india @ risk 2008

COMMITTED TO IMPROVING THE STATE

OF THE WORLD

India@Risk 2008

A Global Risk Network and

Confederation of Indian Industry Briefing

This report was prepared by the Global Risk Network ofthe World Economic Forum.

The views expressed in this publication do not necessarilyreflect the views of the World Economic Forum.

World Economic Forum91-93 route de la CapiteCH-1223 Cologny/GenevaSwitzerlandTel.: +41 (0)22 869 1212Fax: +41 (0)22 786 2744E-mail: [email protected]

© 2008 World Economic ForumAll rights reserved.No part of this publication may be reproduced ortransmitted in any form or by any means, includingphotocopying and recording, or by any information storage and retrieval system.

REF: 101108

Introduction

Executive Summary: Economic Security

Executive Summary: Energy Security

Executive Summary: Agriculture and Food Security

Executive Summary: National Security

Acknowledgements

Resources

4

6

8

10

12

14

14

Contents

3

This report has been prepared by the World Economic Forum’sGlobal Risk Network and the Confederation of Indian Industry(CII) for the India Economic Summit in New Delhi on 16-18November 2008. For the past two years, the India@Riskreport discussed the latest insights into trends, potentialconsequences and mitigation relevant to key risks facing India.

This year, in consultation with CII, the Global Risk Networkdecided to consider these risks and others in four areas:Economic Security, Energy Security, Agriculture and FoodSecurity and National Security.

Economic Security• How is the global financial crisis going to affect India?• How can India manage the current financial turmoil?• What are India’s strengths?

Energy Security• How can India improve the energy supply network?• How can India become a low carbon economy?

Agriculture and Food Security• How can agricultural productivity be improved? • What can be done to address the problem of malnutrition?• How can India manage its water resources to avoid

problems of availability and quality becoming acute?

National Security• How can India establish itself as a force for stability in the

region?• How can India manage to contain and address internal

sources of instability?

In preparing this report, experts and policy-makers frombusiness, academia and non-governmental organizationswere interviewed about what they consider to be the key toIndia’s future growth, which risks might pose threats toprogress, and how those risks might be mitigated. At the timethe interviews were conducted, the global economy wasexperiencing events on a scale that some say has not beenseen since the Great Depression of the 1930s. Following thecollapse and, in some cases, subsequent bail-out of severalmajor financial institutions in both the US and Europe, theworld’s financial markets suffered huge losses, dropping tolevels below those of 2003 or 2001. Volatility hit record levelsand key indicators of confidence in the banking systemshowed the depth of the crisis. The ensuing negative newsabout the outlook for growth, the likelihood of a recession inseveral key economies, rising unemployment and decliningorders only compounded the situation as credit markets frozeand concerns about liquidity and further write-downsmounted.

India’s own markets and growth outlook have not escaped;the latest IMF forecast for GDP growth in 2009 is now 6.9%.Clearly, the global economic picture will be harsher next yearand there will be greater pressures on the Indian economy.Should this global downturn trigger a rise in protectionism andretrenchment from globalization, there is little doubt that high-growth economies will also be affected through downturns intrade. However, a greater risk could come from a deeperretrenchment from globalization, which could manifest itselfnot only through decreased trade but also through countriestaking tougher stances on global issues such as climatechange, resource management, and the role and reform ofinternational organizations.

Many of the issues discussed in this report will requireconsiderable investment on the part of India’s public andprivate sectors over the long term. Decision-makers ingovernment and business will be forced to make trade-offs asto where spending and investment are allocated. However, atighter environment may also help speed reforms andencourage greater efficiency. A great deal of political will anddialogue with different stakeholders will be required, but India’sgrowth is still strong relative to other economies and itsgrowth story will continue to be one that will unfold overdecades rather than years.

About the Global Risk Network

This report builds on the existing work of the Global RiskNetwork of the World Economic Forum, primarily the annualGlobal Risks report produced in collaboration with Citi, Marsh& McLennan Companies (MMC), Swiss Re and the WhartonSchool Risk Center.

The Global Risk Network is composed of an unparallelednetwork of industry, risk and country experts who work withbusiness leaders and policy-makers to:• Create a framework for assessing and prioritizing existing

and emerging risks to global business over the short andlong term

• Alert key decision-makers to the impact these risks mighthave on their environments

• Assist leaders in their reflection on how risks may bemitigated at the global, regional, industry and companylevels

• Transform these global risks into business opportunities

To generate a global risk, an issue must have global scopeand cross-industry impact, and there must beuncertainty as to how the risk will manifest itself (in regard tothe likelihood of occurrence and severity of impact).

Over the last three years, the Global Risk Network hasengaged a wide range of experts in the economic,geopolitical, environmental and societal fields to explore thenature of the risk landscape facing governments, societiesand businesses. In conjunction with its partners, the GlobalRisk Network has identified 23 core global risks to theinternational community over the next 10 years. These coreglobal risks have been assessed in terms of likelihood andseverity (see Figure Global Risk Landscape). In addressinglikelihood, actuarial principles were applied in the few caseswhere sufficient data existed; in most cases, only qualitativeassessments, based on expert opinion, were possible.Although some risks are inherently long term (such as climatechange) and others (such as further oil price shocks) couldoccur in the near term, all risks were evaluated within a 10-year time frame.

