India Economic Summit2008

India Economic SummitSecuring India’s Future GrowthNew Delhi, India 16-18 November 2008

Report

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REF: 201208

1 | India Economic Summit

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

Contents


The 24th India Economic Summit, under the themeSecuring India's Future Growth, took place in acontext of global uncertainty. At the outset of theSummit, the impact of the global financial crisis hadexperts correcting growth forecasts for 2008-2009 toless than 8% as the current account deficit widenedand exports began to fall. This represented a starkcontrast from the simple average growth rate of 9.2%over the last three years.

Notwithstanding the global and domestic challenges,even these lower forecasts place India among theworld’s fastest growing economies. India's vastdomestic consumer market and large pool of highlyskilled talent speak to the country's tremendouspotential to weather changing realities. Its demographicdividend, with one of the world's youngest populations,holds the promise to further transform India into amanufacturing and agricultural powerhouse.

In this context, the mood at this year's Summit was notcharacterized by "doom and gloom" but, rather, a senseof urgency and commitment to ensure that leadersacross India act quickly to capitalize on its competitiveadvantages. As the first major international gatheringof leaders from business and government following theG20 Summit in Washington DC, discussions focusedon requirements to step up productivity, upgradeinfrastructure, reform healthcare and education systemsand improve the financial architecture. And, althoughdeliberations examined these near-term challenges,securing India's future growth was also discussed interms of the measures required to balance India'sgrowing energy needs, protect the environment, betterregional relations and drive inclusive growth.

In this spirit of generating insight and shaping India'sagenda, the India Economic Summit programmetapped into the collective intellect, on-the-groundexperience and global insight of its community ofstakeholders. For the third year in a row, the Summitserved as an occasion to launch the India@Risk reportin collaboration with the Confederation of IndianIndustry (CII). And, for the fourth consecutive year, theSchwab Foundation for Social Entrepreneurshippresented the India Social Entrepreneur of the YearAward. We look forward to continuing to build onthese successful initiatives in the coming years.

As you read the key points and data presented in thisreport, we welcome your thoughts and suggestions aswe prepare the programme for the 25th India EconomicSummit, which will take place on 8-10 November 2009.The challenges faced by India – and the world, for thatmatter – are more complex, interrelated and intractablethan ever before. With 25 years of commitment toaddressing these challenges, we hope that the IndiaEconomic Summit will continue to serve as an importantplatform for stimulating thought and creative solutions.

We would also like to express our shock and sadnessat the terrorist attacks that took place in Mumbai oneweek after the Summit, representing a futile attempt toundermine peace, stability and growth in India. Ourthoughts are with the victims, whose tremendous losswill not be forgotten.

Sushant Palakurthi RaoDirector, Head of AsiaWorld Economic Forum

Preface

The Summit highlighted how much of the agenda forIndia to grow and prosper remains the same, thefinancial crisis and the terrorist attacksnotwithstanding. The priorities include the need toaddress the lack of adequate infrastructure, theimportance of pushing reforms to create an authenticsingle market, and the critical necessity of investmentin education and skills development. Even asrecession hits developed countries and someeconomies in Asia, India is still expected to haverelatively strong growth. “This is not the time to have awake,” said Rajat M. Nag, Managing Director-General,Asian Development Bank, Manila. It is imperative, headded, that India continues to invest in infrastructure,health and education, “rather than panicking andforgetting the future.” He warned, however, that it iscrucial that India and other Asian nations pay attentionto people living at subsistence level; the crisis maypush them below the poverty line. Inclusive growth isa paramount concern.


Executive Summary:

Securing India’s Future Growth

The 24th India Economic Summit was the secondWorld Economic Forum regional meeting since theoutbreak of the global financial crisis in Septemberwhen investment bank Lehman Brothers collapsed,triggering turmoil in international markets. More than650 business, government and civil society leadersfrom 35 countries gathered in New Delhi under thetheme of “Securing India’s Future Growth” to discussnot just the quickly unfolding situation but also thelong-term impact of what has been described as theworst economic slump since the Great Depression. Inaddition, they discussed the many other risks toIndia’s continued high growth, including terrorism.Days later, the terrorist attacks in Mumbai shocked thenation and the world, underscoring the danger toIndia’s stability and progress from such asymmetricthreats.

“Even if you take growth at 7%, it is 2%less than what we have had but stillhigher than what we had four yearsago. This is not an Indian crisis. We arebeing impacted by a global crisis.”

Montek S. Ahluwalia, Deputy Chairman, Planning Commission,

India

“What the country needs today is afocused, single-minded policy onagriculture, not a fragmented policy.”

Rajshree Pathy, Chairman and Managing Director, Rajshree

Sugars & Chemicals, India


The Summit was also the first opportunity forparticipants to hear directly from senior Indiangovernment leaders after the G20 meeting on thefinancial crisis in Washington DC. Both FinanceMinister Palaniappan Chidambaram and Montek S.Ahluwalia, Deputy Chairman, Planning Commission,India, stressed that the G20 has become the premierforum for global action on economic and financial

issues, given the limited membership of the G7. Thiswas an important message, given the enormity of thecrisis and the need for global cooperation to addressits impact. To adequately address the economicturmoil and other urgent international priorities, “wemust have multistakeholder involvement,” stressedKlaus Schwab, Founder and Executive Chairman ofthe World Economic Forum. “You cannot solve allglobal issues on the basis of defending only nationalinterests and making compromises later. We needglobal solutions.”

The India Economic Summit, convened in partnershipwith the Confederation of Indian Industry (CII), wasorganized under four sub-themes: Global Shifts,Managing Risks, Inclusive Growth and FutureCompetitiveness.

“We have to look at how the growthprocess affects every section of society.The real India is also 300 million people[living on] less than one dollar a day.”

