INDIA KNOWLEDGE ECONOMY AND THE LEVERAGING STRENGTHS AND OPPORTUNITIES. Carl Dahlman Anuja Utz

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1 Public Disclosure Authorized Public Disclosure Authorized INDIA Finance and Private Sector Development Unit South Asia Region The World Bank AND THE KNOWLEDGE ECONOMY LEVERAGING STRENGTHS AND OPPORTUNITIES Carl Dahlman Anuja Utz Public Disclosure Authorized Public Disclosure Authorized WBI Development Studies

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3 WBI DEVELOPMENT STUDIES India and the Knowledge Economy Leveraging Strengths and Opportunities Carl Dahlman Anuja Utz Finance and Private Sector Development Unit of the World Bank s South Asia Region and The World Bank Institute The World Bank Washington, D.C.

4 2005 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, NW Washington, DC All rights reserved. [insert printing code] The findings, interpretations, and conclusions expressed here are those of the author(s) and do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the governments they represent. The World Bank cannot guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply on the part of the World Bank any judgment of the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is copyrighted. No part of this work may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or inclusion in any information storage and retrieval system, without the prior written permission of the World Bank. The World Bank encourages dissemination of its work and will normally grant permission promptly. For permission to photocopy or reprint, please send a request with complete information to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA, telephone , fax , All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, World Bank, 1818 H Street NW, Washington, DC 20433, USA, fax , pubrights@worldbank.org. ISBN E-ISBN: Library of Congress Cataloging in Publication Data Dahlman, Carl J., India and the knowledge economy : leveraging strengths and opportunities / Carl Dahlman and Anuja Utz. p. cm. Includes bibliographical references and index. ISBN-13: ISBN-10: Intellectual capital--india. 2. Information technology--economic aspects--india. 3. India--Economic policy. 4. India--Economic conditions. I. Utz, Anuja, II. World Bank Institute. III. Title. HC440.I55D dc Cover photos: Woman with cell phone, John Fiege, International Finance Corporation; other photos, World Bank. ii

5 Contents Foreword x Acknowledgments xi Currency Equivalents xiii Abbreviations and Acronyms xiii Summary xv Strengthening the Economic and Institutional Regime Developing Educated and Skilled Workers xx Creating an Efficient Innovation System xxiii Building a Dynamic Information Infrastructure xxvii Looking Ahead xxix Launching a Process xxxi A Final Note xxxiii xviii Chapter 1 India and the knowledge economy: Opportunities and challenges 1 The Current Economic Context 1 Knowledge Is Key in an Increasingly Dynamic and Competitive Global Environment 7 Assessing India s Opportunities and Challenges in the Knowledge Economy 10 Other Global Comparisons with India 16 Road Map for the Book: Strengthening the Four Pillars of the Knowledge Economy 19 Chapter 2 Economic and institutional regime, including governance 21 Benchmarking the Economic and Institutional Regime 21 Benchmarking Governance 23 Issues and Recent Developments in the Economic and Institutional Regime 24 Measures to Strengthen the Economic and Institutional Regime 36 Summary of Issues and Recommendations 44 Chapter 3 Education and human resources 47 Benchmarking Education 48 Issues and Recent Developments in Education and Human Resource Development 50 Measures to Strengthen Education and Human Resources 63 Summary of Issues and Recommendations 72 Chapter 4 Innovation system 75 Benchmarking Innovation 76 Issues and Recent Developments in the Innovation System 83 Measures to Strengthen the Innovation System 91 Summary of Issues and Recommendations 100 Chapter 5 Information infrastructure 103 Benchmarking Information Infrastructure 104 India s Global Standing in Information Communications Technology 106 Issues and Recent Developments in the Telecommunication and IT Sectors 111 Measures to Strengthen the Information Infrastructure 121 Summary of Issues and Recommendations 127 iii