A more detailed description of the core global risks can befound in the Global Risks 2008 report, published for the WorldEconomic Forum Annual Meeting 2008 in Davos(http://www.weforum.org/en/initiatives/globalrisk).

4

Introduction

5

India@Risk

Within the framework of these 23 interconnected global riskstracked by the Global Risk Network are several that map tothe areas identified by CII and the Forum which are critical tothe future of India (in terms of their likelihood and/or theseverity of their impact). Risks to India were identified,assessed and ranked with each of the following risk families:societal, geopolitical, economic and environmental. Beyondthose discussed in this report lie other risks facing India thatcould prove equally challenging. The objective was not torank risks, but to focus on areas that are already at the fore

and where, perhaps, greater impetus is required for mitigationand to identify opportunities. The report is intended to providea succinct analysis of some of the critical issues facing India.

The four areas of focus: Economic Security, Energy Security,Agriculture and Food Security and National Security, are notseparate, isolated issues on the risk landscape; their drivers,triggers and consequences are highly interconnected. India’srole in the region and in the global economic and politicallandscape will largely depend on how it manages many ofthese issues over the next decade and beyond.

Likelihood

Sev

erit

y (in

US

$)

below 1%

2-10

bill

ion

10-5

0 bi

llion

50-2

50 b

illio

n

1-5% 5-10% 10-20% above 20%

250

billi

on -

1 tr

illio

nm

ore

than

1 tr

illio

n

Food insecurity

Oil and gas price spike

Major fall in US$

Slowing Chinese economy (6%)

Fiscal crises in advanced economies

Asset price collapse

International terrorism

Collapse of NPT

Interstate & civil wars

Failed & failing states

Transnational crime and corruption

Middle East instability

Extreme climate change related weather

Heatwaves & droughts

Loss of freshwater

NatCat: CycloneNatCat: Earthquake

NatCat:Extreme inland flooding

Pandemic Infectious disease, developing world

Chronic disease, developed world

Liability regimes

Emergence of nanotechnology risks

CII breakdown

Retrenchment from globalization (developed)

Retrenchment from globalization (emerging)

Global Risk Landscape

Source: World Economic Forum Global Risks 2008

India has been affected by the global financial crisis. The deterioration of the global financialenvironment has affected the national economy and spillover effects on the real economy are still unfolding.India remains vulnerable to the vagaries of the world currency, commodity and financial markets.

Economic uncertainty: The global uncertainty affecting the financial markets and concerns about theglobal economic outlook have increased the chances of global contagion. Sluggish demand coming fromdeveloped economies might affect Indian exports in the coming quarters. However, Indian exports for2007-2008 exceeded US$ 155 billion. Economic growth in the second quarter of 2008 fell by 1.3% to7.9%, compared with the same period last year. In the long run, all the indicators for the Indian economypoint to sustainability of growth rates: the International Monetary Fund (IMF) prospects for GDP growth for2008 and 2009 are 7.9% and 6.9%, respectively.

Liquidity management: The Reserve Bank of India adopted several measures to alleviate the pressureon domestic markets – e.g. increasing the borrowing limit from foreign branches from 25% to 50% witha ceiling of US$ 10 million; and cutting the cash reserve ratio (CRR) to 6.5%, which represents an injectionof 1 trillion rupees into the market. Under the current environment of high uncertainty and volatility in globalfinancial markets, the Reserve Bank’s active liquidity management will cushion the impact of internationalfinancial turbulence and existing measures will be reviewed periodically as the current financial situationevolves.

Inflation: The Consumer Price Index (CPI) climbed to 9% in August, reaching its maximum, from 8.3% inJuly this year. Commodity prices are slowing down and this helps to ease inflation pressures. To curtailinflation, the government has taken several fiscal measures (e.g. curbing import duty on many agriculturalproducts). Monetary measures, such as the reduction in CRR, will also contribute to curbing the presentinflation rate.

Currency: The Indian rupee is depreciating and very volatile: as of October 2008, it depreciated by 24%in the last 12 months. Weakening external demand is likely to affect exports, but the impact might bemitigated by the currency depreciation – exports have grown 35% during the period April-August 2008,compared with the same period last year.

Labour market: Total factor productivity in India has been increasing in the last years, surpassed only byChina. India is a labour surplus economy and human resources are an essential component of economicdevelopment and competitiveness. 63.3% of the Indian population is between the ages of 15 and 64 andapproximately 30% of the population, or 340 million people, is below the age of 15. This segment of thepopulation is expected to decrease by 2015 due to declining fertility rates, reducing child dependency andincreasing the percentage of population of working age.

Real estate market: Property markets have been expanding dramatically in the last years, supported bybuoyant economic fundamentals. The genuine demand for real estate, supported by a rising middle class, hasnot been significantly depressed by increasing interest rates so far. A downturn in global economic growthmight have an effect on demand, but increasing public infrastructure projects could keep market demand high.