Kamal Nath, Minister of Commerce and Industry of India

“The G7 has recognized belatedly thatthey alone don’t have the solutions toall the problems. The G20 has come tostay as the single most important forumto address the financial and economicissues of the world.”

Palaniappan Chidambaram, Minister of Finance of India

“We should not forget that the systemof free markets and liberalizationenabled billions of people to move outof poverty. The future will be the age ofentrepreneurship.”

Klaus Schwab, Founder and Executive Chairman, World

Economic Forum


Global Shifts

The unfolding international financial crisis is likely totransform the global economy and accelerate the shiftof economic power and influence to Asia, particularlythe high-growth economies of India and China.

• India and other emerging economies are alreadypoised to surpass developed markets as apercentage of the world economy.

• While global growth could moderate to just 2.2%,India’s growth will also slow from 9% to about 7%.The problem factors that caused the crisis in the USare not present in India.

• For India to be a global leader and maintain its highlevel of growth, business and government must partnerto develop skills-based educational programmesthat entice Indians to stay, or return, home.

• India’s young politicians are leading a host ofchanges in the economy and society, fromredesigning the education system to thedevelopment of new sources of energy.

Managing Risks

The global financial crisis and terrorist attacks in majorIndian cities illustrate how India must cope with themultiplicity of risks, both known and unknown.

• The unfolding global financial crisis and threat ofterrorism will be major tests of India’s economic andsocial resilience in the coming months.

• The risk picture presented by government officialsdiffered to varying degrees from that painted bybusiness and civil society. This suggests adivergence in perception that may undermine India’seffectiveness in managing risks.

• Political risk is a another concern as India headstowards a general election at a time when it isconfronted by multiplying risks generated by theeconomic crisis and heightened concern forsecurity.

“It will get worse for quite a whilelonger. Unemployment will worsen forthe next six months. It is inevitable.”

Henri A. Termeer, Chairman, President and Chief Executive

Officer, Genzyme Corporation, USA; Co-Chair of the India

Economic Summit

“What we have is a few things that wentwrong, risk management issues thathave gone bad.”

Jeffrey Joerres, Chairman and Chief Executive Officer,

Manpower, USA; Co-Chair of the India Economic Summit


Inclusive Growth

India lags behind other major emerging markets in thepercentage of its population living in poverty.

• To foster inclusive growth, business, civil societyand government must collaborate to redesigneducation curricula, democratize and improvehealthcare and harness growth industries such astourism and mobile communications to include abroad range of social sectors.

• As the Indian economy shifts from domination byagriculture to more services and manufacturing, anew generation of rural Indians needs a new set ofskills.

• Malnutrition and the lack of affordable healthcareremain significant challenges for India.

• Government alone cannot carry the burden;business needs to be involved.

• New drivers of growth such as mobile telephonyand tourism could hold the key to spreading thebenefits of Indian prosperity more widely.


India ranks 50th in the World Economic Forum’s latestGlobal Competitiveness Index. To improve itsperformance, the country must address theinfrastructure deficit, invest in education and training tonarrow the skills gap, remedy inefficiencies in theagriculture sector, improve governance to allow formore coherent policies and implement reforms tocreate an authentic single market.

• India needs to better harness its considerable talentpool.

• The country has to address its gaping infrastructuredeficiencies, including its IT networks and theconnectivity of its population.

• Reforms in India are implemented slowly due to abottom-up approach that often leads to half-bakedpolicies. Real implementation requires investment.

• To increase its global competitiveness, India mustnot only create an authentic single market within itsborders, but must also tap the synergies it shareswith its South Asian neighbours.

“India will continue to be a magnet for capital.”

James H. Quigley, Global Chief Executive Officer, Deloitte, USA;

Co-Chair of the India Economic Summit

“Competitiveness will be the key driver;protectionism will be dangerous if itcomes in the way of entrepreneurship.”

B. Ramalinga Raju, Founder and Chairman, Satyam Computer

Services, India; Co-Chair of the India Economic Summit


Global Shifts

“This is probably the first transformational crisis of ourglobalized age, and many things will change,” saidKlaus Schwab, Founder and Executive Chairman,World Economic Forum, during his closing remarks atthe World Economic Forum’s Annual Meeting of theNew Champions 2008 last September in Tianjin,People’s Republic of China. “The future will be the ageof entrepreneurship,” he added in New Delhi on theopening day of the Indian Economic Summit. AndIndia, with a vibrant entrepreneurial sector and ayoung population, is positioned to lead in that future.

The unfolding global crisis will bring many changesboth within and beyond India. If appropriately met, thecurrent challenges present the country with enormousopportunities to assert itself as a global leader. Indiaand other emerging economies are already positionedto surpass developed markets as a percentage of theworld economy. Closely tied to this economic shift is arapidly changing labour market and an internal politicalrealignment in India, paralleling developments in theWest, in particular the United States.

The International Monetary Fund estimates that globalgrowth could moderate to just 2.2%. While India willsurely slow down from the 9% of recent years, it stilloutpaces most developed markets. Some observersworry that India could succumb to the spreadingcrisis. Yet many others see strong investmentopportunities, resulting from more reasonablevaluations. “In every adversity there is an opportunity,”said Ghanshyam Dass, Managing Director, NASDAQ,India.

In contrast to other credit markets, India’s financialsector is tightly regulated and well capitalized,particularly as one-third of all bank deposits areparked with the government. “The fundamentals thatled to the global crisis do not exist in India,” declared

“I’m very grateful to be sitting here inthis market compared to many others.”