6 INDIA AND THE KNOWLEDGE ECONOMY Chapter 6 Moving ahead with the knowledge economy in India 131 Indian Initiatives in the Knowledge Economy 131 Looking Ahead 135 Taking Action 137 Launching a Process 138 A Final Note 140 Annexes 1 India s Total Factor Productivity Construction: Theoretical Framework Knowledge Assessment Methodology Knowledge Economy Index for India and Comparator Countries, 1995 and Most Recent Period Overall Knowledge Economy Scorecards for Brazil, China, Korea, Poland, and Russia, Selected Variables, 1995 and Most Recent Period Data for the Scorecards for India, Brazil, and China, 1995 and Most Recent Period Economic and Institutional Regime: Scorecards for Comparator Countries, Selected Variables, Most Recent Period Governance Data for India Various Costs of Doing Business in India, Education: Scorecards for Comparator Countries, Selected Variables, Most Recent Period Innovation: Scorecards for Comparator Countries, Selected Variables, Scaled by Population, Most Recent Period Information Infrastructure: Scorecards for Comparator Countries, Selected Variables, Most Recent Period ICT Indicators for India and China, Various Years 165 Notes 167 References and Bibliography 173 Figures A India: Real Gross Domestic Product Per Worker, Alternative Projections, xvi B India: Percentage Share of Global Gross Domestic Product, Years xxx 1-1 India: Real Gross Domestic Product Per Worker, Alternative Projections, Gross Domestic Product Per Capita (Purchasing Power Parity), India and Comparators, Growth in Per Capita Income for Korea and Ghana, Knowledge Economy Index: India, Comparators, and the World, 1995 and Most Recent Period Cross-Country Comparison on the Four Pillars of a Knowledge Economy, India and Comparators, 1995 and Most Recent Period India s Knowledge Economy Scorecard on Selected Variables, 1995 and Most Recent Period Progress on the Human Development Index, India and Comparators, Knowledge Economy Scorecards on Selected Variables for Brazil, China, and India, Most Recent Period 16 iv

7 1-9 Gross State Domestic Product and Literacy Rates for Indian States, Benchmarking the Economic Incentive Regime, India, Comparators, and the World, 1995 and Most Recent Period India s Scorecard on the Economic Incentive Regime, Selected Variables, Most Recent Period Governance Comparisons: India (1998 and 2002), with South Asia (2002), and with Low-Income Countries (2002) Eliminating Barriers for Faster Growth in India Share of World Merchandise Exports, India and Comparators, Merchandise and Service Exports, India and Comparators, Service Exports, India and China, 1982, 1995, and Gross Foreign Direct Investment as Percentage of Gross Domestic Product, India, Comparators, and the World, Benchmarking Education: India, Comparators, and the World, 1995 and Most Recent Period India s Scorecard on Education, Selected Variables, Most Recent Period Gross Primary Enrollment Rates, India and Comparators, Gross Secondary Enrollment Rates, India and Comparators, Gross Tertiary Enrollment Rates, India and Comparators, Innovation by Population and Absolute Size, India and the World, 1995 and Most Recent Period India s Scorecard on Innovation, Selected Variables, Most Recent Period Patents Granted by the United States Patent and Trademark Office to Brazil, China, and India, Patents Granted to Indian Subsidiaries Percentage of Total Telephone Service (Fixed and Mobile) Provided by Private Operators in India, Benchmarking Information and Communications Technologies, India and the World, 1995 and Most Recent Period India s Scorecard on Information and Communications Technologies, Selected Variables, Most Recent Period Telephones, Computers, and the Internet: India and Comparators, Growth of Telephony in India: Numbers of Landline and Mobile Subscribers, Teledensity in India, Employment in the Indian Information Technology Sector, India s Projected Information Technology Industry, Export and Domestic Markets, Gains from Offshoring $1 of Services from the United States (Source) to India (Host) India: Percentage Share of Global Gross Domestic Product, Years Tables 1-1 India s Gross Domestic Product by Sector, Custom Duty Rates in India and Other Developing Countries, Various Years Enrollment by Educational Stages in India, and Percentage of Schools under Different Types of Management in India, Various Years Spending on Education, India and Comparators, v

