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In this article, Hardeep Singh discusses the reasons why India performed badly in Global Competitive Index.

Introduction

The Global Competitiveness Index has been measuring the factors that drive long-term growth and prosperity for over four decades which in return helps the policymakers of different countries in identifying the global and domestic challenges to be addressed. This index is widely used among different countries to measure their competitiveness with rest of the world. The Global Competitiveness Index evaluates the competitiveness of economies of 137 countries and according to the World Economic Forum it provides unique insight into the drivers/indicators of productivity of different countries. The index comprises of both the macroeconomic and micro economic/micro-business aspects of competitiveness.

Meaning of Global Competitive Index

  • The Global Competitive Index is a compilation yearly report published by the World Economic Forum.
  • The report evaluates the ability of the countries to provide a high level of prosperity to their citizens. This, however, depends on the productivity of a country to use the resources available to it.
  • The Global Competitive Index measures various indicators which includes set of policies, institutions, and factors that collectively determine the level of productivity of an economy.
  • The Global Competitive Index consists of 114 indicators which when combined together show the productivity and long-term prosperity of a country. These indicators are divided into group of 12 Pillars that are given below:-
Basic Requirement Sub-index Efficiency Enhancers Sub-index Innovation and Sophistication Factors Subindex
PILLAR 1. Institutions PILLAR 2. Infrastructure PILLAR 3. Macro-Economic Environment

PILLAR 4. Health and Primary Education

PILLAR 5. Higher Education and Training PILLAR 6. Goods Market Efficiency PILLAR 7. Labor Market

PILLAR 8. Financial Market Development

PILLAR 9. Technological Readiness

PILLAR 10. Market Size

PILLAR 11. Business Sophistication PILLAR 12. Innovation
These Pillars play’s a key role in Factor Driven Economies These Pillars Play’s a key role in efficiency driven economies These Pillars play’s a key role in Innovation Driven Economies

The GCI includes statistical data from internationally recognized organizations i.e., International Monetary Fund (IMF), The World Bank, UNESCO, World Health Organization, etc.  

The Foundation of Competitiveness

The prosperity of any country is determined by the productivity of an economy, which is measured by the value of goods and services produced per unit by the nation’s human capital and natural resources. Productivity supports high wages, a strong currency, and a high standard of living. Competitiveness is then measured by productivity.

Many countries like India can enhance their prosperity if they improve their productivity. Improving productivity will lead to a rise in the value of goods produced which in return will improve the local income. Analysing the drivers of productivity across countries is one of the oldest vocations of economic research.

Initially the methodology for assessing the competitiveness was concentrated on the role of capital accumulation in economic growth. There has been a series of improvements in the methodology over the years. In recent times the focus has shifted to empirical research, enabled by new sets of data covering a wide range of indicators. Important indicators of productivity drivers include the role of institutions, openness to trade and investment, geographic location, and the quality of the business environment.

New Framework of Global Competitive Index

The Global Competitive Report is been recognized as a tool for bench-marking a country’s strengths and weaknesses. The current framework introduces significant changes. The description of the changes introduced are as follows:-

  • Changes in Weights

The discontinuation of stages of development has significantly altered the weighting scheme used to compute the overall GCI score. In the current 2017 methodology, all the 12 pillars are equally weighted, each contributing 8.3%. In the past, the weighting scheme varied by pillar and country, from 5 to 15 percent. The variations of weight depends on the following factors:

  • The sub-index to which the pillar belongs: and
  • The country’s stage of development.