L. Brooks Entwistle, Managing Director and Chief Executive

Office, Goldman Sachs, India

The rise of emerging economies

Source: Economist Intelligence Unit

0

20

40

60

80

100

120

140

160

1990 2000 2007 2020F 2030F

Emerging markets

Developed markets

`

Share of global GDP(real GDP, US$ trillions at 2005 prices and PPP)

38%41%

48%

57%

61%

62%59% 52%

43%39%

CAGR(2007-2030)

4.6%

2.1%

“From our young sportsmen, our youngbusinessmen, our young politicians,hopefully we are going to have morethan one Barack Obama!”

Rahul Bajaj, Chairman, Bajaj Auto; Member of Parliament, India


K. V. Kamath, Managing Director and Chief ExecutiveOfficer, ICICI Bank; President, Confederation of IndianIndustry (CII), India. L. Brooks Entwistle, ManagingDirector and Chief Executive Office, Goldman Sachs,India, added: “I’m very grateful to be sitting here inthis market compared to many others.”

Nevertheless, Indian credit markets have suffered,capital flow will slow down for the next 24 months andpessimism lingers. “I strongly believe that we are in themidst of a huge crisis,” said Pramod Bhasin, Presidentand Chief Executive Officer, Genpact, India. “If you goaround and talk to people in small-scale enterprises,the story is dismal.”

But for smart entrepreneurs and savvy investors, Indiaremains attractive. “For those companies who’veworked on their scale and ‘deleveraged’ their balancesheets, it’s a superb time,” said Manish Kejriwal,Senior Managing Director, Temasek Holdings, India;Young Global Leader. “Seven to eight percent GDPgrowth is still a wonderful place to invest capital,” saidStephen J. Rohleder, Chief Operating Officer,Accenture, USA. “People would be crazy to walk bythis.”

Fundamentally, the crisis will increase India’s relativevalue within the global economy. And as transnationalprinciples of transparency and accountability arehashed out, India should be a part of theconversation. “This economy needs India at the table,”said James H. Quigley, Global Chief Executive Officer,Deloitte, USA; Co-Chair of the India EconomicSummit. “It’s about the G20, not about the G7 or G8.”

Nominally, India’s chief exports remain textiles and, ofcourse, tea. But of far greater value are the five millionIndians working abroad at any given time. This exportof human resources has led to what Jeffrey Joerres,Chairman and Chief Executive Officer, Manpower,USA; Co-Chair of the India Economic Summit, labels“India’s global brand”. Declared Joerres: “India is theplace for talent.”

And yet, conversely, massive emigration has left theIndian homeland with a marked talent shortage. Anoutmoded educational system means that Indianworkers are woefully unprepared for the needs of themodern Indian economy. “There are hundreds ofthousands of history graduates who don’t have anyemployability,” lamented Arbind Singh, ExecutiveDirector, Nidan, India. Meanwhile, the Indianconstruction and nursing industries have seen most oftheir best and brightest migrate overseas.

“In every adversity there is anopportunity.”

Ghanshyam Dass, Managing Director, NASDAQ, India

“Seven to eight per cent GDP growth isstill a wonderful place to invest capital.People would be crazy to walk by this.”

Stephen J. Rohleder, Chief Operating Officer, Accenture, USA


For India to be a global leader and maintain its highlevel of growth, business and government mustpartner to develop skills-based educationalprogrammes that entice an indigenous workforce tostay, or return, home.

The political shift in the United States has a parallel ina small but growing realignment within Indian politics.With a median age of 25.1 years, “the time is now forthe youth,” said Rahul Bajaj, Chairman, Bajaj Auto;Member of Parliament, India. “From our youngsportsmen, our young businessmen, our youngpoliticians,” added Bajaj, “hopefully we are going tohave more than one Barack Obama!”

From redesigning the Indian educational system andrefocusing on family planning to developing nuclearand hydroelectric power sources, young politicians

such as Naveen Jindal, Member of Parliament, India;Young Global Leader, and Deepender Singh Hooda,Member of Parliament, India, are leading change. Butfor India to break free from bureaucracy and realize itsfull democratic potential, it will take a broad-basedmovement. “What makes me a little more confident inmy belief is you guys!” said Hooda. “You guys wantchange. If enough Indians across all age groups wantchange, change is going to happen.”

Like the US presidential polls this year, the Indiangeneral elections in 2009 could be a turning point forthe nation, although another coalition government isexpected to emerge. The financial crisis and theimpact of the Mumbai terrorist attacks have made theoutcome of the polls even harder to predict, raisingquestions about the future direction of domestic andforeign policy. Member of Parliament Abhishek ManuSinghvi, National Spokesperson of the CongressParty, and fellow legislator Amar Singh, Member of

“For those companies who’ve workedon their scale and ‘deleveraged’ theirbalance sheets, it’s a superb time.”

Manish Kejriwal, Senior Managing Director, Temasek Holdings,

India; Young Global Leader

“There are hundreds of thousands ofhistory graduates who don’t have anyemployability.”

Arbind Singh, Executive Director, Nidan, India


Parliament and General Secretary, Samajwadi Party,India, agreed that there is now a more solid politicalconsensus for better Indo-US relations, a key issue ofcontention in past years.

“Relations between India and the United States areunusually close,” said former US Secretary of StateHenry A. Kissinger, Chairman of Kissinger Associates,USA. Largely thanks to what he called “the careful,thoughtful, precise analysis of Indian policy-makers oftheir national interest,” Kissinger predicted that “at thismoment, no matter which administration is in office inthe United States, relations have been very close andare likely to become even closer.”

Even as the elections loom, Singhvi and Singh agreedthat there is general consensus among Indianpoliticians that a Keynesian liquidity injection similar to

While the youth vote in the United States carried BarackObama to victory in November’s presidential election,young Indian parliamentarians at the World EconomicForum’s 24th India Economic Summit called on theircountrymen to pursue the same spirit of change.

