India and the Global Competitiveness Report

Recently, the World Economic Forum (WEF) - founded by the legendary German engineer and economist Klaus Schwab - published its World Competitiveness Index (WCI) for 2018-19.

Present Indian Government which rushes to take credit for all improvements in international indices like World Bank’s Ease of Doing Business Index, has little to cheer about the WCI development. However, it is worth at least a cursory look in order to rethink our priorities rather than hush-hushing it.

Well, India slipped 10 ranks to reach 68th Global Rank from out of 141 participants. Not a place to feel proud about! Interestingly, India’s score dropped just marginally. That means – India did not do any progress on competitiveness, and many a countries which were behind us, overtook us during the last year. Amongst the BRIC countries, only Brazil (71st Rank) trails India. China is unchanged at Rank 28 (40 places ahead of India), and Russia is unchanged at Rank 43.

Amongst the large and developing economies, South Africa ranks 60th, Turkey 61st, and Indonesia 50th - all ahead of India. In contrast to India, Vietnam gained 10 places to move from 77th to 67th place.

As stated by Klaus Schwab, the Index is an annual yardstick for policy makers to look beyond short-term and reactionary measures. It encourages them to assess their progress against the full set of factors that determine productivity.

The index is organized in four areas subdivided into 12 pillars.

Environmental Capital (Institutions, Infrastructure, ICT Adoption- Information and Communication Technology, Macro-economic Stability)

Human Capital (Health, Skills)

Markets (Product Market, Labour Market, Financial Systems, Market Size)

Innovation Ecosystem (Business Dynamism, Innovation Capability)

Not surprisingly, India is number 3 on market size (behind China and the USA). But any Indian extraordinary achievement stops there. On many other Pillars, India is somewhere in average. And on the following five, India performs poorly:

• ICT Adoption: 120th Rank (China 18)

India’s mobile broadband subscription remains particularly low. Also on connectivity, the focus is on quantity than quality and consistency of the connections.

• Health: 110th Rank (China 40)

Life expectancy in India is extremely low - comparable with Africa, and much below her South Asian neighbours.

• Skills: 107th Rank (China 64)

India remains poor on schooling and skilling – including skilling for future jobs.

• Product market: 101st Rank (China 54)

India does well in Domestic Competition (46th Rank) but poor on Trade Openness (131st Rank)

• Labour Market: 103rd Rank (China 72)

India does poor on Workers’ Rights (112). And a miserable female participation in labour force (0.26 female to male workers ratio) takes us to 128th Rank amongst 141 nations.

Another recent report from Nomura – the Japanese Financial Services Group – made the following shocking (from Indian perspective) observations. It reports that the country most benefited from the fallout of the US-China trade war is Vietnam. Vietnam could gain 7.9% of its GDP from the trade diversion. South Korea, Chile, Malaysia and Argentina are the other top beneficiaries. India stands a distant 17th.

Out of 56 companies that relocated their production out of China between April 2018 and August 2019, 26 relocated to Vietnam, 11 to Taiwan, eight to Thailand, and only three to India. This should be a wake-up call for India.

WEF’s study above also highlights that competitiveness is not just “cheap labour”. It takes a lot more directed efforts, sustained strategy and a changing of mindset to create “manufacturing culture” in a country than just launching a few flashy programmes.

India needs to work much more, and faster on infrastructure, logistical facilities, education, skills development, innovation, reduction of regional and gender bias, and empowering of its Small and Medium-sized enterprises if we want to improve our competitiveness, and benefit from the ongoing geopolitical movements.

(Thanks to WEF, Nomura, Economic Times, CNBC)