But Especially in mobile telephony and the Internet, India
we’re only sitting on the tip of the iceberg and there is could make significant strides forward. “We’re truly
a lot more that has to be done.” poised to make a paradigm shift from dial tone to
information tone,” said Jai Menon, Director of Innovation,
For one thing, India needs to address its gaping Bharti Airtel, India. “We’ve seen an innovation gap of
infrastructure deficiency. This includes boosting the 75 years bridged first with PCs, then TV and now
very IT capabilities that have allowed its services mobile phones. We’re talking of the inevitable.” The
sector to boom. The digital divides that exist need to social impact of addressing the infrastructure gap could
narrow. “We have seen how a crisis of confidence is be enormous. In mobile telephony and IT, giving network
paralytic to economies,” said Matt Bross, Chief connections to the deprived and disadvantaged would
Executive Officer, BT Innovate, and Group Chief empower them in an instant. “We still need to provide
Technology Officer, BT, United Kingdom. “Any crisis of a network that touches people and continues to be
confidence in sharing, trading or collaborating online affordable,” said Menon. “We believe that the fortune
can easily become like that.” lies at the bottom of the pyramid.”

Illustrating Indiaís R&D Wor kforce Relative to Other Economies

Brazil China India Mexico Russia South Korea

Researchers in R&D 59,838 477,647 117,528 151,254 26,800 926,252

R&D Researchers
344 3,319 119 3,187 268 708
per million population

Source: World Development Indicators, World Bank (2007)


“We don’t need backpackers; we “We believe that fortune lies at the
need spenders.” bottom of the pyramid.”

Vijay Mallya, Group Chairman, UB Group, India Jai Menon, Director of Innovation, Bharti Airtel, India

While India may be poised for a major competitiveness Finally, to increase its global competitiveness, India
boost through IT, policy-makers could prove to be the needs to unlock the economic synergies that it has
spanner in the works. Reforms – especially in India’s long shared with its neighbours in South Asia but
sometimes chaotic democratic space – can come which have for geopolitical reasons remained
slowly. “In India, things happen when ideas take root,” untapped. While the recent terrorist attacks are likely
Nilekani explained. “Change is slow, for we follow an to hinder further rapprochement between New Delhi
arduous bottom-up approach. Half-done reforms lead and Islamabad, the undeniable logic of closer
to more inequality.” And, of course, real implementation cooperation and integration remains, especially in
requires investment. Funding is never easily available – addressing security and law and order. About US$ 4
and with the unfolding global financial crisis, that will billion in illicit trade already occurs between India and
not improve. Pakistan. If normalization occurred, trade could very
quickly reach US$ 11 billion, according to estimates.
Consider the tourism industry, where India has not been
highly competitive despite its obvious advantages as a “If things get going, it could work like a charm,” said
destination. India attracts just one-tenth the tourists Adi B. Godrej, Chairman, The Godrej Group, Godrej
that flock to China and one-quarter of the visitors that Industries, India, pointing out that a common market
the Ukraine and Turkey receive. “We’re punching well between India, Nepal and Bhutan is working very well.
below our weight,” said Naazneen Karmali, Editor and “Why should anyone have to move goods from
Bureau Chief, Forbes Magazine, India. Not enough Karachi to Lahore and Mumbai to Delhi [when the
investment has gone into building the facilities to distances between Mumbai and Karachi and between
accommodate a huge influx of tourists and not Delhi and Lahore are so much shorter]?” Godrej would
enough has been done to train the workers needed to like to have a presence in Pakistan, but with relations
cater to them. While India has long been a magnet for between New Delhi and Islamabad as they are,
low-end travellers, it has yet failed to develop cannot do so now.
significantly the lucrative high end of the market. “We
don’t need backpackers; we need spenders,” said
Vijay Mallya, Group Chairman, UB Group, India.


