STOCK MARKET

A stock market, equity market or share market is the aggregation of buyers and sellers (a
loose network of economic transactions, not a physical facility or discrete entity)
of stocks (also called shares); these may includesecurities listed on a stock exchange as
well as those only traded privately

SIZE OF THE MARKEET

Stocks can be categorized in various ways. One common way is by the country where the
company is domiciled. For example, Nestl and Novartis are domiciled in Switzerland, so
they may be considered as part of the Swiss stock market, although their stock may also
be traded at exchanges in other countries.
At the close of 2012, the size of the world stock market (total market capitalisation) was
about US$55 trillion. By country, the largest market was the United States (about 34%),
followed by Japan (about 6%) and the United Kingdom (about 6%). [2]This went up more
in 2013.

STOCK EXCHANGE
A stock exchange is a place or organization by which stock traders (people and
companies) can trade stocks. Companies may want to get their stock listed on a stock
exchange. Other stocks may be traded "over the counter" (otc), that is, through a dealer. A
large company will usually have its stock listed on many exchanges across the world.
Exchanges may also cover other types of security such as fixed interest securities or
interest derivatives.

TRADE
Trade in stock markets means the transfer for money of a stock or security from a seller to
a buyer. This requires these two parties to agree on a price. Equities (stocks or shares)
confer an ownership interest in a particular company.
Participants in the stock market range from small individual stock investors to
largertraders investors, who can be based anywhere in the world, and may include banks,
1

insurance companies or pension funds, and hedge funds. Their buy or sell orders may be
executed on their behalf by a stock exchange trader.
Some exchanges are physical locations where transactions are carried out on a trading
floor, by a method known as open outcry. This method is used in some stock exchanges
and commodity exchanges, and involves traders entering oral bids and offers
simultaneously. An example of such an exchange is the New York Stock Exchange. The
other type of stock exchange is a virtual kind, composed of a network of computers where
trades are made electronically by traders. An example of such an exchange is
the NASDAQ.
A potential buyer bids a specific price for a stock, and a potential seller asks a specific
price for the same stock. Buying or selling at market means you will acceptany ask price
or bid price for the stock, respectively. When the bid and ask prices match, a sale takes
place, on a first-come-first-served basis if there are multiple bidders or askers at a given
price.

HISTORY
Established in 1875, the Bombay Stock Exchange is Asia's first stock exchange
In 12th century France, the courretiers de change were concerned with managing and
regulating the debts of agricultural communities on behalf of the banks. Because these
men also traded with debts, they could be called the first brokers. A common misbelief is
that in late 13th century Bruges commodity traders gathered inside the house of a man
called Van der Beurze, and in 1409 they became the "Brugse Beurse", institutionalizing
what had been, until then, an informal meeting, but actually, the family Van der Beurze
had a building in Antwerp where those gatherings occurred;[18] the Van der Beurze had
Antwerp, as most of the merchants of that period, as their primary place for trading. The
idea quickly spread around Flanders and neighboring countries and "Beurzen" soon
opened in Ghent and Rotterdam.
In the middle of the 13th century, Venetian bankers began to trade in government
securities. In 1351 the Venetian government outlawed spreading rumors intended to lower
the price of government funds. Bankers in Pisa, Verona, Genoa and Florencealso began
trading in government securities during the 14th century. This was only possible because
2

these were independent city states not ruled by a duke but a council of influential citizens.
Italian companies were also the first to issue shares. Companies in England and the Low
Countries followed in the 16th century.
The Dutch East India Company (founded in 1602) was the first joint-stock company to
get a fixed capital stock and as a result, continuous trade in company stock occurred on
the Amsterdam Exchange. Soon thereafter, a lively trade in variousderivatives, among
which options and repos, emerged on the Amsterdam market. Dutch traders also
pioneered short selling a practice which was banned by the Dutch authorities as early as
1610.
There are now stock markets in virtually every developed and most developing
economies, with the world's largest markets being in the United States, United Kingdom,
Japan, India, Pakistan, China, Canada, Germany (Frankfurt Stock Exchange),
France, South Korea and the Netherlands.

