Why do some nations succeed and others fail in international competition?" asked Harvard Business School's Michael Porter 13 years ago in his pathbreaking book The Competitive Advantage of Nations, and thus crystallised a question that economists had vaguely been asking until then. The coming of the Internet and the dotcoms in the mid-90s made competitive strategy as fashionable as tailcoats. Now that the best of economies are grappling with issues like double-dip recession and deflation, the Internet has been recognised for what it always was--an information superhighway-and the world's future looks less certain, most nations and corporations are back to asking themselves the Porterian question.

For India, the question of competitiveness assumes greater significance. The subcontinent is not only home to almost a fifth of the world's population, but is also its largest democracy. With a workforce of 402 million, it is fast becoming the world's back office, but it also has 460 million people who cannot read or write. Its middle class of more than 300 million is a potential trigger for global revival, but there are 261 million others who barely manage a subsistence. The country has a strong legal system, but its bureaucracy is crippling. It has an economy that's fastest growing after China's, but its per capita income (providing for purchasing power parity) is lower than those of Honduras and Lesotho.

However, the Great Indian Dream being nurtured since the Independence, but more actively since the Nineties, presupposes global dominance based merely on the preceding positives, never mind that India ranked No. 48 on the World Economic Forum's Competitiveness Index for 2002. Estonia, Botswana, and Costa Rica rate better. This tells a disturbing story. That the size of a country or its population, availability of cheap labour, or a robust judicial system are no guarantors of competitiveness. In fact, even macro-economic enablers like industry-friendly monetary policies, superlative education system, higher penetration of information technology does not automatically translate into unique, recession-proof competitiveness. Japan, Germany and the US bear that out.

The question, then, is: What is competitiveness, and how does one achieve it? One of the definitions offered by the Concise Oxford dictionary of the adjective competitive is (of a person) "a strong urge to win". Economies are a little more complex than enthusiastic individuals or firms, so how does one create this urge to win? The answer to this question goes beyond economics into the more obscure areas of sociology and psychology, and is explored elsewhere in the issue. For the purposes of this column, we'll limit competitiveness to more tangible factors that can be shaped by government policies.

By now, most of us are familiar with India's competitive constraints. Red tape, high cost of capital, poor infrastructure and inadequate social development. But all of these stem from one basic issue, which is governance. India may have an exemplary democracy, but it has had poor governments. Since a democratic set up places so much power in the hands of its people, governments often undertake populist measures (such as taxes and subsidies) without effecting any deeper and longer-lasting structural changes. That's a reason why while a so-called Communist China's one-step-at-a-time move towards an open market system over 30 long years starting in the 1950s is paying so handsomely, India's sudden tryst with globalisation is floundering. The groundwork that should have preceded such a liberalisation still remains to be done, although we are more than a decade into it.

Investment, foreign or domestic, will chase the most friendly and efficient markets. Therefore, if the Indian government is wondering why despite opening up its industries, it receives a few billion dollars in foreign investment, it's because the business environment isn't competitive enough. It takes too long for an investor to obtain clearances, and corruption is epidemic. While labour is cheap, the direct and indirect costs of infrastructure-power, water, transportation, telecommunications-are simply too high. An estimated $200 billion is needed to raise India's infrastructure to acceptable quality levels. Money is an issue, but a bigger issue is governance. As the Golden Quadrilateral example illustrates, political will can overcome even financial constraints. But to implement more such projects, India needs a stable government-one with a clear mandate and vision. At the moment, both seem equally impossible to come by.

The enormity of it all is driven home with greater force when one realises that a robust socio-economic base is only a precondition and a not a guarantor of competitiveness at industry or firm level. The two are inextricably linked, but it is possible for a firm's overall competitiveness to be delinked from that of a nation-for the simple reason that one country cannot be competitive at everything. A US may be a great place for innovation, but not necessarily for manufacture. It may be home to the best brands, but servicing their consumers may be somebody else's competence. In fact, that's why globalisation-despite the rise of xenophobia-will continue to be unstoppable, and also why corporations that tap into varying competitive strengths of different nations will remain more successful than others. By that logic is it possible for a Ranbaxy or a Wipro to one day become global leaders? I think so, the reasons of which are explored in a separate essay elsewhere in the issue.

A nation's competitiveness will, then, be determined by its ability to draw corporations that are individually competitive (don't forget Japan's growing disillusionment with its interlinked keiretsu system). China is already deploying that strategy by welcoming high-tech industries from Taiwan and Hong Kong to the mainland. Can India lure the best of industries from Bangladesh and Sri Lanka? If it grows its business environment much better than the two countries, why not? But that's a big if. In the final analysis, competitiveness may depend on a basic human instinct. The urge to win.