Story Of The Week

India as the 39th most competitive economy – Putting rankings in perspective

According to the World Economic Forum’s 2016-17 competitiveness report, India has climbed 16 places to secure the 39th rank on the Global Competitiveness Index out of 138 countries as improved business transparency and overhaul of public institutions pushed India’s attractiveness to the world. The categories that contributed the most were the two Is – institutions and innovation. Innovation included parameters such as private sector R&D, research institutions, and was driven by the upsurge of start-ups in the technology space. One of the biggest change areas was institutions which included ‘trust in politicians’— rankings here rose from 115 in FY14 to 31 in FY16.

Thanks to the country’s improved monetary and fiscal policies, as well as lower oil prices, the Indian economy has stabilized and is growing at the fastest rate among G20 economies.

Speaking at the India Economic Summit hosted by the World Economic Forum (WEF) at New Delhi between 6-7 October 2016, commerce and industry minister Nirmala Sitharaman said that India can achieve a sustainable 8% growth in the coming years but still needs to take many steps to remove regulatory hurdles that affect India’s competitiveness and the ease of doing business for firms. Experts in the Summit agreed that interest rates in India have been way too high and that other Asian economies, such as South Korea and China, increased capital formation and productivity by reducing key policy rates.


The biggest challenge: Job creation

Although we are celebrating a 16-point jump in the world competitiveness index, the million-dollar question is how much is left to be done? Investment in education, healthcare and skill training is still not at par with other competing nations. Every year, 12 million people in India are added to the country’s workforce but only 5.5 million new jobs are created. The rapid economic growth in India in the last decade has failed to create enough jobs.

The bright and dark spots of the economy

Singapore Prime Minister Lee Hsien Loong recently made a point that India continues to be a difficult place to do business with and that it is not yet fully convivial of foreign investment. Singapore, which is the top source of inbound FDI and also ranks number one in the Ease of Doing Business rankings has a lot of substance in this perspective. After all, most multinational companies have their APAC headquarters in Singapore. Thus, the areas of improvement are inconsistencies in policies and rules at different levels of government, lack of labour market openness, and difficulties in land acquisition. All these adversely affect India’s efforts to up its share of global trade.


The way forward

A few years ago, India faced significant headwinds from the global competition and was a member of the Fragile Five. Today, with inflation under control, the current account deficit all but over and growth at over 7.5%, India is one of the best-performers across the world. And while it is true that domestic investment levels remain stagnant, foreign investors are putting in money like never before. This is a golden era of positive investment climate within the country. FDI flows have almost doubled over the past five years, from $21.7 billion in FY11 to $40 billion in FY16.

Also, it is important to put the improvement in rankings in standpoint. Certainly, the government has made important steps in reforms in many areas, but most of the change in rankings is not based on actual data, it is based on an opinion poll of executives in the country. It is important to celebrate the movement in the WEF rankings, but it is equally essential to recognise the work to be done ahead.




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