8 INDIA AND THE KNOWLEDGE ECONOMY 3-4 Scientific and Technical Personnel from Indian Universities by Level of Qualification, 1979, 1989, and Educational Attainment of the Total Population Age 15 and Older, India and China, Characteristics of Traditional and Lifelong Learning Models Selected Innovation Variables, India and Comparators, Various Years Digital Access Index, Various Countries, Internet Usage Pattern in India in Boxes 1-1 Assessing India s Progress on Millennium Development Goals in the 1990s India Undergoes a Services Revolution Four Pillars of the Knowledge Economy Foreign Direct Investment: A Tale of Two Countries Foreign Direct Investment Policies in India and China Moving Up the Value Chain: India s Automobile Industry Investment Climate Improvement: Lessons from China and India Role of Investment Climate: The Private Sector View in India, China, and Brazil Tapping Entrepreneurial Capabilities and Buying Power of the Poor Building on Success: Attracting Foreign Investment in India Reducing Illiteracy: The Computer-Based Functional Literacy Program Community-Government Partnership Helps Get Millions into School: The Case of Madhya Pradesh Increasing Transparency in Indian Higher Education Expanding Distance Education in India General Electric Actively Promotes Organizational Learning, Including in India Reaping the Potential of Private Higher Education in India Transforming Established Systems: The Monterrey Institute of Technology India in the Context of Global Trends in Research and Development Investment Industrial Research and Development in India: Recent Trends How Well Does India Promote Innovation in the Manufacturing Sector? China s Jumping into the Sea Strategy Evolution of Bangalore as an Innovative Cluster Highlights of International Corporate Research and Development in India Globalization of Innovation: High-End Research and Development in India Outsourcing Chemistry and Biology Research and Development in India Indian Pharmaceuticals: Responding to Changes in the New Patent Regime Indian Pharmaceuticals Have Global Ambitions The Evolving Innovation Landscape: Research and Development in the Corporate World Leveraging Traditional Knowledge with Modern Science and Exploiting Public-Private Partnerships for Drug Development in India A Snapshot of the Indian Diaspora in the United States Snapshot of the Indian Information Technology Market and Software and Services Industry Information Technology Training Initiatives in India Can China Compete in Information Technology Services? Bridging the Digital Divide: Village Internet Kiosks in Tamil Nadu Three E-Government Initiatives Hold Promise in India 125 vi

9 5-6 Information and Communications Technology Efforts Expand in India Ushering in Rural Development through Connectivity: The PURA and RISC Models Indian Knowledge Society Key Drivers for the Indian Knowledge Society India s New Opportunity: Implementing the Republic of Korea s Knowledge Strategy India Inc. : Moving to Action 138 vii

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11 Foreword Knowledge, as it is applied in entrepreneurship and innovation, research and development, software and product design, and in how people use their education and skills, is now widely believed to be one of the key sources of growth in the global economy. The increasing importance of knowledge creates both a challenge and an opportunity for the developing world. A challenge in that, to be competitive internationally, countries must be able to participate effectively in the knowledge-driven supply chains and markets that now dominate the global economy. But for those who prepare themselves to face this challenge, the knowledge and information revolution can contribute greatly to promoting economic growth and social development and to reducing poverty. India can tap into a number of strengths as it transforms itself into a knowledge-based economy: skilled human capital, a democratic government, widespread use of English, macroeconomic stability, a dynamic private sector, institutions that support a free market economy, one of the largest local markets in the world, a well-developed financial sector, a rich cultural base that generates a wealth of ideas, and a broad and diversified science and technology infrastructure, as well as global niches in information technology. This book provides a broad assessment of India s readiness to embrace the knowledge economy, highlighting that, in order to grow and be internationally competitive, India must continue to strengthen its economic and institutional regime, develop educated and skilled workers, create an efficient innovation system, and build a dynamic information infrastructure. In particular, India should further reform its overall economic and institutional environment, and press on with the economic reform agenda that it put into motion more than a decade ago to accelerate growth. Moving forward with such an ambitious strategy requires raising awareness among all stakeholders in government, the private sector, and civil society about the importance of this transformation; effective leadership will be key in articulating the vision. We hope that this book will stimulate a discussion of the emerging policy agenda for the knowledge economy in India. The transition to a knowledge economy, however, is not only about shaping the reform agenda from the top. It is also about trial-and-error experimentation with what works and what does not work in the Indian context and about how to take successful bottom-up initiatives to scale. This process will require India to monitor its achievements and adjust its strategy to changing conditions. India has produced many innovations that can be scaled up. ix

12 INDIA AND THE KNOWLEDGE ECONOMY The challenge now is to create a policy environment in which these new ideas can grow and multiply. The World Bank looks forward to working with Indian stakeholders to devise concrete and practical initiatives to help India realize its full potential in the global knowledge economy of the twenty-first century. Michael F. Carter Country Director for India World Bank Frannie A. Léautier Vice President World Bank Institute x