New leadership and new ideas are desperately neededto address critical challenges faced by India. Firstamong these, said Deepender Singh Hooda, Memberof Parliament, India, is “the resurgence of divisionsbased on caste, religion and region.” He pointed outthat, while India has enjoyed strong economic growthoverall, certain sectors of society have been left behindand rising inequality is increasing class tensions.

Fundamentally, Hooda held, the Indian political systemneeds to evolve. “The difficulty that all of us face whenwe try to bring a change,” he said, “is the wholemomentum of our system that has been built over

successive ages of bureaucracy, which resists change.But believe me, we are trying.” Naveen Jindal, Memberof Parliament, India; Young Global Leader, agreed: “In atrue sense, I feel that India is not even a democracy, it’sa bureaucracy,” and administrators, not politicians, havethe power.

Part of reasserting control over governance isimplementing a new design for the educational system,which is currently not a topic for political debate in Indiaas much as it is in Western democracies.

Jindal and Hooda both agreed on the need toconsolidate national and state elections into five-yearcycles, and Hooda went a step further, saying thatelections at the state and district levels should takeplace at the same time. Still, Hooda held out hope:“Politics is the art of the impossible,” he said.

Young Parliamentarians Call for Change in India

what many other countries have been implementing isnecessary to deal with the unfolding financial turmoil.Current policies on infrastructure development wouldbe continued after the polls, they reckoned. But D.Raja, Member of Parliament; National Secretary,Communist Party of India (CPI), argued that somegovernment initiatives would have to be reviewed. Thenext government, he said, would need to address thepersistent problem of bureaucratic inefficiency. Singhreckoned that state governments have to focus onpreventing terrorist attacks. The solution is greatercooperation between the federal and stateadministrations to improve law and order and tightenup the country’s intelligence machinery.

“I strongly believe that we are in themidst of a huge crisis. If you go aroundand talk to people in small scaleenterprises, the story is dismal.”

Pramod Bhasin, President and Chief Executive Officer,

Genpact, India

“The fundamentals that led to the globalcrisis do not exist in India.”

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

ICICI Bank; President, Confederation of Indian Industry (CII), India


Managing Risks

Like a fast-moving virus, the financial crisis thatstarted with the bursting of the real estate bubble inthe United States has spread globally. Only a coupleof months after markets plunged following thecollapse of American investment bank LehmanBrothers and the eleventh-hour bailout of insurancegroup AIG, economies across the world began to feelthe impact. For India, which has had to cope with thesteep rise in food and energy prices, this was yetanother “sudden” challenge to confront. And just daysafter the World Economic Forum’s India EconomicSummit concluded in New Delhi, another shock to thenation occurred when financial centre Mumbai wasrocked by coordinated terrorist attacks that killednearly 200 people.

This series of serious jolts has clearly knocked Indiansoff their stride – 9% growth with a China-like 10% intheir sights – and undermined the confidence that hasbuilt up in recent years, thanks to India’s strongeconomic performance as a result of its closerintegration with the global economy. It highlights thedifficulties that any country, let alone a large economyof more than a billion people, has in managing themultiplicity of risks – the known and the unknown –that globalization has unleashed.

The financial crisis and heightened terrorist threat willbe major tests for India’s resilience. Have the years ofrobust growth and general stability strengthened thecountry’s ability to withstand these economic, socialand geopolitical storms? And what of the risks togrowth and stability? Can India cope?

K. V. Kamath, Managing Director and Chief ExecutiveOfficer, ICICI Bank; President, Confederation of IndianIndustry (CII), India, insisted that the factors that causedthe global financial crisis in the US and other developed

economies are not present in India. Finance MinisterPalaniappan Chidambaram told participants not todwell on the negative. “There are enough people tospread doom and gloom; don’t join that bandwagon,”he advised. He reckoned that growth will moderate tobetween 7% and 7.5% but then by the second half ofthe 2009-2010 fiscal year, India would again becoasting at 9%. That was, of course, before the tragicevents in the country’s financial hub.

Chidambaram argued that many of the risks to India’sgrowth are external. “We are not the cause of theproblem, but we are being invited to be part of thesolution.” Yet there was, at this year’s Summit, morethan a shade of difference discernible between the riskpicture painted by the government and that offered bybusiness and civil society participants. Chidambaramwarned that inflation may still be a potential problem,while others, such as economist Richard C. Levin,President, Yale University, USA, suggested that Indiacan afford to worry less about inflation and should paymore attention to stimulating domestic demand. TheFinance Minister called on industrialists to lower pricesto defend market share. Rahul Bajaj, Chairman, Bajaj

Source: Energy Information Administration, United States Department of Energy (2008)

0

3

6

9

12

15

18

1990 1992 1994 1996 1998 2000 2002 2004

Total Energy Consumption

Total Energy Production

Qua

dril

lion

Brit

ish

Ther

mal

Uni

ts


Auto; Member of Parliament, India, begged to differ,saying he has little room to manoeuvre on the pricingof his company’s two-wheelers, with his marginsalready thin.

Not a time for doom and gloom? Pramod Bhasin,President and Chief Executive Officer, Genpact, India,had a different take, reporting that the situation forSMEs is “dismal”. Then there are other threats toIndia’s high growth and sustained prosperity, such asthe scourge of chronic disease and malnutrition: 40%of Indian children are malnourished and 76% areanaemic by international standards. “No countrypositioning itself for a period of rapid economic growthcan afford such a haemorrhaging of humanresources,” said K. Srinath Reddy, President, PublicHealth Foundation of India (PHFI), India.