Changes within pillars

The four types of changes are as follows:

  • Reorganization within pillars:- In some pillars, a number of concepts were regrouped, while in some pillars the concepts were split into several categories. For instance, the health and primary education came under one pillar before. Under the current methodology, it has been broken into two:
  1. The health component is a pillar of its own; and
  2. Primary education is now part of an enlarged Pillar named Education and Skills.
  • Change in concept definition:- In several pillars, the scope of certain concepts has been either expanded or reduced.
  • Change in concept measurement:- A majority of the concepts have been retained in the new method, however, the way in which they are assessed has changed. For Example: The Health pillar now comprises of a single indicator, namely health adjusted life expectancy, which has replaced 8 health related indicators.
  • Introduction/Deletion of indicators:- The new methodology has led to introduction of new concepts, however, other concepts have been dropped, notably to avoid conceptual overlaps. This has led to new indicators being added to different pillars. For Example: The institutions pillar now includes two new concepts, namely:
  1. Checks and Balances
  2. Social Capital

These concepts help in assessing new indicators and existing ones that were moved to these concepts.

Each and every change in the current methodology has an impact (positive or negative) on how a country performs in concept, pillar, or the overall GCI.

India’s Performance in Global Competitive Index                                                                                   

PILLARS Rank (2017-18) Score (1-7)
GLOBAL COMPETITIVE INDEX 40 4.6
INSTITUTIONS 39 4.4
INFRASTRUCTURE 66 4.2
MACROECONOMIC ENVIRONMENT 80 4.5
HEALTH AND PRIMARY EDUCATION 91 5.5
HIGHER EDUCATION AND TRAINING 75 4.3
GOODS MARKET EFFICIENCY 56 4.5
LABOUR MARKET EFFICIENCY 75 4.1
FINANCIAL MARKET DEVELOPMENT 42 4.4
TECHNOLOGICAL READINESS 107 3.1
MARKET SIZE 3 6.4
BUSINESS SOPHISTICATION 39 4.5
INNOVATION 29 4.1

Global Challenges

According to 2017 Global Competitive Report, after a decade from the global financial crisis, the likelihood for a sustained economic recovery remains at risk as there is a widespread failure on part of the global leaders and policy-makers to bring reforms necessary to hold up the competitiveness and enhance productivity of the countries.

Some of the major challenges faced by Global Economies are as follows:-

  • Structural and Measurement Challenges

In 2007-2008, the global financial crisis came and interrupted the sustained economic growth and which led to the advanced economies facing prolonged slowdown in growth rate. It is pertinent to mention here that the developed and developing economies have also experienced a slowdown in productivity, despite significant technological progress. In order to put growth back on a sustainable path, what is required is reforms which will help in improving human resources, increasing capital and introducing new technologies.

  • Innovation Challenges

The emerging technologies have potential to be a source of growth, however the key challenge is how to unlock the potential in a way that society at large benefits from it. Technology can be further used to reshape the national and global distribution of income, provide improvised opportunities and structural transformations. However the effects of advancement in technologies are unknown but job losses are expected as technology will transform manufacturing and services sector in the near future.

  • Disruptive Inequalities

The technological advancement has in a way polarized the labor market, as one can see a clear drop in the number of mid-skilled jobs and increase in both low and high skilled jobs. In many advanced economies, income inequality has increased.

Fall in India’s Rank in Global Competitiveness Index and its reasons

India has been ranked the 40th most competitive economy on the Global Competitiveness Index 2017-2018 compiled by World Economic Forum. In 2016-2017 report, India was ranked 39th in the Global Competitiveness Index. India slipped down 1 rank, however, its score has improved across most of the competitive pillars.  The pillars in which India’s performance has improved are given in the table below:

S. No. Pillars Global Competitive Report 2016-2017 Global Competitive Report 2017-2018
1. Infrastructure 68th 66th
2. Higher Education and Training 81st 75th
3. Technological Readiness 110th 107th

According to the World Economic Forum Executive Opinion Survey, 2017 some of the major reasons for India’s fall in GCI ranking are as follows:

  • Corruption is considered as the most problematic factor for doing business in India.
  • Access to financing, followed by tax regulations.
  • Educational Inadequacy in the workforce/ laborers.
  • India’s disconnect between its innovative strength (India is ranked at 29th position in 2017-2018 reports) and its technological readiness(India is ranked at 107th position in 2017-2018 reports).
  • India’s poor ranking in Health and Primary Education Pillar which is the second worst ranking to the Technological Readiness. (India is ranked at 91st position in 2017-2018 reports).