Global crisis: India's dependence on capital inflows to finance its current account deficit is amacroeconomic risk and the global crisis could generate a sharp increase in capital outflows and areduction in the availability of finance. It could also weaken the balance sheet of the financial institutions,cause a further fall in share and asset prices, and challenge the macroeconomic situation due to shrinkingglobal growth.

Reserves: India has accumulated reserves of US$ 295 billion over the last years of economic expansion,providing a cushion to overcome a potentially pessimistic economic outlook. The level of reserves hasdecreased recently due to imports paid in US dollars, Reserve Bank intervention and equity portfolioadjustments abroad. The recent fall in commodity prices might help decelerate inflation and could thusbenefit the imports bill, while also having a positive impact on reserves.

6

Executive Summary:Economic Security

How is the global financial crisis going to affect India? How can India manage the current financial turmoil? What are India’s strengths?


OF THE WORLD

India@Risk

Risk

Important Trends

Impacts

As the current global

financial crisis has

shown, liquidity risks can

rise manifold during a

crisis and can pose

serious downside risks to

macroeconomic and

financial stability. The

Reserve Bank had

already put in place steps

to mitigate liquidity risks

at the very short end,

risks at the systemic level

and at the institution level

as well.

Rakesh Mohan, ExecutiveDirector, World Bank: former

Deputy Governor of the ReserveBank of India (RBI), India

“

“

7

Mitigation

Example

India's youth bulge will flatten in coming years

Male Female80+

70-74

60-64

50-54

40-44

30-34

20-24

10-14

0-4

Ag

e g

roup

60 40 020 8080 60

Population (millions)

4020

1991 205019912050

India’s Demographic Pyramid

Source: US Census Bureau, International Database

Over 40% of the population will be considered middle class by 2025

100%S

hare

of p

opul

atio

n

1985 2025F1995 2005E 2015F

Globals (>1,000)

Annual householdincome (Rs, thousands)*

Strivers (500-1,000)

Seekers (200-500)

Aspirers (90-200)

Deprived (<90)

* constant year 2000 rupees

Mid

dle

class

India’s Middle Class

Source: Mckinsey Global Institute

Domestic demand: The middle class in India is growing fast. Personal disposable income has almostdoubled since the year 2000 and consumer spending is increasing, propelling a demand-led growth cycle.India’s savings rate is almost 35% of GDP and its investment rate stands at 35.9% of GDP. Increased domesticdemand should partially protect the Indian economy from the effects of a global downturn. A tight monetarypolicy and interest rate increase are likely to weigh heavily on household borrowing and business investment.

Remittances: India has achieved a large sustained level of remittances; almost 50% of total remittancescome from the US and Canada, and the total amount represents almost 3% of India’s GDP. The financialcrisis in these countries will affect India’s population through a reduction of remittances.

Land and infrastructure: More than 60% of India is rural and half of rural India belongs to the agriculturalsector. Infrastructure is the key to further development; without basic transport and communicationsnetworks, it is very difficult for small businesses to develop further and/or foster rural business initiatives.Nowadays, land can be acquired by the government if its final usage is an infrastructure project (statecompetency). Price-setting mechanisms used to value, purchase and redeem land are not transparentenough, and this results in discontent and even unrest among land sellers.

Fertility: Rates are dropping, and increased participation of women in the labour markets in urban areasgenerates economic growth (in rural areas, women have always been part of the labour force) andcontributes to fertility rate reduction – 4 births per woman in 1990, compared to 2.5 today. The fact thatwomen are entering the labour market has a significant impact on the real economy, and is contributingto the reduction of income inequality and increasing household incomes.

Institutional strength and capacity building enhance capacity to implement appropriate economicpolices and structural reforms. Strategic approaches are needed rather than tactical policies; politicaluncertainty generates slow and inefficient decision-making. Public sector reforms are necessary for theeffective implementation of crucial economic policies such as reduction of the fiscal and revenue deficit,expansion of national capital markets and reform of subsidies schemes.

Increased economic cooperation between India and the economies of East and South-East Asiathrough strengthening the Look East Policy; continuation of negotiations for a Free Trade Area (FTA) withthe ASEAN economies; and increased trade activities with African countries shifts the dependency of Indiato developing and underdeveloped countries rather than the traditional developed countries.

Land and infrastructure: Infrastructure projects are necessary to improve rural-urban communicationsand facilitate inter- and intra-state flows of commodities and services. The Union Budget 2008-2009includes projects to develop rural infrastructure and roads, which would accelerate domestic growth andenhance trade. To ensure that the land transactions required for infrastructure projects are satisfactory toall parties, it is necessary to promote, implement and sustain a transparent price-setting mechanism andregulation. An alternative – introducing leasing contracts for farmers’ land – would also be an improvementon the current opaque transaction system.