Energy security is also likely to be a problem, said AdilZainulbhai, Managing Director, India, McKinsey &Company, India. “If India sustains a growth rate of 7-8%, there will be a huge energy shortage.” Waterstress is yet another major concern. Yet India may bein a better position to deal with these challengesbecause of its relatively measured pace of growthcompared to China. India’s energy consumption hasbeen moderate despite its rapid growth. “As we have

been slow to urbanize, we have the opportunity to dothings right,” said Ajay Shankar, Secretary, Departmentof Industrial Policy and Promotion, Ministry ofCommerce and Industry, India.

Perhaps the starkest difference in the perception ofrisk was over the state of the agricultural sector, inwhich two-thirds of India’s workforce is employed. TheFinance Minister hailed the robust pace of growth.“We will have a very substantial bumper crop,” hepredicted. Yet in a session on agriculture, the focuswas on how dysfunctional agriculture is and howurgently productivity needs to be increased. “We haveto bridge the gap between farmers and thegovernment,” said Dhruv M. Sawhney, Chairman andManaging Director, Triveni Engineering & Industries,India. “We need to reach out to the small farmers.Improvement in institutional mechanisms and newforms of private extension services will help increaseproductivity.” Not mincing words, Rajshree Pathy,Chairman and Managing Director, Rajshree Sugars &Chemicals, India, added: “What the country needstoday is a focused, single-minded policy on

“No country positioning itself for aperiod of rapid economic growth canafford such a haemorrhaging of human resources.”

K. Srinath Reddy, President, Public Health Foundation

(PHFI), India

Per capita water availability in India

Sources: United Nations Food and Agriculture Organization (2008), National Institute of Hydrology,India (2005)

Forecasted

0

500

1000

1500

2000

2500

3000

3500

4000

4500

1958

-196

2

1963

-196

7

1968

-197

2

1973

-197

7

1978

-198

2

1983

-198

7

1988

-199

2

1993

-199

7

1998

-200

2

2003

-200

720

2520

50

Water Scarcity Level

cu

bic

mete

rs p

er

cap

ita p

er

an

nu

m


agriculture, not a fragmented policy. We need to havea cohesive policy and commitment by policy-makersthat doesn’t change whenever a new government iselected.”

Political risk was something of an elephant-in-the-room throughout the Summit. With general electionsnext year and now with the fallout from the Mumbaiattacks, the whole risk picture for India will surely shiftcontinuously 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 thatare only now coming into sharper focus – will beespecially challenging for its current and futureleaders, as well as for local business and the manyglobal investors who have come to view India as anintegral part of their international business strategy.

“We have to bridge the gap betweenfarmers and the government. We needto reach out to the small farmers.”

Dhruv M. Sawhney, Chairman and Managing Director, Triveni

Engineering & Industries, India

“Why not get inundated by Indiangoods? They might be cheaper!”

Abdul Razak Dawood, Chairman, Descon, Pakistan

The turmoil in the global economy will affect India’s marketsand growth outlook, according to the World EconomicForum’s India@Risk 2008 report. Prepared in conjunctionwith the Confederation of Indian Industry (CII), the reportfinds that the risk to India’s economy will be higher if adeeper retrenchment from globalization follows. “This couldmanifest itself not only through decreased trade but alsothrough countries taking tougher stances on global issuessuch as climate change, resource management and the roleand reform of international organizations,” said IreneCasanova, Associate Director of the Forum’s Global RiskNetwork and co-author of the report.

Launched at the India Economic Summit, the reportpresents the latest insights into trends, potentialconsequences and mitigation strategies relevant to key riskareas facing India:• Economic Security: how the global financial crisis is likely

to affect India and how the country will manage thecurrent financial turmoil

• Energy Security: considering means by which India canimprove its energy supply network and become a lowcarbon economy

• Agriculture and Food Security: improving agriculturalproductivity, addressing the problem of malnutrition andmanaging water resources

• National Security: how India can establish itself as a forcefor stability in the region and contain and address internalsources of instability

The report finds that many of the issues facing India in thefour highlighted areas will require considerable investment onthe part of India’s public and private sectors over the longterm. Decision-makers in government and business will beforced to make trade-offs as to where spending andinvestments are allocated. However, a tighter environmentmay also help speed reforms and encourage greaterefficiency. A great deal of political will and dialogue withdifferent stakeholders will be required, but India’s growth isstill strong relative to other economies, and its growth willcontinue to unfold over decades rather than years.

India@Risk 2008 Report



Inclusive Growth

“We are going to enter a life of contradictions,” saidBhimrao Ramji Ambedkar, head of the DraftingCommittee of the new Indian Constitution, on the eveof its signing in 1949. “In politics we will have equalityand in social and economic life we will have inequality.”Today, despite a strong growth rate that exceeded 9% forthe fiscal year 2007-2008, that contrast between rich andpoor, and between rural and urban, has become starker.

To be sure, since Ambedkar’s day, there has been asignificant reduction in the percentage of the Indianpopulation living in absolute poverty. But, overall, Indialags behind Brazil, Russia and China, three other largeemerging markets that, with India, are popularlyreferred to as the BRICs. “Development needs aparadigm shift,” said Narendra Modi, Chief Minister ofGujarat, India. “For us in India, poverty and deprivationremain the biggest challenge. Since the country isgrowing, the challenge to create conditions in whichthe poor can participate in the process ofdevelopment is all the more important.”

To foster inclusive growth, business, civil society andgovernment must collaborate to redesign educationalcurricula, democratize and improve healthcare, andharness growth industries such as tourism and mobilecommunications to include a broad range of socialsectors. “We have to look at how the growth process

affects every section of society,” said Kamal Nath,Minister of Commerce and Industry of India. “We’vetapped one India; now we need to tap the other India.”