IMPORTANCE OF STOCK MARKET

The stock market is one of the most important ways for companies to raise money, along
with debt markets which are generally more imposing but do not trade publicly. This
allows businesses to be publicly traded, and raise additional financial capital for
expansion by selling shares of ownership of the company in a public market.
The liquidity that an exchange affords the investors enables their holders to quickly and
easily sell securities. This is an attractive feature of investing in stocks, compared to other
less liquid investments such as property and other immoveable assets. Some companies
actively increase liquidity by trading in their own shares.
History has shown that the price of stocks and other assets is an important part of the
dynamics of economic activity, and can influence or be an indicator of social mood. An
economy where the stock market is on the rise is considered to be an up-and-coming
economy. In fact, the stock market is often considered the primary indicator of a country's
economic strength and development.
Rising share prices, for instance, tend to be associated with increased business investment
and vice versa. Share prices also affect the wealth of households and their consumption.
Therefore, central banks tend to keep an eye on the control and behavior of the stock
3

market and, in general, on the smooth operation of financial system functions. Financial
stability is the raison d'tre of central banks.
Exchanges also act as the clearinghouse for each transaction, meaning that they collect
and deliver the shares, and guarantee payment to the seller of a security. This eliminates
the risk to an individual buyer or seller that the counterpartycould default on the
transaction.
The smooth functioning of all these activities facilitates economic growth in that lower
costs and enterprise risks promote the production of goods and services as well as
possibly employment. In this way the financial system is assumed to contribute to
increased prosperity, although some controversy exists as to whether the optimal financial
system is bank-based or market-based.
Recent events such as the Global Financial Crisis have prompted a heightened degree of
scrutiny of the impact of the structure of stock markets (called market microstructure), in
particular to the stability of the financial system and the transmission of systemic risk.
Relation of the stock market to the modern financial system
The financial system in most western countries has undergone a remarkable
transformation. One feature of this development is disintermediation. A portion of the
funds involved in saving and financing, flows directly to the financial markets instead of
being routed via the traditional bank lending and deposit operations. The general public
interest in investing in the stock market, either directly or through mutual funds, has been
an important component of this process.
Statistics show that in recent decades, shares have made up an increasingly large
proportion of households' financial assets in many countries. In the 1970s,
in Sweden, deposit accounts and other very liquid assets with little risk made up almost
60 percent of households' financial wealth, compared to less than 20 percent in the 2000s.
The major part of this adjustment is that financial portfolios have gone directly to shares
but a good deal now takes the form of various kinds of institutional investment for groups
of individuals, e.g., pension funds, mutual funds, hedge funds, insurance investment of
premiums, etc.

The trend towards forms of saving with a higher risk has been accentuated by new rules
for most funds and insurance, permitting a higher proportion of shares to bonds. Similar
tendencies are to be found in other developed countries. In all developed economic
systems, such as the European Union, the United States, Japan and other developed
nations, the trend has been the same: saving has moved away from traditional
(government insured) "bank deposits to more risky securities of one sort or another".

BEHAVIOR OF THE STOCK MARKET

From experience it is known that investors may 'temporarily' move financial prices away
from their long term aggregate price 'trends'. Over-reactions may occurso that
excessive optimism (euphoria) may drive prices unduly high or excessive pessimism may
drive prices unduly low. Economists continue to debate whether financial markets are
'generally' efficient.
According to one interpretation of the efficient-market hypothesis (EMH), only changes
in fundamental factors, such as the outlook for margins, profits or dividends, ought to
affect share prices beyond the short term, where random 'noise' in the system may prevail.
(But this largely theoretic academic viewpointknown as 'hard' EMHalso predicts that
little or no trading should take place, contrary to fact, since prices are already at or near
equilibrium, having priced in all public knowledge.) The 'hard' efficient-market
hypothesis is sorely tested and does not explain the cause of events such as the crash in
1987, when theDow Jones Industrial Average plummeted 22.6 percentthe largest-ever
one-day fall in the United States.
This event demonstrated that share prices can fall dramatically even though, to this day, it
is impossible to fix a generally agreed upon definite cause: a thorough search failed to
detect any 'reasonable' development that might have accounted for the crash. (But note
that such events are predicted to occur strictly by chance, although very rarely.) It seems
also to be the case more generally that many price movements (beyond that which are
predicted to occur 'randomly') are not occasioned by new information; a study of the fifty
largest one-day share price movements in the United States in the post-war period seems
to confirm this.