13 Acknowledgments This book was developed by Carl Dahlman and Anuja Utz of the Knowledge for Development Program, World Bank Institute (WBI). It was prepared at the request of the World Bank s India Country Department, which, along with WBI, cofinanced this work. The book was reviewed by the India Management Team. World Bank peer reviewers included Priya Basu, Krishna Challa, Karen Lashman, and Peter Smith, as well as Ronald F. Perkinson from the International Finance Corporation. An earlier draft of this book was shared with the Government of India. We would like to thank Dr. Ranjit Bannerji and the team at the Department of Economic Affairs, Ministry of Finance, for their support and cooperation. The book was also discussed at a workshop in New Delhi, India in 2004, which was cosponsored by the Confederation of Indian Industry (CII) and included high-level policy makers from the central and selected state governments; representatives of industry, academia, think tanks, and consulting firms; and staff of the World Bank. We gratefully acknowledge the comments and insights offered workshop participants. We thank the CII and, in particular, Rajiv Kumar and Harsh Shrivastava for their intellectual as well as logistical contributions to the workshop. We are grateful to Michael Carter, World Bank s Country Director for India, for his continued support, and to Priya Basu for her valuable inputs and advice. We would like to thank the following staff who provided helpful information and comments for the book, including Robert Beschel, Geetanjali S. Chopra, Amit Dar, K. Migara O. De Silva, Inderbir Singh Dhingra, Mark Dutz, Lata Ganesh, Stephen Howes, Bala Bhaskar Naidu Kalimili, Varsha Marathe, Taye Alemu Mengistae, Deepak K. Mishra, Shashank Ojha, Deepa Sankar, Rashmi Sharma, Shashi Shrivastava, Peter Smith, Lynne Sunderland, Eliza Winters, and Kin Bing Wu. Aimilios Chatzinikolaou and Derek Chen of WBI s Knowledge for Development program and Reuben Abraham of Columbia University provided valuable data and analysis. This book was edited by Pamela Cubberly. We would lastly like to acknowledge Tomoko Hirata who designed the cover and oversaw production and John Didier for shepherding this book through the publication process. xi

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15 Abbreviations and Acronyms Currency Equivalents AFR AIDS ASEAN BOP BPO CBFL CII CSIR DAI EIU EU FDI FICCI GATS GCI GDP GE GER GERD GNI GSDP HDI HIV HLSG ICS ICT IFC IIT IP IPR ISI ISP IT ITES ITU K4D Africa Region acquired immune deficiency syndrome Association of South East Asian Nations Bottom of the pyramid business process outsourcing computer-based functional literacy Confederation of Indian Industry Council of Scientific and Industrial Research Digital Access Index Economic Intelligence Unit European Union foreign direct investment Federation of Indian Chambers of Commerce and Industry General Agreement on Trade in Services Growth Competitiveness Index gross domestic product General Electric gross enrollment ratio gross expenditures on R&D gross national income gross state domestic product Human Development Index human immunodeficiency virus High-Level Strategic Group Investment Climate Survey information and communications technology International Finance Corporation Indian Institutes of Technology Internet Protocol intellectual property rights Information Society Index Internet service provider information technology Information technology enabled services International Telecommunications Union Knowledge for Development (Exchange Rate Effective April 7, 2005) Currency Unit: Rupees (Rs.) US$1 = Rs Rs. 1 =.0228 US$ Rs. 1 crore = Rs. 10 million FISCAL YEAR April 1 March 31 (All dollar amounts in this book are U.S. dollars, unless otherwise noted.) xiii

16 INDIA AND THE KNOWLEDGE ECONOMY KAM KE KEI MDG MNC NASSCOM NGO NIIT NITs NRI OECD PC PPP R&D REC RSE S&T SA SME TFP TNC TRAI UGC UNDP USPTO VSNL WEF WTO Knowledge Assessment Methodology knowledge economy Knowledge Economy Index Millennium Development Goal multinational corporation National Association of Software and Services Companies nongovernmental organization National Institutes of Information Technology National Institutes of Technology Networked Readiness Index Organisation for Economic Co-operation and Development personal computer purchasing power parity research and development Regional Engineering College Research Scientists and Engineers science and technology South Asia Region small and medium enterprise total factor productivity transnational company Telecoms Regulatory Authority of India University Grants Commission United Nations Development Programme United States Patent and Trademark Office Videsh Sanchar Nigam Limited World Economic Forum World Trade Organization xiv