Building on Economic Synergies in South Asia

South Asian countries have enormous incentive to open The potential for Indo-Pakistan trade, for example, is
economic relations with each other as the region is US$ 11 billion but, at the moment, trade worth up to
growing even at a time of global economic meltdown, US$ 4 billion is taking place illegally via smuggling. He
and the size of the market is greater than China’s. noted that non-tariff barriers remain quite high, although
both sides could make a start either by allowing all
Pakistan has offered to create an economic union with goods in any particular sector or any agreed-upon value
India to increase trade with its neighbour – which is chain.
currently minimal. Pakistan’s President Asif Ali Zardari
indicated that an EU-style economic zone could help South Asia must improve logistics in order to trade
boost his country’s economy. Zardari’s overture came more, according to Amadou Diallo, Chief Executive
just two days before the terror attacks in the Indian city Officer, DHL Global Forwarding, Singapore. As of now,
of Mumbai, which have strained relations between he said, more time is spent at borders than in
Islamabad and New Delhi. transporting goods to their destination.

During an India Economic Summit session on trade,
Abdul Razak Dawood, Chairman, Descon, Pakistan,
pointed out that inter-South Asia trade is only 4%, as
compared to trade in ASEAN (45%) and the EU (80%).


Acknowledgements

The World Economic Forum would like to thank the officers and staff of the Confederation of Indian Industry (CII)
for their partnership in the India Economic Summit.

The World Economic Forum wishes to recognize the support of the following companies as Partners of the India
Economic Summit:

Strategic Partners

Accenture FedEx
American International Group (AIG) Forbes
Apax Partners KPMG
Audi McKinsey & Company
Avaya Manpower
Bahrain Economic Development Board Merrill Lynch
Basic Element METRO Group
Bombardier Morgan Stanley
Booz & Company Nike
BT The Olayan Group
CA PepsiCo
Cisco Systems Reliance Industries
Clifford Chance Satyam Computer Services
Deloitte Travelport
Deutsche Bank UBS
Deutsche Post World Net Volkswagen

Summit Supporters

Abu Dhabi Investment House
Department of Industrial Policy and Promotion, Ministry of Commerce and Industry of India
Financial Technologies India
Gulf Finance House
NDTV Profit
Rakindo Developers

Service Provider

Taj Palace Hotel


Contributors

Børge Brende is Managing Director, in charge of Governments, Regional Activities and
Constituents at the World Economic Forum. Sushant Palakurthi Rao is Director, Head of Asia at
the Forum. The India Economic Summit was under his direct responsibility with Samantha
Gianora, Senior Event Manager and Summit Coordinator, and Christoph S. Sprung, Senior
Manager, India and South Asia.

Samantha Tonkin, Senior Media Manager, World Economic Forum, worked with Alejandro Reyes
and E. Benjamin Skinner, report writers tasked by the World Economic Forum to produce this
report.

The World Economic Forum would like to express its appreciation to the summary writers for
their work at the Summit. Session summaries are available at:
www.weforum.org/india/summaries2008

Editing: Janet Hill, Senior Manager, Editing

Layout: Kristina Golubic, Graphic Designer

Design and Layout: Kamal Kimaoui, Associate Director, Production and Design

Photographs: Norbert Schiller and Dana Smillie

Special thanks to Accenture for their help in preparing data and statistics underpinning this
report.


This publication is also available in electronic form on the World Economic Forum website at the following
address:

India Economic Summit Web report:
http://www.weforum.org/summitreports/india2008 (HTML)

The electronic version of this report allows access to a richer level of content from the meeting, including
photographs and session summaries.

The report is also available as a PDF:
www.weforum.org/pdf/summitreports/india2008.pdf

Other specific information on the India Economic Summit, New Delhi, India 16-18 November 2008, can be
found at the following links:

www.weforum.org/india2008
www.weforum.org/india2008/Programme
www.weforum.org/india2008/Partners
www.weforum.org/indiaprivate2008
www.weforum.org/india2008/Summaries
www.weforum.org/india2008/RegionalUpdate

Photographs can be found at the following link:
www.flickr.com/photos/worldeconomicforum


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.

Incorporated as a foundation in 1971, and based
in Geneva, Switzerland, the World Economic
Forum is impartial and not-for-profit; it is tied to
no political, partisan or national interests.
(www.weforum.org)

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