GLOBAL-COMPETITIVENESS
INTRODUCTION
The liberal economic policies of India unleashed in 1990s have resulted in two decades of
remarkable economic growth. In addition to the impressive economic growth presence of
abundant natural resources, cost-effective manpower, large number of English speaking
youth indicates the increasing important role to be played by India in global economy.
The integration with the global economy has provided wider space for India across the
globe. At the same time being interwoven with the global economy, interdependencies of
Indian economy with the global economy has increased. The effects of these
interdependencies precipitated well in the recent economic crisis of 2008-09. The slump
demand and liquidity crunch of the US and the EU economics curbed the economic
growth of India. This underscores the importance of sustainable economic growth of
India through implementing policies and factors that makes India competitive in the
global economy.
From the increasing complex and uncertain economic cycles it is evident that the
performance of a nation will depend on not losing long-term competiveness amidst shortterm economic cycles. A nation that gives importance to factors conducive to productivity
and successfully maintains supporting economic environment will be able to achieve
competitiveness and agility required for the changing economic paradigm. In India,
competitiveness will hasten the growth process enabling India to explore the business
6

opportunities available in India and abroad. A competitiveness supporting business

environment in India will help to tackle the global downturn effectively and will act as a
solid edifice to achieve inclusive and sustainable growth.
This report analyses the concepts of competitiveness, building blocks of global
competitiveness, Indias strengths and weaknesses in providing the driving forces of
competitiveness. Indias performance and future is analyzed by comparing it with some
other countries of global economy.

CONCEPTS OF NATIONAL COMPETITIVENESS

Michael E. Porter believes that national level productivity is the only meaningful
concept of national competiveness1. He finds it to be inappropriate to define
competitiveness solely on the basis of exchange rates, interest rates, cheap and abundant
labour, bountiful natural resources, government policies or management practices.
Classical theory focused factors of production such as land, labour and natural resources
as the drivers of competitiveness of a nation. With the passage of time the paradigm shift
brought by technological breakthrough and globalization has overshadowed the classical
theory. The concept of competitiveness has become more dynamic and evolving. The
evaluation parameter for competiveness of a nation must include parameters like global
strategy, foreign investments, segmented market, differentiated products, economies of
scope and scale, innovation etc.
Productivity (and thus competitiveness) is viewed as a function of political, legal and
macroeconomic context. The interplay of these basic functions leads to productivity
which provides competitiveness advantage to nations. The quality of microeconomic
business environment and the sophistication of company operation and strategy
determine the quality of microeconomic business environment. Stability of political and
legal system creates an environment where competitiveness is possible. But it is the
macroeconomic environment that creates competitiveness. The question why some
nations enjoy competitive advantages over the rest could be answered based on Porters
Diamond of Determinants of Competitive Advantages. A diagram of the diamond is
7

provided in figure 2.1. Each point in the diamond and the diamond as a system act as
basic ingredients for achieving mastery in global market.

Firm Strategy, Structure

and Rivalry

Domestic Demand
Factor Conditions
Conditions

Related and Supporting

Industries
8

Michael E. Porter, The Competitive Advantages of Nations, HBR, March-April 1990

Figure 2.1: Determinants of National Competitive Advantage

The four determinants of competitive advantages are:
1.

Factor Conditions
Factor conditions include the nations position in matters like skilled labour,
infrastructure etc. that are necessary base of competing.

2.

Demand Conditions
The demand of domestic market helps firms to create requisite avenues and
resources to compete at the global level.

3.

Related and Supporting Industries

Presence of supplier and related industries provide and growth impetus to
compete.

4.