Education: Literacy rates have improved dramatically, but further reforms are required to leverage India’sdemographic dividend. In recent years, there has been a rise in educational institutions at secondary andtertiary levels, and legislation to regulate and ensure high-quality education needs to be put in place. Indiarequires more skilled labour to sustain the development of more value-added manufacturing and servicesand high growth rates. High-quality education, analytical thinking and a strategic mindset need to bebrought into the system.

Investment climate conditions: Further schemes are required to provide incentives to the private sector(domestic and international) to invest in long-term projects in India. Developing stable sources of dollarinflows from trade and investment and continuing financial sector reforms towards further financialinclusion are also required.

Hariyali Kisaan Bazaaris (DCM Shriram Consolidated), a rural business initiative, has introduced a newretail concept: Hariyali campuses include a retail outlet, fuelling station and banking service, and providetraining on the best production techniques to farmers. The business model is expanding and iscontributing to improving living standards and promoting sustainable growth in rural India.

8


OF THE WORLD

Executive Summary:Energy Security

How can India improve the energy supply network? How can India become a low carbon economy?


OF THE WORLD

India@Risk

Risks

Important Trends

Impacts

The gap between demand and supply has worsened in the last years. Energy demand increasesas the population grows and the country develops; energy supply has increased at a slower pace. Overone-third of the power generated fails to reach consumers.

Energy subsidy schemes discourage efficient use of energy and diminish the incentives toincrease the use of clean energy sources.

Energy demand: Fossil fuel energy sources – oil and gas – constitute 45% of total energy consumptionin India. Total energy demand is projected to increase fivefold in the next 25 years, accounting for 12% ofworld energy demand. To maintain an average growth rate of 8%, an almost tenfold increase in energycapacity is required.

Energy resources: India’s endowment of exhaustible and renewable energy resources is relatively good.The energy sector in India has been receiving special attention in the planning process. Indian industriesare proactive and supported by the government, and are adopting cost-effective and environmentally-friendly energy sources. Under-performance of the energy sector would be an important limitation toIndia’s growth potential.

Electricity: Inexpensive and reliable electricity supply is vital to India’s prosperity. More than 40% of India’spopulation (over 400 million people), mostly in rural areas, lacks access to electricity. The country hasmade significant progress towards the augmentation of its power infrastructure; still, the quality of itselectricity supply is low and electricity generation is not used at a maximum capacity. Private companiesand households use their own electricity generators, which are both expensive and polluting, to coverpower shortfalls.

Nuclear: New sources of energy will be needed in the medium to long term to cover rising energydemand in India. Nuclear energy will play an important role in India’s energy mix. Nuclear agreements withforeign countries strengthen the geo-strategic position of India in the world. An India-US civil nuclear dealis expected to produce ample energy resources, help India meet its growing energy needs and deepenthe strategic partnership between India and other nations.

Energy and climate change: India is the fourth largest economy in installed wind energy capacity. Manyinitiatives supported by the government and private corporations are being implemented to mitigate andadapt to climate change consequences and move towards a carbon-efficient economy. Investmentchoices that factor in the environmental impact are a first step to move towards a neutral carbon economy.

Import dependency: The production of crude oil has been stagnant and has boosted the dependencyon crude oil imports. India imports more than 70% of its oil. The government has initiated several policiesto cover the increasing demand and has intensified foreign relations with world energy suppliers in Southand Central Asia, Russia and the Middle East. Energy supply is vulnerable to geopolitical tensions withenergy suppliers and energy transit countries. Increasing consumption and increases in oil price wouldadd more pressure to the current account deficit.

Electricity distribution losses: Corporations and society at large are willing to increase their energy billto benefit from a reliable energy supply, but generation and distribution infrastructures need to be in placeand extraordinary investment is required. According to the World Bank, transmission and distributionlosses account for 27% of the generated power and are the highest in the world. Various governmentagencies report losses between 30% and 40%. Those losses are associated with technical inefficienciesand mismanagement.

Energy subsidies prevail: Liquid petroleum gas (LPG) subsidies in India are widespread; US$ 1.7 billionwas spent in the first half of the current financial year on supplying fuel to poorer households. Nearly 40%of the subsidy expenses benefit only 7% of the population. Energy subsidies encourage consumption andwaste, which generate harmful effects on the environment and represent an important liability to thegovernment budget.

9

Mitigation

Example

Transport sector: Rapid economic growth, urbanization and rising income levels have increased the useof vehicles. Fossil fuels are likely to be the predominant energy source in the medium term. The automobileindustry has improved technology to meet global standards of carbon emissions; additional research isneeded to foster fuel efficiency.

Energy access and efficiency: To fulfil the target of providing electric power for the nation by the year2012, the country's National Electricity Policy is taking appropriate steps to raise the per capita availabilityof electricity by nearly 50%. Energy efficiency is a key component of the national development strategy.Increasing electricity generation capacities, improving the regulatory environment to enhance the use ofpower plants, enhancing energy storage, developing infrastructure for energy distribution and increasingintra-state energy trading to cover state shortfalls would improve the current energy intensity levels.Additional measures are required to open up energy markets and encourage private companies togenerate electricity and feed it into the grid.

