India needs to enhance productivity of its firms and bring about policy action to become one of the key exporting countries from the South Asian region, a World Bank report said.
Today, a broad set of constraints limit the growth and export potential of Indian firms' vis-a-vis their competitors in East Asia and the rest of the world, said the report titled 'South Asia's Turn: Policies to Boost Competitiveness and Create the Next Export Powerhouse' released here.
"Increasing productivity of firms in India and the rest of South Asia is the only sustainable path to improving competitiveness," said the report.
South Asia could become the fastest growing exporting region of the world if India and its South Asian neighbours enhance productivity of their firms by at least two percentage points each year, it said.
A set of policy actions aimed at improving the business environment, attention to less-well-researched areas such as the role of cities and clusters, global value chains and firms' ability to innovate and efficiently use resources, including technology, will help become competitive.
Improving productivity requires a greater shift of resources from agriculture to manufacturing and services, the World Bank report said.
"India's leading firms are comparable to many in OECD countries when it comes to productivity and technology adoption," said Junaid Ahmad, World Bank Country Director in India.
"With stronger global competitive pressure and slowing world trade, ensuring that all firms in India are able to improve productivity to create jobs, reduce poverty and boost shared prosperity is the key policy challenge," he added.
Productivity of Indian firms can also go up through improved managerial capabilities and effective use of technology, he suggested.
Almost all firms in India have access to Internet, similar to levels in higher income countries, but only 50 per cent of the firms (similar to Africa) use it to better connect with customers and suppliers, according to the report.
"The region has a significant untapped potential in raising productivity through development of urban ecosystems providing thick markets for skilled labour, large tracts of industrial land and world-class logistics," said Vincent Palmade, Lead Economist and co-author of report.
One of the suggestions was that India should enhance its business environment by introducing industry specific reforms and cut subsidies.
Policies to facilitate imports for apparel exporters, reduction of import tariffs to increase exposure to global good practices in automotive, agribusiness, electronics will help India connect to global value chains better, it said.
"Much of India's resources are currently trapped in small, low productivity firms that neither grow nor exit," said Denis Medvedev, Lead Economist and one of the authors of the report.
If product and factor market distortions in India were to be brought down to levels similar to those in the US, productivity could rise by as much as 60 per cent, he said.
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