Firm Strategy, Structure and Rivalry

The conditions in which companies are created, governed and companies learn the
basic lessons of competing is crucial to decide the functioning of the firms and
nation.
Based on the concepts postulated by Porter, World Economic Forum comes out with a
report named The Global Competiveness Report every year. The report contributes to
enhancing the understanding of determinants of economic growth. It also provides
underpinning factors that makes a country more competitive than other. Policy makers,
9

economic reformers and business leaders accept the global competitiveness report as a
reliable tool to formulate the strategy for competing at the international level.
Definition of Competitiveness
World Economic Forum defines competitiveness as the set of institutions, policies, and
factors that determine the level of productivity of a country. Productivity determines the
ability to sustain the level of income of a nation as well as it decides the return on
investment. Return on investment in turn decides the economic growth potential of a
nation.
Pillars of Competitiveness
World Economic Forum has identified 12 pillars of global competitiveness. These are:
1. Institutions
The legal and administrative framework within which the government, firms and
individuals interact with each other determines the institutional environment of a
nation. The quality of institutions have a strong impact on the way corporate and
government decisions are made, the growth drivers are decided and policies are
formulated. Thus, investment on factors of productions and productive processes are
governed by the institutional mechanism. Governments commitment to growth and
competitiveness, inclusive growth, corruption, innovation, intellectual property rights,
foreign players, infrastructure building etc. affects the overall macroeconomic outlook
of a nation.
Private

institutions

and

their

commitment

to

development,

transparency,

responsiveness and excellence are as important as the government and the legal
framework. Responsible corporate behavior and quality and service orientation of
private players makes business environment suitable for growth and expansion.
The increasing role of public private partnership is also crucial for increasing
productivity.
2. Infrastructure

10

Efficient functioning of market economy, distribution of corporate outputs require

effective and extensive infrastructure. Infrastructure also decides the kind of industries
and sectors that will drive the economy. Transportation and communication are two
basic infrastructures for economic growth. Road, rail, air and port connectivity
ensures trading of goods and services within and across nations.

3. Macroeconomic Stability
Instable macroeconomic conditions like too high interest rates; high inflations,
uncertain price fluctuations, fiscal deficit etc. are detrimental to the economic health
of

nation.

Thus

macroeconomic

stability

is

another

pre-requisite

for

competitiveness.
4. Health and Primary Education
Health of the productive human resource is an important asset to the organization.
Workers with illness and health problems could drag the growth rate down. This will
also have a negative impact on the business environment due to absenteeism and poor
performance due to sickness.
Primary education level makes workers more productive and improves their ability to
perform on critical situations.
5. Higher Education and Training
The rapidly changing business environment requires qualified workforce who can
adapt to the ever changing business environment and can act as change catalysts
within the organization. Again nations that strive to move up the value chain from the
simple production sectors to complicated processes and products.
6. Goods/Services market efficiency

11

Market efficiency encourages productive players to participate in economic activities

that could generate value for the nation. Market efficiency ensures that taste, choice
and preferences of the consumers are reflected in the market. Efficient trading of
goods and services encourages both domestic and foreign players to play roles in the
market system. This increases competition which ultimately makes the market system
more competitive.

7. Labour Market Efficiency

Labour market efficiency creates a level playing field for the workers in order to
attract best of the talents. It also ensures effective allocation of human resource and
motivates labors to give their best performance.

8. Financial Market Sophistication

Sophisticated financial market generates faith in the investors through information
symmetry. Financial market channelizes the savings of budget surplus players of the
economy towards the budget deficit players with the ability to generate maximum
returns for the economy. Sound banking sector, well regulated exchange boards,
effective central bank etc. makes the financial market efficient.
9. Technological readiness
Agility with which a nation and its industries adapt to the changing technology is
crucial. Upgradation of the system to fit into the new technology helps to achieve an
edge over others. It is more crucial when it comes to Internet and Telecommunication
Technology as these technologies have their impacts on almost all industrial sectors.
10. Market Size
Bigger market size is instrumental to achieve economies of scale. With globalization
12

it is possible to explore foreign markets to reap the benefits of scale.

11.

Business Sophistication
Quality of countries overall business networks and quality of firms individual
operational excellence and strategy decides overall business sophistication. It
helps to foster responsiveness and innovation.

