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India & Global Competitiveness – Miles To Go

The World Economic Forum’s Global Competitiveness Index and report for 2014-2015 was released last week.

I am highlighting key notes on India from the report, as the topic of global competitiveness in today’s world is critical and impacts all our lives, directly or indirectly.  These notes indicate the amount of work and important contributions needed especially from our leaders, elected representatives, administrators and all key stakeholders in the public and private sectors.

The World Economic Forum defines competitiveness as the set of institutions, policies, and factors that determine the level of productivity of a country.  The Global Competitiveness Index (GCI) includes a weighted average of many components, each measuring a different aspect of competitiveness.  The components are grouped into 12 pillars: Institutions, Infrastructure, Macroeconomic environment, Health and primary education, Higher Education and training, Goods market efficiency, Labor market efficiency, Financial market development, Technological readiness, Market size, Business sophistication and Innovation.

These are the key notes on India:

  • Dropping for the sixth consecutive edition, India ranks 71st (down 11 from previous year) out of 144 economies in the Global Competitiveness Index (GCI) 2014-2015.  It is the lowest ranked among the BRICS economies.  China ranks 28th and continues to lead the BRICS economies by a wide margin-well ahead of Russia (53rd), South Africa (56th), Brazil (57th), and India (71st).
  • The rank differential with China (28th) has grown from 14 places in 2007 to 43 today; while India’s GDP per capita was higher than China’s in 1991, today China is four times richer.
  • Despite its immense potential and promise, by many accounts India continues to suffer from poverty.  A third of the population still lives in extreme poverty.
  • Overall, India does best in the more complex areas of the GCI: innovation (49th) and business sophistication (57th).
  • In contrast, it obtains low marks in the more basic and more fundamental drivers of competitiveness.  India ranks 98th on the health and primary education pillar.  The health situation is alarming: infant mortality and malnutrition incidence are among the highest in the world; only 36 percent of the population have access to improved sanitation; and life expectancy is Asia’s second shortest, after Myanmar.  On a more positive note, India is on track to achieve universal primary education, although the quality of primary education remains poor (88th) and it ranks allow 93rd in the higher education and training pillar of the GCI.
  • Transport and electricity infrastructure are in need of upgrading (87th).  Addressing the infrastructure gap will require very strong participation on the part of private and foreign investors through public-private partnerships.  For these types of investments to materialize, the institutional framework needs to improve.
  • There are encouraging signs.  India has achieved spectacular progress in various measures of corruption and now ranks 65th.  Red tape seems to be less of an issue than it had been, and government efficiency is equally improving.  However, the overall business environment and market efficiency (95th, down 10 places) are undermined by protectionism, monopolies, and various distortionary measures, including subsidies and administrative barriers to entry and operation.
  • The World Bank estimated that it takes 12 procedures (130th) and almost a month to register a business (106th).  In addition, it calculated that taxes for a typical registered firm amount, on average, to 63 percent of its profits (130th).  The labor market is inefficient and rigid (112th).  These factors contribute to the high cost of integrating more businesses into the formal economy.  Some estimates find that the informal sector accounts for half of India’s economic output and 90 percent of its employment.  It is therefore urgent that the government create the right incentives for businesses to register and contribute their fair share to the provision of public services.
  • India achieves its lowest rank among the 12 pillars in technological readiness (121st).  Despite mobile telephony being almost ubiquitous, India is one of the world’s least digitally connected countries.  Only 15 percent of Indians access the Internet on a regular basis. Broadband Internet, if available at all, remains the privilege of a very few.  India’s knack for frugal innovation should contribute to providing cheap solutions for bridging this digital divide.
  • India’s fiscal situation remains a concern, as evidenced by the country’s 101st rank in the macroeconomic environment pillar of the GCI.
  • Because of the high degree of informality, the tax base is relatively narrow, representing less than 10 percent of GDP.  In addition, over the past several years India has experienced persistently high, in some years near double-digit, inflation.
  • Despite the abundance of low-cost labor, India has a very narrow manufacturing base.  Manufacturing accounts for less than 15 percent of India’s GDP.  Agriculture represents 18 percent of output and employs 47 percent of the workforce.  Low productivity in the sector means very low wages.  The services sector accounts for just 28 percent of employment but for 56 percent of the economy.  White collar jobs remain rare.  The business-process outsourcing sector employs 3.1 million workers, or 0.6 percent of India’s 482 million strong labor force (but accounts for 6 percent of GDP).  India needs to create jobs in the “missing middle” for the 610 million youths under 25—half of India’s population— who have recently entered or will soon enter the workforce.
  • India’s competitiveness is also reduced when sustainability is taken into account.  Social sustainability is hindered mainly by the population’s very uneven access to sanitation (only 36 percent of Indians have access to these basic services) and high rates of vulnerable employment.  India’s environmental performance is also below par because the country’s natural assets are depleting.  Air quality has slightly improved, but concentrations of particulate matter and carbon intensity are still very high.  In addition, the limited treatment of wastewater is increasing pressure on India’s water tables, and limited protected areas are wearing down the assessment of the quality of the natural environment.  Although on some issues the authorities are working to improve the situation, little action has been taken on specific but significant areas of environmental management.

Improving competitiveness will yield India huge benefits.  It will help rebalance the economy and move the country up the value chain so as to ensure more solid and stable growth; which in turn could result in more employment opportunities for the country’s rapidly growing population.

There is a tremendous amount of work to be done with strong leadership focus at all levels of governance and partnerships.  It is encouraging to see India’s new prime minister and team actively putting many of these core elements among top priorities for the nation.  Hopefully, we can all contribute in our own ways to at least one of the pillars to ensure effective progress.  There is a long way to go and lots of committed work to reach our aspirations as a nation.  Like it or not, our competitiveness as a country impacts all our lives.

Best wishes…

Note: Special thank you to my Rutgers professor, Dr. Randall Schuler for actively influencing and instilling the habit of following and thinking about global reports, trends and indicators.

Reference:
World Economic Forum’s Global Competitiveness report 2014-2015

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