That quality education is key to mobility is axiomatic.India now faces significant challenges in updating aneducational system mired in bureaucracy so thatstudents are better prepared for the globalmarketplace. “It’s not just about education,” saidManvi Sinha, Resident Editor, New Delhi Television(NDTV), India, “it’s about ‘skilling’ to meet the newneeds of the new Indian economy.”

One-third of all Indians are under the age of 14, andtwo-thirds live in rural communities. Increasing theproductivity of the agriculture sector is a critical goal.B. S. Yeddyurappa, Chief Minister of Karnataka, India,outlined a seven-pronged strategy for achieving inclusivegrowth. The first step: to boost rural growth andprosperity by increasing agricultural income. Hisgovernment, he told participants, would concentrate

“I don’t think that the formula in theWestern world has succeeded.”

Kapil Sibal, Minister of Science and Technology and Earth

Sciences of India

GDP per capita, PPP (current US$), 2005

Source: World Development Indicators, World Bank (2007)

0 2,000 4,000 6,000 8,000 10,000 12,000

Bangladesh

Pakistan

Vietnam

India

Indonesia

China

Brazil

Russia


on developing organic farming, promoting sustainableand efficient use of water, expanding employmentopportunities for citizens living in rural areas andupgrading rural infrastructure.

Infrastructure development across the nation is alsocrucial to achieving inclusive growth, especiallythrough employment. But India’s infrastructure has beena persistent problem that successive governments havefailed to address. Infrastructure development, saidMember of Parliament N. K. Singh, suffers from“chronic diseases” and “new infections.” Meaningfulreform has long been difficult. Now, the high cost ofborrowing is a new hurdle to overcome. “Our policy isdecisively behind the reality curve,” Singh lamented.Montek S. Ahluwalia, Deputy Chairman of India’sPlanning Commission, stressed that fast-trackinginfrastructure projects that are already in the pipelinewould help economic growth to rebound.

As the Indian economy continues a gradual yet steadytransition away from agriculture to services andmanufacturing, a new generation of rural Indians needsa new set of skills. In 2004, the Confederation ofIndian Industry (CII) launched the Skills DevelopmentInitiative to meet the need: “We have a model which isworkable,” said Kamath, “now we need to scale it.”India needs to increase manufacturing growth from 9%to 13%. Technology is driving only 9% of manufacturing,said Ashwani Kumar, Minister of State for Industry,Ministry of Commerce and Industry, India. “What isneeded is training in the use of technology and hightechnology. It’s clear we need technology to improve,”he stressed.

Reforming the very design of government-lededucation remains a critical, yet overlooked, challenge.Naveen Jindal, Member of Parliament, India; YoungGlobal Leader, suggested a type of voucher systemwherein instead of government schools providingsubsidized education, students’ families would receivea sum directly and be given the freedom to choosewhere to send their children. “The stress is on qualityeducation and accountability,” explained Jindal.

According to the World Economic Forum’s India@Risk2008 report, one-quarter of India’s population ismalnourished and living below the poverty line, andover one-third have no access to modern medicine. Atthe same time, India trails the other BRIC countries inpublic health spending, allocating less than 1% ofGDP to healthcare.

India needs to pursue affordable healthcare that doesnot compromise on quality. “I don’t think that theformula in the Western world has succeeded,” saidKapil Sibal, Minister of Science and Technology andEarth Sciences of India. “We need to look at adifferent paradigm, a different formula for healthcare.”

Early childhood healthcare is particularly critical, asmalnutrition in childhood leads to permanentdeficiencies. Health literacy needs to be scaled up,and trained community health workers need greatersupport from the government.

But government alone cannot carry the burden. “Themessage is quite clear,” said K. Srinath Reddy,President, Public Health Foundation of India (PHFI),


India, “Business must leverage health so that healthcan leverage business.” India is already a leader indeveloping drugs to combat pandemics that plaguethe developing world, such as HIV and malaria. “TheIndian pharmaceutical industry is a global presence,”said Douglas Alexander, Secretary of State forInternational Development of the United Kingdom, “and Ithink the real focus of the discussion should be how toset that presence to work for the global public good.”

Despite global financial woes, at least two segmentsof the Indian economy remain strong and holdpromise for greater social and economic inclusion:mobile communications technology and tourism.

Mobile technology is already revolutionizing Indianagriculture. Naimur Rahman, Director, OneWorldInternational South Asia, India, described hisorganization’s provision of personalized agriculturaladvisory services to 100,000 Indian farmers.

“This is more about social-economic liberation thantechnical revolution,” said Ben J. Verwaayen, ChiefExecutive Officer, Alcatel-Lucent, France. “There will

be a surprise as to what people will do. But let’s becrystal clear that it will have effects we haven’tunderstood on behaviour. I’m not sure if institutionsare ready for this upheaval.”

India’s receipts from tourism have grown steadily overthe last few years – and the number of tourists visitingIndia (5.7 million in 2007) is predicted to grow by 8.8%over the next decade: the travel industry can providebenefits across many sectors of Indian society.

With 135 new tourist sites coming online in rural India,the travel industry should be a focus for economicinclusion initiatives. Adequate training in the hospitalityindustry remains in widespread deficit; and middle andupper income tourists are often discouraged fromvisiting due to a perceived lack of services.

“We’ve done a great job with Incredible !ndia, butabout 17 years too early,” said Suhel Seth, ManagingPartner, Counselage India, India. “We don’t haveadequate infrastructure; we don’t have the civic senseto make our cities clean and tourist-friendly.”

Public Health expenditure, 2005 (% of GDP)


0.95

1.82

3.48

2.913.22 3.13

0

1

2

3

4

India China Brazil Mexico Russia South Korea

“It’s not just about education; it’s about‘skilling’ to meet the new needs of thenew Indian economy.”