12.

Innovation
Innovation is inevitable for long-run benefits. Investment on Research and
Development (R & D) activities brings innovation. Innovation is more important
as countries approach frontiers of knowledge.
All the 12 pillars of competitiveness are interdependent. However, it is believed that a
nation starts with factor driven competitiveness and moves towards efficiency driven to
innovation driven competitiveness. The pillars of each stage is shown in figure 2.2

STATE OF INDIAN ECONOMY

13

For the first three decades after independence India followed inward-looking policies.
The notorious license raj regime was characterized by heavy state interventionism and
central planning. Result was erratic and sluggish growth rate. Between 1960 and 1991 the
annualized growth rate was abysmal 4% per year. Economic reforms of 1991 steered
Indian economy in the path of growth. Policies of economic liberalization, privatization
and globalization helped Indian economy to grow at an impressive rate. Average GDP
growth rate was 6.2% between 1991 and 2008. India is one of the fastest growing
economies today. Indias GDP and per capita GDP growth is shown in figure below.
Figure 3.1: Indias growth and per capita growth rate, Source: World Bank
According to 2005 World Bank report around 42% of Indians still lived below poverty
line2. The figure was 54% in 1988. India ranks 134 th in latest Human Development Index
(HDI)3. Life expectancy in India is 64 years. For China the figure is 72 years. In 2007
foreign direct investment in India accounted to US$ 23 billion4. Export of goods and
services was US$ 239 in the same period. From 2001-02 to 2008-09 export has tripled
more than 3 times due to government efforts and policy frameworks. The share of trade to
GDP has increased from 37.6% in 2003-04 to 60.5% in 2008-095.
Recent period of comparative macroeconomic stability, improvements in domestic
savings, investment has provided strength to Indian economy. Inexpensive skilled labour,
availability of raw materials and growing domestic demand are expected to enhance
Indias
2

World Bank 2009a

UNDP 2009

UNCTAD 2008

CMIE

competitiveness in future. Policy reforms needs to focus on poverty eradication and

quality of life improvement. Creation of quality jobs for the growing working population
is essential. The economic growth needs to create more jobs and needs to distribute the
benefits of job creation across the nation. India also needs to focus on power and
transportation for enhancing productiveness. This is possible by investments by both
government and private players.
14

Corporate sector performance has contributed to Indias growth. Productivity increase and
capital efficiency has enabled Indian corporate sector to compete in global markets.
Corporate top line in India is growing at a robust rate of more than 20% over past five
years6.
Indias income growth at 1999-2000 prices during different 5 years plan is demonstrated
in Figure 3.2. The increase in both gross national product and per capita net national
product has grown over the years.

Figure 3.2: Indias Income Growth, Source: Ministry of Finance

INDIAS COMPETITIVENESS
Rank of India is 49 out of the 133 nations in the Global Competitiveness Index. At
present factor driven competitiveness drives India.
India performs abysmally poor in Health and Primary Education with a rank of 101.
Alarming sanitary situation, insufficient quality and quantity of education drags India
down in competitiveness. Energy and transport infrastructure ranked at 76 th needs
improvement. Corruption and Securities issues remain to be addressed.
India has better position when it comes to efficiency indicators. Indias financial system
15

ranks 16th indicating development in this system. India has a strong banking system
ranked at 25th. Due to huge population and growing purchasing power of consumers,
India ranks 4th in market size. Presence of a number of competitors makes Indias market
efficiency reasonably good (rank: 48th). India still needs to work on lowering the entry
barriers in certain markets. Rigid hiring and firing policy earns a low rank in labour
market efficiency (rank: 83). Low penetration rate of internet and communication
technology has resulted in poor rank (83) in technological readiness. Despite a strong and
reliable higher education system, the rank of India in Higher education is 66 due to the
lack of sufficient accessibility to all.
It is remarkable to notice Indias rank in innovation drivers. India ranks 27 th in business
sophistication and 30th in innovation.
When compared to other nations India lacks behind in several parameters. China is ahead
of India in 10 out of the 12 pillars of competitiveness. India enjoys competitive advantage
in financial market sophistication, market size, business sophistication and innovation.
Indias performance could be analyzed on the basis of each of the 12 pillars of
competitiveness.
4.1 Institutions
India stands out much ahead of the countries of same income group and region when
it comes to institutions. Business communities perceive India positively when it
comes to institutions.
Government: Government efficiency and ability to nurture a business-conducive
environment is evaluated encouraging by entrepreneurs.
Judiciary System: The independent and well functioning judiciary system provides India
a sound scope to implement rule of the law.
Intellectual Property Rights: India is also ranked low in Intellectual Property Rights
(IPR) related issues. Considering the importance role played by IT and communication
technology it is imperative to strengthen the IPR related laws in India.

