This article was first published by the Global Association for Risk
Professionals on November 11, 2016;
China is 29th, India 39th in the World Economic Forum’s
annual index, which is led by Switzerland, Singapore and the U.S.
India ranked 39th in the
2016-’17 Global Competitiveness Report, recently published by the World
Economic Forum. The South Asian nation is 16 places higher than it was the
previous year, and 32 above its 2014-’15 rank, and now most of those ahead of
India are developed countries in terms of income or other parameters. (See
illustration below for factors that go into the WEF analysis.)
In the competitiveness ranking
topped by Switzerland, Singapore and the United States (unchanged in that order
from a year earlier), followed by the Netherlands and Germany (switching places
4 and 5), China was 28th, unchanged since 2014-’15. Brazil has slipped to 81st
(from 75 in 2015’-16 and 57 in 2014’-15). Russia improved to 43 from 45, and
South Africa to 47 from 49.
In its region, India was
best-performing in areas such as infrastructure, goods market efficiency,
financial market development, market size, business sophistication and
innovation. India still has a long way to go in health, primary education and
labor markets — despite significant improvements health and education over the
last decade.
What is behind the rise of India
in the world competitiveness ranking?
Market size — India’s
huge domestic market worked in its favor. Johan C. Aurik, chairman and global
managing partner of strategy consulting firm A.T. Kearney, in an interview with
Livemint, said that India, with an economy trailing only those of the U.S. and
China, “is lucky that it is so big that it does not need the world.”
Financial market development
— After being marred by scams in the 1990s and early 2000s, India’s stock
markets have advanced in terms of modernization and technology, with the
regulator (Securities and Exchange Board of India) backing efforts to bring
them up to international standards.
Figure 1
Source: World Economic Forum
Similarly, the Reserve Bank of
India (RBI) has taken steps to improve the bond markets, bring transparency to
non-performing assets and bring inflation under control. The image of the
central bank went up many notches under its 23rd governor, Raghuram Govind
Rajan, who was succeeded in September by Urjit Patel.
Institutions — Policy
paralysis, misuse of public money and infrastructure were among the reasons
that people lost trust in public institutions and administration in the last
few years of the United Progressive Alliance (UPA) government. In 2014, when
the National Democratic Alliance (NDA) came to power, the Narendra Modi-led
government has lifted public confidence.
Goods market efficiency —
Although India is the best-performing country in South Asia in goods market
efficiency, it has actually declined in this measure over the last decade. With
passage of the goods and services tax (GST) by the parliament earlier this
year, and efforts ongoing for an April 1 implementation, there may be
significant improvement in overall market efficiency. “GST was a miracle, I
thought it would never happen,” Aurik said.
Infrastructure — The key
infrastructure ministries are seen as having done their job well over the past
couple of years. The government has designated infrastructure as a top
priority, and there has been significant, perceptible progress in power, roads
and shipping, and railways. Besides planning to spend billions of dollars on
infrastructure, the government has relaxed regulations to attract foreign
direct investments (FDI) in the sector.
Labor market efficiency —
India ranks lowest in this pillar (112th out of 138 countries). The current
labor laws are outmoded and rigid. Although labor law reform is on the
government’s agenda, it is a politically sensitive issue, and small steps meets
with resistance. The proposed reforms would make hiring and firing easier for
the large public sector undertakings.
Macroeconomic environment
— The Indian economy is poised for further growth. Per capita income has almost
doubled in the last six to seven years. The foreign exchange reserves of more
than $360 billion help in maintaining confidence in monetary and exchange rate
policies and enhance the capacity of the central bank to intervene in forex
markets. The economy is well placed for meeting external obligations, and
maintaining investor confidence helps to attract much-needed FDI.
Although fund managers are
parking money in India due to the advantage they get from the positive interest
rate differential, a lot of these funds, just as in other Asian economies, are
seeking a more permanent destination. India is now the top FDI destination for
the world. Prime Minister Modi sends out the right signals about the commitment
of the government to providing the right environment for development.
Technology readiness —
India has not done well in technology readiness despite its success in IT
outsourcing. Regulators must keep up with the sophistication in market
technology and new market structure. Enforcement cases will become more
complicated as market manipulation and other misconduct are now also conducted
on the Internet, where they are difficult to detect.
Cybercrime surveillance should
be updated periodically. Also, whether a demutualized exchange should be
regulated as any other listed company, or as a utility, will be a challenge for
the regulators.
Health and primary education
— Jim O'Neill, the British economist and former chairman of Goldman Sachs Asset
Management credited with coining the term BRICs (Brazil, Russia, India and
China), wrote on Bloomberg View about 10 things that India must do to achieve
its potential. Two of those 10 were related to education — primary and
secondary as well as colleges and universities. (Liberalizing financial markets
and building more infrastructure were among the others.) Education is essential
if the population of India is to be a true asset for development.
On the health front, the average
growth in total health care spending is lower than the average GDP growth rate
and lower, as a percentage of GDP, than that of even low-income countries, as
classified by the World Bank. (India is classified as low-middle income.) It is
estimated that nearly one million Indians die every year due to inadequate
health care facilities, and close to 700 million have no access to specialist
care.
Higher education and training
— The country is home to the Indian Institute of Technology and the Indian
Institute of Management, yet many graduates in India are unemployable. The
quality of faculty and infrastructure and the number of institutions of higher
education need beefing up.
Business sophistication and
Innovation — There has been significant improvement in both business
sophistication and innovation owing to increased research and development
activities and the ecosystem for promoting start-ups.
Although many indicators are
favorable, Prime Minister Lee Hsien Loong of Singapore, on a recent visit to
India, said the country remains a difficult place to do business. Gaps in the
regulatory framework and other crucial areas need to be addressed. India’s
competitiveness ranking is an endorsement of the steps that have been taken and
a reminder that there are still “miles to go.”
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