Manvi Sinha, Resident Editor, New Delhi Television (NDTV), India

To make India’s vast workforce partners in the country’sgrowth, education and skills training need to be rampedup. As the economy grows, there will be sizeabledisplacement of workers between sectors for whichthey will have to be provided the necessary skills, saidKamal Nath, Minister of Commerce and Industry ofIndia. And as the economy becomes increasinglyknowledge-oriented, he said, workers will have to beimparted newer, more complex skills.

Jeffrey Joerres, Chairman and Chief Executive Officer,Manpower, USA, explained that India should take amultifaceted approach to skills creation by placingemphasis on education and vocational and job training.

Partnering with the private sector is the way forward,according to Nath. He endorsed the efforts made byNIIT Group, India, which its chairman, Rajendra S.Pawar, shared at the India Economic Summit. He saidthe first step is to identify and catalogue the thousandsof skills required and available. The next step is todevelop a system to upgrade these skills. The third

challenge, he noted, is to bring the price of trainingdown to a level that rural workers can afford. He saidthe NIIT model involves the private sector, thegovernment, NGOs, sundry sponsors and rural workersas stakeholders. Companies provide trainingscholarships for rural students, who then join thesecompanies as workers. The government providesinfrastructure – often existing buildings and equipmentthat have fallen into disuse.

Regarding what is being done to upgrade India’sgovernment schools, K. V. Kamath, Managing Directorand Chief Executive Officer, ICICI Bank; President,Confederation of Indian Industry (CII), India, saidinterventions are being made to provide vocational skillsat the right age so that even students who drop out ofschool leave with a certain employable set of skills. Headded that, while rural India is just beginning to engagewith “market India”, tomorrow it will become a driver ofchange. In that scenario, it will begin to pay for the skillsit needs to acquire.

Inclusive Growth


“This is more about social-economic liberation thantechnical revolution. There will be a surprise as to whatpeople will do. But let’s be crystal clear that it will haveeffects we haven’t understood on behaviour. I’m not sure ifinstitutions are ready for this upheaval.”

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

“Since India is now growing very fast, the challenge tocreate conditions in which the poor can participate in theprocess of development is all the more urgent. We cannothave pockets of wealth and corridors of poverty coexisting.”

Narendra Modi, Chief Minister of Gujarat, India



At 50th place in the World Economic Forum’s GlobalCompetitiveness Index for 2008-2009, India ranks justabove Russia and Malta and below Jordan and Italy.Summit participants freely offered their views on howthe country can improve that performance in comingyears. While the unfolding global financial crisis isexpected to drag growth down from 9% to around7%, it is not expected to alter significantly the agendathat India must pursue if it is to enhance productivity.Among the key priorities: address the infrastructure deficit,invest in education and training to narrow the skills gap,remedy inefficiencies in the agriculture sector, improvegovernance to allow for more coherent policies andimplement reforms to create an authentic single market.

To be sure, India has come a long way in recentyears. Take automobiles: “India has created a sectorof excellence in the small-car sector, which is worldclass,” reckoned Steven J. Veldhoen, ManagingDirector, Asia, Booz & Company, Japan. Theliberalization of telecommunications has resulted in

greater competition and the proliferation of mobilephones, which Deepak Puri, Chairman and ManagingDirector, Moser Baer, India, predicted would soon bemade in India. The Indian pharmaceutical industry hasestablished a global footprint. And of course, India hasmade an international name for itself in businessprocess outsourcing, particularly with call centres andsoftware development and programming.

Yet India still has a long way to go. For example,“India needs to catch up in global branding,” saidAllen Ma, President, BT Asia Pacific, BT, Hong KongSAR. The question is whether India can foster thehuman resources to achieve this and other goals.“There is amazing, world-class talent here,” ShaileshRao, Managing Director, Google India, India,observed. “The question is: how do you take thetechnological talent of the country and set it up totake risks that might lead to failure?” Remarking thatIndian patent applications have declined, Rao arguedthat “this isn’t to do with skills but mindset. Thereneed to be incentives to create new products.”

According to many participants, the potential for Indiato harness its considerable talent pool effectively andtranslate those assets into competitive advantages isenormous. As Nandan M. Nilekani, Executive Co-Chairman, Infosys Technologies, India; Member of theFoundation Board of the World Economic Forum, putit, “Population is not a burden, but human capital.”India, for example, is positioned to be a global leadernot just in the life sciences but also in healthcare

“We have seen how a crisis ofconfidence is paralytic to economies.Any crisis of confidence in sharing,trading or collaborating online caneasily become like that.”

Matt Bross, Chief Executive Officer, BT Innovate, and Group

Chief Technology Officer, BT, United Kingdom


delivery, said Hari S. Bhartia, Co-Chairman andManaging Director, Jubilant Organosys, India. “Look at[Bengaluru]; look at Delhi; look at Hyderabad; look atPune: there are many such clusters which haveevolved and you’re starting to see innovation happen.”

Malvinder M. Singh, Chief Executive Officer andManaging Director, Ranbaxy Laboratories, India;Young Global Leader, agreed: “There has been asignificant increase in investment in healthcare. Butwe’re only sitting on the tip of the iceberg and there isa lot more that has to be done.”

For one thing, India needs to address its gapinginfrastructure deficiency. This includes boosting thevery IT capabilities that have allowed its servicessector to boom. The digital divides that exist need tonarrow. “We have seen how a crisis of confidence isparalytic to economies,” said Matt Bross, ChiefExecutive Officer, BT Innovate, and Group ChiefTechnology Officer, BT, United Kingdom. “Any crisis ofconfidence in sharing, trading or collaborating onlinecan easily become like that.”