16

Corruption: Business communities rank India poor on trust on politicians and

administrative/bureaucratic corruption. Transparency International has ranked India 85
out of 180 nations in Corruption Perception Index. India is still considered as a nation
where business is affected by bureaucratic red tape. May be a second round of reforms to
eliminate the red tape is demand of the time now.
Terrorism: Threat of terrorism has been always associated with India. The serial bomb
blasts in various cities of the nation followed by the Mumbai terrorist attack stains
negative colours on the business environment of India.
Crimes: On a positive note India ranks much better when it comes to other forms of
crimes scoring well above its comparative nations of same income group and region.
Private Institution: Indias rank in private institutions is at a reasonable number of 51.
Unfortunately the rank has shown a negative movement which might be assigned to
Satyam episode. India needs to improve its accounting and corporate governance
practices in order to unmask such scams.
4.2 Infrastructure
Indian competitiveness is adversely affected by the poor state of infrastructure and lack of
it. Shortage of power, water and transportation facility etc. hold back India. The country
ranks 76 in infrastructure. Some economists opine that lack of infrastructure prevents
Indias transition from an agrarian economy to a manufacturing economy.
Electricity: Electrification is the biggest infrastructural challenge faced by India.
Electricity production per unit of GDP has started falling after 2000. The electricity loss
during distribution and transportation remain s a major problem to be tackled. High
government regulation and dominance of public players have added to the wounds of
power sector.
Road Transport: India ranks below Pakistan and China when it comes to road
communication. 65% of freight and 85% of passenger traffic are carried by the road.
Hence, Improvement of road connectivity is imperative. Road accidents are also high in
India. This underscores the need of road safety.
17

Port Infrastructure: Indias port infrastructure suffers from low turnaround time,
insufficient handling capacity, and frequent human intervention. Low productivity and
bottlenecks make the situation worse. It is reported that Indias ports operate at more than
90% of their capacity. This emphasizes the need of upgrading the existing ports and
building new ports to meet the business and trade requirements. Indian governments
attempt to encourage public-private partnership (PPP) is expected to bring reforms in port
functioning. Government is also planning to provide more autonomy to major ports to
increase their performance.
Air transport: India is out-forming many of its comparative countries in terms of air
transportation. Governments decision to end state monopoly in aviation sector has paid
up. Competition among private and public players, emergence of low cost airlines has
demonstrated the dynamism of Indias aviation sector. Governments initiative to
modernize 35 airports are and privatization of Mumbai, Delhi, Hyderabad, Cochin and
Bangalore airports are expected to increase the efficiency and performance of aviation
sector.
Railroad: With 14 million passengers daily, Indias rail is the largest rail of the world.
Indian ranks an impressive 20th position in rail infrastructure. However, the high density
road corridors face capacity constraints.
It is widely accepted that Indias infrastructure development would be possible through
investment. Lack of sufficient public funds emphasized public private partnership (PPP)
in this sector. Allocation of more than 40% of budgetary outlay to infrastructure
development in the 2010-2011 budgets is positive signal at long-term orientation for
competitiveness building.
MACROECONOMIC STABILITY
Indian ranks 96 in macroeconomic pillar. Fiscal deficit is the primary reason for this low
rank. However, the 2010-2011 budget aiming at reducing the deficit from more than 6%
to 5.5% over might increase Indias rank in this parameter in future. The Fiscal
Responsibility and Budget Management Act (FRBMA) 2003 have helped India to achieve
some fiscal discipline. Balance budget is still a distant dream.
Government borrowing: The high government debt of around 75% of the GDP is
detrimental to the state of economy. It is estimated that Indian government borrows 34%
18