17 Summary One of the world s largest economies, India has made tremendous strides in its economic and social development in the past two decades and is poised to realize even faster growth in the years to come. After growing at about 3.5 percent from the 1950s to the 1970s, India s economy expanded during the 1980s to reach an annual growth rate of about 5.5 percent at the end of the period. It increased its rate of growth to 6.7 percent between and , as a result of the far-reaching reforms embarked on in 1991 and opening up of the economy to more global competition. Its growth dropped to 5.5 percent from to and to 4.4 percent in , due to the impact of poor rains on agricultural output. But, thanks to a lavish monsoon that led to a turnaround in the agriculture sector, India s economy surged ahead to reach a growth rate of 8.2 percent in This is very much in line with growth projections cited in India s Tenth Five-Year Plan, which calls for increasing growth to an average of 8 percent between and (India, Planning Commission 2002e). Such sustained acceleration is needed to provide opportunities for India s growing population and its even faster-growing workforce. Embarking on a new growth path. India has a rich choice set in determining its future growth path. Figure A shows what India can achieve by the year 2020, based on different assumptions about its ability to use knowledge, even without any increase in the investment rate. Here, total factor productivity (TFP) is taken to be a proxy for a nation s learning capability. Projections 1, 2, 3, and 4 plot real gross domestic product (GDP) per worker (1995 U.S. dollars) for India assuming different TFP growth rates from 2002 to Projection 4 is an optimistic scenario that is based on the actual TFP growth rate in Ireland in Ireland is an example of a country that has been using knowledge effectively to enhance its growth. All things being equal, the projected GDP per worker for India in scenario 4 in 2020 is about 50 percent greater than in scenario 1. Knowledge can make a difference between poverty and wealth. Which growth path India embarks on in the future will depend on how well the government, private sector, and civil society can work together to create a common understanding of where the economy should be headed and what it needs to get there. India can no doubt reap tremendous economic gains by developing policies and strategies that focus on making more effective use of knowledge to increase the overall productivity of the economy and the xv

18 INDIA AND THE KNOWLEDGE ECONOMY FIGURE A India: Real Gross Domestic Product Per Worker, Alternative Projections, U.S. dollars 3,000 (India ) 2,500 2,000 1,500 1,000 Actual 500 Note: For all four projections, capital, labor, and human capital are assumed to grow at their average annual growth rates for India, that is, 5.41, 2.23, and 0.58 percent, respectively. For the growth-tfp decomposition to be more precise, labor force figures rather than total population are used as a measure of the amount of labor available for use as a factor of production in the Indian economy. According to World Bank databases, in 2001 India s GDP (in 1995 U.S. dollars) was $495 billion and its population was 1.03 billion, of which only 461 million were in the labor force. As such, India s GDP per capita in 2001 was approximately $480, whereas GDP per worker was around $1,070. Annex 1 provides the theoretical framework for these TFP projections. Source: Knowledge for Development Program. welfare of its population. In so doing, India will be able to improve its international competitiveness and join the ranks of countries that are making a successful transition to the knowledge economy. Embracing the knowledge economy. The time is very opportune for India to make its transition to the knowledge economy an economy that creates, disseminates, and uses knowledge to enhance its growth and development. The knowledge economy is often taken to mean only high-technology industries or information and communication technologies (ICTs). It would be more appropriate, however, to use the concept more broadly to cover how any economy harnesses and uses new and existing knowledge to improve the produc- xvi

