 "Contest of prosperity")
India has improved its performance from a position of 71 in 2014-15 to 55 in the Global Competitiveness Index (GCI) 2015-16 rankings, conducted across 144 economies using a seven-point scale.
One might wonder why Panama, Costa Rica, Romania, Turkey and Bulgaria are considered more competitive than India (see chart). However, India is moving up the rankings unlike these economies barring Romania. Since ready answers do not seem manifest, one has to examine the construction of the competitiveness rankings.
The GCI uses 114 indicators grouped under 12 pillars for its index. Competitiveness is defined as the "set of institutions, policies, and factors that determine the level of productivity of an economy" that is expected to have an influence on its prosperity. The GCI distinguishes these 12 pillars into basic requirements sub-index that is considered key to factor-driven economies, efficiency enhancers sub-index (considered key for efficiency-driven economies), and innovation and sophistication factors sub-index (considered key for innovation-driven economies).
India's assessment on the three indicators reveals that the country is still considered a factor-driven economy and not one driven by efficiency or innovation. However, examining the sub-indices reveal a conflictual story. On the basic sub-index India is ranked 80 while on the efficiency sub-index it is ranked 58 and on the innovation sub-index it is ranked 46. The reason for the higher rank in the efficiency sub-index is the large size of the Indian market for goods and services and relatively better development of its financial markets. The reason for an even better rank on the innovation sub-index is its business sophistication and ability of its businesses to innovate.
Where should one begin to address the issue of relatively lower competitiveness of India? Some of the institutional factors of concern seem to be property rights, business costs of crime, reliability of police services, and strength of auditing and reporting standards. The key infrastructure issue not fully addressed yet is that of quality power supply. The enrolment ratios in schools and colleges and access to internet in schools are educational factors of concern, while the business impact of killer diseases such as tuberculosis and HIV are health factors of concern.
It could be argued that a healthy and educated populace and, hence, a healthy and educated workforce augurs well for efficiency and, hence, competitiveness of an economy. But, investments in health and education would need some gestation period to show effect and are usually long-term. The infrastructural issues of power, roads etc. could be solved in the medium term. The institutional issues concerning property rights, efficacy of police force and, hence, reduction of crime, and stringent and uncompromising auditing norms to prevent corporate frauds could be dealt with by legislating laws early and finding enforceable mechanisms.
The above is not likely to have a linear effect on the improvement of India's competitiveness, but a slightly delayed consistent upward thrust in its competitiveness rankings. It would be a good augury if the Prime Minister's Office either directly or indirectly monitors the nation's competitiveness by developing a multi-dimensional dashboard. This would help focus investments on sectors or projects with the greatest multiplier effect in the economy.
The author is associate professor, Complexity Research Group, Institute for Financial Management and Research