Energy subsidies: A revision of energysubsidies is necessary to assure the rightpopulation segment is targeted. Subsidiesshould not undermine the incentives to provideor use a service efficiently and might discourageinvestment in the energy sector. Marketmechanisms that guarantee efficient energypricing are essential.

Infrastructure: Improving the road network,railways and urban planning is vital to increaseenergy efficiency and ensure energy delivery tosociety. Public-private partnership models financing major infrastructure projects can provide theappropriate framework and skills set to accelerate the completion of critical infrastructure projects.

Promoting clean energy technologies: India has a huge potential for biomass energy, solar energy,nuclear power and wind energy. Innovation and technology are key components to facilitate theachievement of global environmental standards. The government should strengthen the regulatoryframework to foster environmental protection and promote the use of clean energies. The ongoingpromotion of renewable energy sources is required to move towards a low carbon economy.

The government has set a target for renewable energies to amount to 10% of India’s total energy mix by2032, and announced incentives to promote and attract foreign investment to this sector. The Ministry ofNew and Renewable Energy (MNRE) also announced an accelerated programme on energy recovery fromurban waste, including bio-gas.

Transportation and power represent the lion's share of investment

100%

90

80

70

60

50

40

30

20

10

0Sha

re o

f fin

ance

d p

ublic

and

priv

ate

pro

ject

s, 2

000-

07

Number of ProjectsProject Cost

OtherLeisure & PropertyTelecommunicationsMiningOil & Gas

Industry

Transportation

Power

Indian Project Finance by Sector

Source: Thomson Financial

Overall infrastructure investment expected to increase from US $201 billion in the 10th plan, to US $492 billion in the 11th

Anticipated investment (US$, billions)

10th plan(FY02-07)

$0 100 200 300 400 $500

Electricity Roads/Bridges Telecom Railways Irrigation Wat

er s

upp

ly/

San

itatio

nP

orts

Airp

orts

Sto

rage

Gas

11th plan(FY07-12)

Infrastructure Spending

Source: Government Planning Commission; Lehman Brothers

The enhancement of capacity for

interregional power transfers, the

imminent creation of a national grid

and the setting up of power markets

have greatly spurred private sector

interest.

Sushil Kumar Shinde, Minister of Power of India

““

10


OF THE WORLD


OF THE WORLD

Executive Summary:Agricultural Development and Food and Water Security

How can agricultural productivity be improved? What can be done to address the problem of malnutrition? How can India manage its water resources to avoid problems of availability and quality becoming acute?


OF THE WORLD

India@Risk

Risks

Important Trends

Impacts

Rural populations are highly dependent on agriculture and pressures are increasing to transformagricultural activity into a sustainable economic sector. Almost 65% of India’s population is directlyor indirectly dependent on agriculture, although it only accounts for approximately 16% of GDP.

Despite current self-sufficiency in food production, approximately 25% of India’s population ismalnourished and lives below the poverty line. Child malnutrition is responsible not only for 22% ofIndia’s disease burden, but also for 50% of the 2.3 million child deaths in India each year.

Agricultural output and rural communities face risks of changing weather patterns linked toclimate change and threats from water scarcity and quality. Water for agricultural use currentlyrepresents 92% of renewable water resources, compared with 3% for industry and 5% for domestic use.

Slow progress on productivity: India is second only to the US in the amount of cultivable land withinits borders (147 million hectares). However, in comparison with other high-growth economies such asChina or Brazil, its yields are lower and agricultural productivity is climbing at a slower pace. Per capitaproductivity in India only rose by 7% between 1995 and 2004, compared with 25% in China.

Increasing pressures on land: 600 million people are directly or indirectly dependent on agriculture inIndia. The size of India’s rural population dependent on arable land has increased from just over 400people per square kilometre of arable land in 1994 to nearly 500 people per square kilometre in 2003. Thistrend is almost unique among fast-growing economies, most of which are seeing these figures decline.

Climate change: Changing weather patterns linked to climate change are already manifesting themselves.Incidents of flooding and problems of prolonged drought are on the increase. The trend towards warmerweather in some regions means that certain pests and diseases are entering new areas.

Increasing pressures on water: Agriculture usage accounts for 93% of India’s renewable water supply andis depleting water tables. Other elements are increasing the pressure on water supply and quality: poorlymanaged and wasteful irrigation practices; a shift to more water-intensive crops, such as horticulturalproduce; industrial and domestic water usage rising from a currently low base (5% and 2%, respectively); andchanging weather patterns – rainfall is more erratic as exemplified by recent monsoon seasons.

Malnutrition: Access to food remains a problem for certain segments of the population. India has thehighest rate of child malnutrition in the world. Existing initiatives, including meals for young school childrenand food vouchers for those below the poverty line, have failed to meet targets. Schemes are not reachingchildren under three, who are most at risk from disease and growth deficiencies related to malnourishment.

Food security: Relatively high self-sufficiency and government subsidies for the poor have sheltered Indiafrom the effects of the higher food prices seen over the past 18 months. While international prices forprocessed wheat increased by as much as 67% in the first half of 2008, Indian wheat prices rose by only 7%.