19 SUMMARY tivity of agriculture, industry, and services and increase overall welfare. In India, great potential exists for increasing productivity by shifting labor from low productivity and subsistence activities in agriculture, informal industry, and informal service activities to more productive modern sectors, as well as to new knowledge-based activities and in so doing, to reduce poverty and touch every member of society. India should continue to leverage its strengths to become a leader in knowledge creation and use. To get the greatest benefits from the knowledge revolution, the country needs to press on with the economic reform agenda that it put into motion more than a decade ago and continue to implement the various policy and institutional changes needed to accelerate growth. Advantage India. India has many of the key ingredients for making this transition. It has a critical mass of skilled, English-speaking knowledge workers, especially in the sciences. It has a well-functioning democracy. Its domestic market is one of the world s largest. It has a large and impressive Diaspora, creating valuable knowledge linkages and networks. The list goes on: macroeconomic stability, a dynamic private sector, institutions of a free market economy, a well-developed financial sector, and a broad and diversified science and technology (S&T) infrastructure. In addition, the development of the ICT sector in recent years has been remarkable. India has created profitable niches in information technology (IT) and is becoming a global provider of software services. Building on these strengths, India can harness the benefits of the knowledge revolution to improve its economic performance and boost the welfare of its people. This book provides a big picture assessment of India s readiness to embrace the knowledge economy and highlights some of the key constraints and emerging possibilities confronting India on four critical pillars of the knowledge economy: Strengthening the economic and institutional regime Developing educated and skilled workers Creating an efficient innovation system Building a dynamic information infrastructure. The book highlights that to be competitive in the global knowledge economy of the twenty-first century, India should continue to focus its efforts on further reforming its overall economic and institutional environment and improve its overall trade and investment climate. Addressing issues in this domain will be key, because it sets the overall incentive framework needed to improve performance across the economy. The book further underlines that for India to leverage its strengths and opportunities on a global scale, it needs to undertake significant reforms and investments in building education and skills, strengthening its innovation system, and further bolstering its information infrastructure. To create and sustain an effective knowledge economy, India must undertake systemic integration of reforms in the above four domains to strengthen its competitive advantage. The following are some of the key issues that India needs to address in each of the four pillars to spur growth and innovation and, in so doing, increase economic and social welfare. xvii

20 INDIA AND THE KNOWLEDGE ECONOMY STRENGTHENING THE ECONOMIC AND INSTITUTIONAL REGIME Taking advantage of the knowledge revolution s potential hinges on effective economic incentives and institutions that promote and facilitate the redeployment of resources from less efficient to more efficient uses. This fundamental pillar of the knowledge economy provides the overall framework for directing the economy. Important elements of the economic and institutional regime include macroeconomic stability, competition, good regulatory policies, and legal rules and procedures conducive to entrepreneurship and risk taking. A key feature is the extent to which the legal system supports basic rules and property rights. India s economic and institutional regime has several strengths: flourishing entrepreneurship and free enterprise; a strong infrastructure for supporting private enterprise; capital markets that operate with greater efficiency and transparency than, for example, those in China; an advanced legal system; and an independent judiciary. Property rights are fairly secure, and the protection of private ownership is strong. The rule of law generally prevails. Corporate governance has also improved dramatically. India has other intrinsic advantages, such as macroeconomic stability, a large domestic market, and a large and relatively low-cost and skilled workforce. It also has a critical mass of well-educated workers in engineering and science and, unlike China, abundant raw materials. All this should allow the country to emerge as a major hub for manufacturing and service industries. Despite India s recent economic growth, a number of barriers exist, such as the multiplicity of regulations governing product markets, distortions in the market for land, and widespread government ownership of businesses that have been inhibiting GDP growth, according to some estimates by about 4 percent a year. Removing these barriers and fostering a stronger investment climate would allow India s economy to grow as fast as China s 10 percent a year and create some 75 million new jobs outside agriculture. India is still a relatively closed economy compared with other Asian economies, in which exports account for a much larger share of GDP (33 percent in China and 38 percent in the Republic of Korea, compared with only 15 percent in India in 2003). Although this means that India is somewhat protected from global trends, the downside is that it does not benefit from stronger foreign competitive pressures to improve performance or from the ability to draw on more cost-effective foreign inputs, such as capital goods, components, products, or foreign investment, which embody more advanced knowledge. As a result, India is losing market share to its major competitors, especially China, where reforms have moved ahead much more rapidly; therefore, to speed up trade reform and be able to export, Indian firms need to be allowed to import the materials and technology they need. India also needs to boost foreign direct investment (FDI), which can be a facilitator of rapid and efficient transfer and cross-border adoption of new knowledge and technology. FDI flows to India rose by 24 percent between 2002 and 2003, due to its strong growth and xviii