of the money it spends. Regulations forcing the commercial banks to invest in

government bonds divert the money from the more productive sector of the economy.
Inflation: India is facing severe challenges to curtail the increasing inflation rate.
Particularly the food inflation rate is a matter of concern. With the increase in oil and
petroleum prices as an outcome of 2010-2011 budget it is expected that the price of
commodity products will continue to increase as more inflationary pressures.
India has been exploring the options of coming out populist budgets to cut back subsidy
and to for reforms in tax structure. Withdrawal of subsidy in some sectors like IT
corroborates the fact that government is giving priority to reduce fiscal deficit.
HEALTH AND PRIMARY EDUCATION
India ranks 101 in health and primary education. The situation is linked to lack of
government funds to invest in such sectors, lack of skill manpower and infrastructure.
Sanitation and diseases: Only 28% of Indias population has access to sanitation facilities.
A sizeable portion of Indian population suffers from diseases like tuberculosis; malaria
etc. 21% of Indian suffers from malnutrition.
Primary Education: India has achieved more than 90% of enrollment in primary
education. Since many countries have achieved universal literacy at primary education
level India still lags behind. Quality of primary education remains a problematic area.
Poor spending is the primary reason for such abysmal performance. Indian has increased
its planned allocation to schools from Rs 26,800 Crores to Rs 31,036 Crores in 2010-2011
budget.
HIGHER EDUCATION AND TRAINING
With a rank of 66 Indian has higher enrollment rate then its comparative countries, but
has lower quality of education. Enrolment rate in secondary education is at 55% which is
low. Quality is far better in higher education. On a positive note India performs better in
quality of higher education and provision of on the job training. In the last few budgets
India had the provisions to create more IIMs, IITs and NIFTs to give boost to the higher
education sector.
GOODS/SERVICES MARKET EFFICIENCY
According to a World Bank report starting a business in India takes 30 days. Though the
19

number has reduced, it needs further reduction. Costs associated with starting a new
business are high in India.
Tax structure: World Bank estimates that on an average Indian firms pay 76% of their
profits as tax. Widening tax base is an option that could be exercised by the government
to lower tax rates.
Market Competition: Lowering barriers for foreign players will helps to improve
market efficiency through more fierce competition.
Formal Sector: India needs to encourage its players to switch from unorganized informal
sector to organized formal sectors. This will improve productivity and will help to handle
the critical issues of tax base increase as many informal sectors are outside the tax
structure.
LABOUR MARKET EFFICIENCY
Labour market has been a problem for Indias competitiveness. India ranks 83 in these
parameters.
Firing cost: In India it is difficult to dismiss employees. The cost of firing is also very
high.
Employer and Employee Relation: Employee and employer relation is not considered as
confrontational in India
Labour efficiency: Labour efficiency level of India is encouraging. Educational
attainment gap has also prevented adequate participation of female workforce.
Brain drain: India faces lesser brain drain than the countries of similar growth rate. This is
expected to increase Indias competitiveness as India is being able to retain and attract
talent.
FINANCIAL MARKET SOPHISTICATION
Indian ranks 16th in financial market sophistication. Despite financial crisis of recessions
of 2008-09 Indias rank has improved on this parameter.

20

Equity market: India has an extremely dynamic equity market. A jump from $387 billion
to $1811 billion in total market capitalization of the companies listed in equity market
from 2005 to 2008 corroborates this fact. Obtaining funds from domestic markets of India
has become easier.
Decreasing government regulation on matters of allocation of funds, simple policies for
foreign capital investment etc. are some of the improvement areas in this sector.

Technological Readiness
India Ranks 83 in technological readiness. Indias compound annual growth rate in
technology is around 65% from 1998 to 2008. Broadband access, use of computers etc.
lags in India. However, when it comes to firms in adopting technology, Indian firms
outperform many of its competitors in technology adoption. Greater diffusion and spread
of ICT is a priority area for India.