Changing consumption patterns: Nutritional patterns have changed since the 1960s, with thesuccessive introduction of cereals, dairy and poultry, vegetables and meat. From a nutritional andproduction standpoint, this diversification is advantageous. However, this represents a shift to moreperishable goods and necessitates more sophisticated supply and retail structures to ensure both healthand safety for consumers and returns for the producers.

Economic disparities: India’s economic growth is not benefiting rural populations as much as thoseliving in urban areas. Rural communities are most disadvantaged when it comes to infrastructure,education, sanitation and healthcare.

Disputes over access to land and land sale agreements: Given their reliance on land, ruralcommunities are reluctant to sell land for infrastructure development or industrial use unless they feel theycan share in some of the generated advantages.

11

Mitigation

Examples

Managing crop diversity: The biggest shift in the agricultural sector has been the move to more horticulturalproducts. Rising demand for fruit and vegetables and shorter growing cycles, which allow several harvests ayear, enable farmers to spread their risk over several crops. Horticultural produce is highly perishable andrequires better storage, distribution and retail conditions. These crops also place pressure on water resources.

Infrastructure: Power, water and sanitation are key to human and economic development in rural areas. Roadlinks will allow farmers rapid access to markets and agro-industry to scale up its logistics. The government isworking to link rural villages to the Golden Quadrilateral infrastructure project (linking Delhi, Kolkata, Chennaiand Mumbai). It is estimated that India is adding an average of three kilometres of roads to its network each day.

Improving food security by enabling a more efficient market system: The lack of infrastructure fordistribution and of an organized retail sector means that access to wider markets is limited. Policies arerequired to remove barriers between internal markets and thus allow emergence of an efficient market system.Fair price assistance may still be necessary for the 25% of India’s population that fall below the poverty line,but agricultural prices should vary less if a common internal market can be established.

Rural development and employment: India’s agriculture sector alone cannot provide sufficient growth toenable its rural population of 600 million to significantly improve their livelihoods. With better infrastructure andinvestment in education, it will be possible to develop more value-adding aspects of agriculture, fromprocessing to better product grading, logistics and retail. Several states are successfully attracting industry torural areas, allowing populations to remain in their villages but to move into non-agricultural based employment.

Increase investment in existing initiatives to prevent malnutrition: Current initiatives already providefood to children, but many focus more on young school children. It is critical to extend these programmes tothose under the age of three, where malnutrition has the greatest negative effects on physical and cognitivedevelopment. Initiatives also need to incorporate parental education and guidance on health and nutrition.

Education and training: Primary education, improving literacy rates and vocational training are keys tocreating an employable rural workforce. Training is also essential for farmers to become skilled in efficientlymanaging water and using fertilizers, thus enhancing productivity. Government institutions are working withNGOs to run programmes to train farmers in modern agricultural practices, use of technology and businessskills. Business skills enable farmers to form cooperatives or small businesses to boost their revenues.

Technology – a second Green revolution: India has developed a group of research councils workingon agro-technology. They are introducing disease-resistant crops to reduce the need for pesticides, whichare expensive and can have harmful effects. To adapt to the effects of climate change, researchers areintroducing drought-resistant seed stock, which can protect farmers in more arid areas, but which alsoreduces pressures on water tables. The councils and institutes also offer training for farmers to helpmanage inputs such as fertilizers more efficiently. Since 2005, the institutes have entered into agreementswith the private sector to scale up developments and share costs.

Contract and cooperative models: A number of interesting models are emerging around farmers’cooperatives and in the area of contracts. These models have proved successful both in creating newmarkets for farmers and transferring technology and know-how. Farmers are also creating cooperativesthat provide better and more sophisticated retail opportunities through cost-sharing for grading,packaging and transport, and better price alignment.

Insurance: The introduction of weather-based insurance into several regions is proving a more effective and cost-efficient way to manage risk. Faster pay-outs allow farmers to recuperate their losses and reinvest for the next crop.

The government has increased spending on agriculture by 10% each year for the past three years and setup programmes such as the National Rural Employment Scheme to boost skills and job creation.

Agricultural Technology Management Agencies (ATMAs) are run at district level. These multistakeholderagencies are aimed at educating and supporting self-help efforts by farmers, and bring together farmers,NGOs, experts and officials. The ATMA model was launched three years ago and now covers 600 districts.

Capacity sharing: In return for a certain amount of production, processing plants have agreed to shareexcess capacity with other producers as a way to spread costs and improve standards.

2025 per capita water supply in India is expected to be less than half the supply in 1975

3,500

3,000

2,500

2,000

1,500

1,000

500

0

Ren

ewab

le w

ater

per

cap

ita (c

ubic

met

res)

2025(medium estimate)

1975 2000

Access to Renewable Water in India

Source: United Nations Food and Agriculture Organisation

Rural irrigation expected to receive 15% of public infrastructure funds

Water supply/SanitationElectricity

Roads

Telecoms

Irrigation

1,500,000

1,250,000

1,000,000

750,000

500,000

250,000

0

Pro

ject

ed in

fras

truc

ture

inve

stm

ent,

200

7-12

(Rs,

cro

re)

Rural

Urban

Rural Infrastructure Investment

Source: Government Planning Commission

12


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OF THE WORLD

Executive Summary:National Security

How can India establish itself as a force for stability in the region? How can India manage to contain and address internal sources of instability?