Especially in mobile telephony and the Internet, Indiacould make significant strides forward. “We’re trulypoised to make a paradigm shift from dial tone toinformation tone,” said Jai Menon, Director of Innovation,Bharti Airtel, India. “We’ve seen an innovation gap of75 years bridged first with PCs, then TV and nowmobile phones. We’re talking of the inevitable.” Thesocial impact of addressing the infrastructure gap couldbe enormous. In mobile telephony and IT, giving networkconnections to the deprived and disadvantaged wouldempower them in an instant. “We still need to providea network that touches people and continues to beaffordable,” said Menon. “We believe that the fortunelies at the bottom of the pyramid.”

“What is needed is training in the use oftechnology and high technology. It’sclear we need technology to improve.”

Ashwani Kumar, Minister of State for Industry, Ministry of

Commerce and Industry, India

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 per million population 344 3,319 119 3,187 268 708


While India may be poised for a major competitivenessboost through IT, policy-makers could prove to be thespanner in the works. Reforms – especially in India’ssometimes chaotic democratic space – can comeslowly. “In India, things happen when ideas take root,”Nilekani explained. “Change is slow, for we follow anarduous bottom-up approach. Half-done reforms leadto more inequality.” And, of course, real implementationrequires investment. Funding is never easily available –and with the unfolding global financial crisis, that willnot improve.

Consider the tourism industry, where India has not beenhighly competitive despite its obvious advantages as adestination. India attracts just one-tenth the touriststhat flock to China and one-quarter of the visitors thatthe Ukraine and Turkey receive. “We’re punching wellbelow our weight,” said Naazneen Karmali, Editor andBureau Chief, Forbes Magazine, India. Not enoughinvestment has gone into building the facilities toaccommodate a huge influx of tourists and notenough has been done to train the workers needed tocater to them. While India has long been a magnet forlow-end travellers, it has yet failed to developsignificantly the lucrative high end of the market. “Wedon’t need backpackers; we need spenders,” saidVijay Mallya, Group Chairman, UB Group, India.

Finally, to increase its global competitiveness, Indianeeds to unlock the economic synergies that it haslong shared with its neighbours in South Asia butwhich have for geopolitical reasons remaineduntapped. While the recent terrorist attacks are likelyto hinder further rapprochement between New Delhiand Islamabad, the undeniable logic of closercooperation and integration remains, especially inaddressing security and law and order. About US$ 4billion in illicit trade already occurs between India andPakistan. If normalization occurred, trade could veryquickly reach US$ 11 billion, according to estimates.

“If things get going, it could work like a charm,” saidAdi B. Godrej, Chairman, The Godrej Group, GodrejIndustries, India, pointing out that a common marketbetween India, Nepal and Bhutan is working very well.“Why should anyone have to move goods fromKarachi to Lahore and Mumbai to Delhi [when thedistances between Mumbai and Karachi and betweenDelhi and Lahore are so much shorter]?” Godrej wouldlike to have a presence in Pakistan, but with relationsbetween New Delhi and Islamabad as they are,cannot do so now.

“We believe that fortune lies at thebottom of the pyramid.”

Jai Menon, Director of Innovation, Bharti Airtel, India

“We don’t need backpackers; we need spenders.”

Vijay Mallya, Group Chairman, UB Group, India

South Asian countries have enormous incentive to openeconomic relations with each other as the region isgrowing even at a time of global economic meltdown,and the size of the market is greater than China’s.

Pakistan has offered to create an economic union withIndia to increase trade with its neighbour – which iscurrently minimal. Pakistan’s President Asif Ali Zardariindicated that an EU-style economic zone could helpboost his country’s economy. Zardari’s overture camejust two days before the terror attacks in the Indian cityof Mumbai, which have strained relations betweenIslamabad and New Delhi.

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

The potential for Indo-Pakistan trade, for example, isUS$ 11 billion but, at the moment, trade worth up toUS$ 4 billion is taking place illegally via smuggling. Henoted that non-tariff barriers remain quite high, althoughboth sides could make a start either by allowing allgoods in any particular sector or any agreed-upon valuechain.

South Asia must improve logistics in order to trademore, according to Amadou Diallo, Chief ExecutiveOfficer, DHL Global Forwarding, Singapore. As of now,he said, more time is spent at borders than intransporting goods to their destination.

Building on Economic Synergies in South Asia



Acknowledgements

Strategic Partners

AccentureAmerican International Group (AIG)Apax PartnersAudiAvaya Bahrain Economic Development Board Basic ElementBombardierBooz & CompanyBTCACisco Systems Clifford ChanceDeloitteDeutsche BankDeutsche Post World Net

Summit Supporters

Abu Dhabi Investment HouseDepartment of Industrial Policy and Promotion, Ministry of Commerce and Industry of IndiaFinancial Technologies IndiaGulf Finance HouseNDTV ProfitRakindo Developers

Service Provider

Taj Palace Hotel

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 IndiaEconomic Summit:

FedExForbes KPMGMcKinsey & CompanyManpowerMerrill LynchMETRO GroupMorgan Stanley NikeThe Olayan GroupPepsiCoReliance IndustriesSatyam Computer Services TravelportUBSVolkswagen


Contributors

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

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

The World Economic Forum would like to express its appreciation to the summary writers fortheir 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 thisreport.


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

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, includingphotographs 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 befound at the following links:

www.weforum.org/india2008www.weforum.org/india2008/Programmewww.weforum.org/india2008/Partnerswww.weforum.org/indiaprivate2008www.weforum.org/india2008/Summarieswww.weforum.org/india2008/RegionalUpdate

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

The World Economic Forum is an independentinternational organization committed to improvingthe state of the world by engaging leaders inpartnerships to shape global, regional andindustry agendas.

Incorporated as a foundation in 1971, and basedin Geneva, Switzerland, the World EconomicForum is impartial and not-for-profit; it is tied tono political, partisan or national interests.(www.weforum.org)

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