MARKET SIZE
Indian ranks fourth in market size. The US is the first followed by China and Japan.
Consumption in Indian market still faces the problems of low income. Increasing annual
disposable income has increasing the consumption capacity of Indian consumers over the
year.
Sales Tax: Movement of goods and services within states of India is governed and sales
tax imposed by state governments. As a result price of the same product varies in different
states. In addition regulations like Essential Commodities Act restrict free movements of
goods within the nation. Deregulation in these areas will give a boost to Indias
competitiveness.
Export Market: India is worlds 26th biggest exporter with just 1% share of total exports
of the world. This underscores the room of growth in export market for India.
Improvement in trade openness will increase exports.
21

22

BUSINESS SOPHISTICATION
India ranks 27th in global sophistication parameter. Nations competence in Business Process
Outsourcing, Information technology, telecommunication, consumer retailing, automobile sector,
pharmaceutical and air transport could be the reasons for higher business sophistication.
There are seven Indian companies in fortune magazines global 500 lists of biggest companies by
revenue. Financial Times list includes 5 Indian financial companies on the basis of their revenue.
Presence of Indian companies in global market is demonstrated in Table 4.1

Figure 4.1: Global Companies: Indias Presence, Source: Fortune 2009, Financial Times 2009

23

INNOVATION
Spending in research and development is crucial to foster innovation. The provisions of budget
2010-2011 encouraged higher investments on R&D.
Academia: National Institutes of Technology, Indian Institutes of Technology and Indian
Institute of Science etc. focuses on research and development activities.
Research organizations: research organizations like ISRO, ICAR, BARC, ICSR etc. have been
instrumental in fostering innovation in India.
Private Spending: Private spending on research and development in India is low. This is a
negative trend and needs attention.
IPR: Intellectual property rights in India are believed to be not par with other nations. In order to
nurture innovation India needs increase the purview and enforceability of Intellectual Property
Rights.

THE FUTURE OF INDIAS COMPETITIVENESS

India in order to become one of the super powers of the nation has to harness the resources
available in the optimal way. Sustainable growth and exploration of global avenues will drive
India in the direction of growth and prosperity. India has to focus on the following aspects:
COST EFFECTIVE AND SKILLED MANPOWER
India has the advantage of low labour cost. A large chunk of English speaking population
provides advantage to India in global markets. India produces large number of engineers,
doctors, Ph Ds each year. However, looking at the international standards, though the number of
skilled manpower is high India has a lot of scope of improving the enrolment rate in higher
education. Skilled manpower will enable India to lead innovation. The redesign and business
process reengineering cost will come down due to skilled manpower.
24

OPTIMUM UTILIZATION OF RAW MATERIALS

India has a significant raw material availability advantage in sectors like iron, textiles.
Unfortunately India has been exporting many of these raw materials without processing them for
value addition. The nation could build infrastructure and requisite expertise for processing and
value-addition of these raw materials to meet the demand of both domestic and international
markets.
DOMESTIC MARKET SIZE
As of 2005, India has a market size of US$ 370 billion 7. It is expected that the Indian market will
quadrupled by 2025. Domestic demand will surge in future. Indias infrastructure growth,
importance to manufacturing and industrial product growth will help to tap these demands. India
could generate revenues and employment by exploring the market size.

25

CONCLUCTION

Stocks can be categorized in various ways. One common way is by the country where the
company is domiciled. For example, Nestl and Novartis are domiciled in Switzerland, so they
may be considered as part of the Swiss stock market, although their stock may also be traded at
exchanges in other countries.

India has to surpass each of these barriers in order to compete globally. In addition to addressing
the needs of infrastructure, inefficient government bureaucracy and corruption should be the
primary focus of government. India has successfully implement reforms in 1991. But the World
economic Forums executive survey demonstrates the need of further reforms in terms of
restriction and liberalization. Access to financing, tax regulation and policy stability are viewed
as hurdles in India.

26

BIBLIOGRAPHY

http://www.scribd.com
http://www.wikipedia.com
http://www.scockmarkeet.com

27