OF THE WORLD

India@Risk

Risks

Important Trends

Impacts

Mitigation

External sources of insecurity: India's security policies must address potential threats coming fromoutside its borders. India’s security policies will need to combine economic, diplomatic and militaryaspects to protect Indian society and also secure energy supply and trade routes.

Internal sources of insecurity: Radical groups organized along ethnic, far left or religious lines aregaining ground, especially in disadvantaged districts. These need to be closely monitored to prevent thespread of unrest in certain regions and deter extremist attacks.

Regional sources of instability: Although dialogue with Pakistan is ongoing, the situation in Kashmirand the continued instability in Afghanistan and along its border with Pakistan remain a source of instabilityin the region.

Increasing exposure of energy supply to geopolitical risks: As a net energy importer, heavilydependent on oil and with demand set to quintuple over the next 25 years, India’s energy security is a vitalpart of its strategic security. India will need to continue to pursue its foreign policy of maintaining goodrelations with energy producers in the Middle East, Russia, Central Asia and South-East Asia.

Increased number of terrorist incidents: The past months have seen a number of fatal attacks carriedout in several cities including Delhi, Mumbai and Bangalore. Between 2004 and mid-2008, over 4,800people were killed in terrorist attacks, many of which were not attributed to any single group. When theperpetrators of attacks were identified, most belonged to radical political groups. Religious radicals werethe next group of perpetrators.

Military spending: Indian military spending has been around 3% of GDP for the past several years;however, the last Union Budget increased defence spending by 10%. India’s military expenditure is higherin percentage terms than many other states, including China, although in absolute terms it is less, at aboutUS$ 16 per capita, compared with US$ 19 in Pakistan and US$ 32 in China. Military spending is plannedto total US$ 81 billion over the period 2006 to 2020.

Increased concerns about security: Terrorist incidents raise fears about greater insecurity and placepressure on the police and government to prevent such attacks. As in other countries around the world,if left unchecked, the rise of non-state actors within the state poses as great a risk as exogenous threats.The size and diversity of India’s population make this a serious challenge if authorities are to continue toencourage a tolerant and integrated society. However, with each attack, tensions rise and there aregreater calls for police and security services to be given greater means to track terrorists.

Potential for greater tension between religious groups: India has known strife between its differentreligious denominations in the past. As in other countries, concerns are growing about fundamentalistmovements and the potential for increased strife among different religious communities.

Continue dialogue with Pakistan and international efforts to bring stability to Afghanistan andits border with Pakistan: The level of uncertainty and instability around Pakistan’s border withAfghanistan must be addressed to prevent further violence and the rise of unrest among sympathizers inother regions.

Promote open foreign relations and diplomacy: Although plans to increase military spending can beseen as investment in the long-term strength of India vis-à-vis other countries in the region, relationshipsbuilt on trust and trade are an equally important investment. India has demonstrated its capacity toengage in dialogue and build links with a number of very different states and groupings over the years –from the US, China and Russia to the EU and ASEAN – and this will remain an important strategy tomitigate geopolitical risks.

13

Examples

Protect and diversify energy supply: India needs to protect routes for its energy supply, both overlandand by sea, and will have to develop strong agreements and work with other states to do so. As globalenergy demand increases, so will the competition, which may heighten tension around some of thesesupply deals. The diversification of its energy supply is also important for India to mitigate risks to supplydisruption. Less dependency on imports will prevent competition for energy sources from becoming apoint of tension in relations with exporting nations. In addition, diversification reduces exposure to pricevolatility, especially for oil. Finally, it accelerates the essential shift to greener power and greater energyefficiency with the goal of reducing carbon emissions.

Address the threat of increased violence and social unrest: Among the experts interviewed for thisreport, there appears to be consensus on the link between instability and the lack of human security, fromaccess to education and health to job creation and economic development. Greater progress is neededto reduce disparities, particularly in disadvantaged regions such as Bihar, West Bengal and AndhraPradesh, which are among some of the states from where radical groups, such as the Naxalite movement,have emerged. Key to this is a focus on making local people partners in progress by engaging them earlyin discussions around development plans for their region. Particularly for land issues, local people need tobe able to share in the upside generated by new projects and not feel that their involvement is only relatedto the sale of their land.

Application of information technology and intelligence: Of the US$ 81 billion planned for militaryexpenditure to 2020, US$ 8 billion is earmarked for training to optimize technology as an integral part ofsecurity strategy. This greater use of technology for surveillance and policing would help India’s securityservices work more efficiently to counter internal threats and collaborate with other countries oninternational issues. With India’s private sector strengths in IT, this could also be a growth area for Indianbusiness.

India’s relationship with ASEAN and agreements on trade help strengthen bonds with ASEAN memberstates.

The India-US nuclear deal established India as a trusted party on nuclear issues. Although it is not asignatory of the Non-Proliferation Treaty, it has accepted IAEA conditions for checks. The agreement alsoopened the door to technology transfer in areas beyond nuclear power generation such as health andmaterials, which will have important commercial implications for India’s manufacturing sector.

The recent EU-India summit demonstrated that India has a relationship with the EU beyond economicissues, in areas such as security, resource management and climate change.

Executive Summary: Economic SecurityConfederation of Indian Industries (CII)

Central Statistical Organization

Reserve Bank of India

Organisation of Economic Co-operation and Development (OECD)

World Bank

International Monetary Fund

World Economic Forum

Economist Intelligence Unit

Executive Summary: Energy SecurityConfederation of Indian Industries (CII)

The Energy Research Institute (TERI)

Economist Intelligence Unit

Council of Foreign Relations

World Bank

International Energy Agency (IEA)

Acknowledgements

14

This document was prepared by the Global Risk team at theWorld Economic Forum, in partnership with theConfederation of Indian Industry (CII). The project team wascomprised of Irene Casanova and Sheana Tambourgi fromthe World Economic Forum with Bidisha Ganguly, KavitaChoudhry, Tanvi Garg and Pritish Sahu from CII.

We also benefited from the contributions of the followingexperts who participated in a series of interviews in NewDelhi and to whom we wish to extend our gratitude for theirinsight and time.

R. K. Batra, Former Director, Bharat Petroleum Corporation;Distinguished Fellow, The Energy and Resources Institute(TERI), IndiaSurjit S. Bhalla, Chairman, Oxus Investments, IndiaAarti G. Bharadwaj, Research Associate, IndiaDevelopment Foundation, IndiaVivek Bharati, Executive Director, Agriculture and ExternalAffairs, PepsiCo India Holdings, IndiaSiraj A. Chaudhry, Chairman, Cargill India, IndiaAjai Chowdhry, Founder, HCL; Chairman and ChiefExecutive Officer, HCL Infosystems, IndiaKeki N. Daruwalla, Former Chairman, Joint IntelligenceCommittee; Columnist, Hindustan Times, India Shekhar Dutt, Deputy National Security Adviser, NationalSecurity Council (NSC) , IndiaP. L. Gautam, Deputy Director-General, Crop Science,Indian Council for Agricultural Research, IndiaArvind Gupta, Joint Secretary and Lal Bahadur ShastriChair, Institute for Defence Studies and Analyses, IndiaS. M. Jharwal, Principal Adviser, Department of Agricultureand Cooperation, Ministry of Agriculture, IndiaMathew Joseph, Senior Consultant, Indian Council forResearch on International Economic Relations, IndiaP. K. Joshi, Director, National Centre for AgriculturalEconomics and Policy Research, India

Resources

Rajat Kathuria, Professor, Indian Council for Research onInternational Economic Relations, IndiaNikhil Kumar, Member of Parliament, IndiaS. K. Lambah, Special Envoy to the Prime Minister of IndiaVed P. Malik, Former Chief of Army Staff, IndiaShamsher S. Mehta, Director-General (2006-2008),Confederation of Indian Industry (CII) , IndiaG. K. Pillai, Secretary of Commerce, Ministry of Commerce andIndustry, IndiaMartial Rolland, Chairman and Managing Director, Nestlé India,IndiaJayanta Roy, Senior Adviser, International Trade, Confederationof Indian Industry (CII) , IndiaM. R. Saluja, Fellow, India Development Foundation, India Anil Sharma, Senior Fellow, National Council of AppliedEconomic Research, IndiaAjay S. Shriram, Chairman and Senior Managing Director, DCMShriram Consolidated, IndiaN. S. Sisodia, Director-General, Institute for Defence Studiesand Analyses, IndiaGavin Wall, Representative in India and Bhutan, Food andAgriculture Organization of the United Nations (FAO), Rome

The Global Risk Team of the World Economic Forumincludes:Irene Casanova, Associate Director, Global Risk NetworkViktoria Ivarsson, Project Manager, Global Risk ReportStéphane Oertel, Associate Director, Global Risk NetworkPearl Samandari, Team Coordinator, Strategic InsightsSheana Tambourgi, Director, Head of the Global Risk Network

All the figures are prepared by PricewaterhouseCoopersfor the Global Risk Network of the World Economic Forum© 2008 PricewaterhouseCoopers. All rights reserved.“PricewaterhouseCoopers” refers to the network of memberfirms of PricewaterhouseCoopers International Limited, each ofwhich is as separate and independent legal entity.

Executive Summary: National SecurityConfederation of Indian Industry (CII)

India’s National Security Annual Review 2007

Council of Foreign Relations

World Incidents Tracking System, US National Counter-terrorismCentre (NCTC)

The CIA World Fact Book

Executive Summary: Agricultural Development andFood and Water Security

Food and Agriculture Organization (FAO)

National Centre for Applied Economic Research

Indian Council for Agricultural Research

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)

ISBN-10:92-95044-13-4ISBN-13: 978-92-95044-13-5