Disconnect between Innovative Strength and its Technological Readiness

The report of 2017-2018 gives some useful information about the growth trends of the Indian economy. In a recent study on which countries are generating the most patents, three of Indian cities ranked in the top 100. Due to such improvement in innovation in India, “the World Economic Forum has ranked India at 29th on the innovation pillar for competitiveness”. However, the improvement comes with some limitations. According to the reports, it can be seen that India is doing well in the field of innovation but is leaving a large section of the society behind as they are not technologically equipped. As it can be seen from the reports that innovation is not at par with the technological readiness of the individuals and the firms in India. ‘Technological readiness’ is relatively low as compared to innovation. If in the long run there still remains such a disconnect between the technological innovation and technological readiness it will only lead to an unequal society.

Poor Ranking in Health and Primary Education Pillar

In case of Health and Primary Education Pillar, India is ranked at 91st position which is the second worst rank compared to technological readiness. It can clearly be seen from the report how poor health and education of a country can affect its competitiveness. If such a trend of poor public investment in health and primary education goes on for a long period of time, it might lead to an unequal and unproductive society.

Corruption, Access to Financing, and Tax Regulations

The most concerning insight of the WEF Executive Opinion Survey reveals that the private sector in India still considers corruption to be the most problematic factor for doing business in India. The issue of corruption is followed by lack of access to financing and tax regulations for setting up a business in India. However, the issue of lack of access to financing will gradually decrease once the problem of non-performing assets (NPA’s) with the banks will be rectified. Although the issue of tax regulations will decrease with time, as the Indian economy will adjust to the newly implemented GST. However, the problem of corruption will remain the major concern for the Government in India.

Reason for India’s Poor Performance under Pillar 1 (Institutions) of the Global Competitiveness Index

One of the Institutions in India which has affected its GCI is the judicial system. The judiciary in India holds an important place in governance of the State. The judicial branch is independent from the other two branches of the Government with the power to interpret the constitution. An independent and impartial judiciary is the essence of a democracy. However, with the passage of time our judicial system has become ponderous, slow and to an extent inefficient. Thus our judicial system also needs some major reforms.

Why Reforms are needed?

  • Delay in Justice:Article 21 of the Constitution of India guarantees speedy trial and any delay in speedy disposal of criminal trial  will infringe the right to life and personal liberty guaranteed under Article 21 of the Constitution of India. The debate on judicial arrears at various forums has given a number of ideas on how the judiciary can set its own house in order.
  • In almost every court in India be it District Courts, High Courts and even the Supreme Court of India, there is huge pendency of cases and the present strength of the judges are not sufficient to cope with the ever increasing burden/pendency of cases.
  • The procedure of Court proceedings is very complex, costly and dilatory putting the poor at a distance from justice.
Number of Judges in India Population of India Judges to Population Ratio

Subordinate Judiciary –  16,438

High Courts               –  621

Supreme Court          –   29

Total             17,088 Judges

Total Population of India is 1.3 Billion People

Ratio is 18 Judges per 10 Lakh people

How to achieve an efficient Judicial System?

  1. Practical and effective reforms in consonance with the basic features of the Constitution propounded by Hon’ble Supreme Court in Keshvananda Bharti  case.
  2. Holding the Indian judiciary accountable for their work.
  3. Speedy and Fair Trial by increasing the number of judges and the infrastructure required to accommodate them and systematic running of the Courts.
  4. As access to justice is costly, the poor class is unable to approach the judiciary. Reduction in costs of litigation, encouraging the pro-bono culture and improving the free legal aid services provided by the Government can help improve the judicial system in India.

Reason for India’s poor performance Pillar 2 (Infrastructure) of the Global Competitiveness Index

India has an enormous infrastructure gap, but it can be bridged by cooperation between the pubic and private sectors. According to a World Economic Forum Survey, there is not enough open and continuous dialogue. The top major constraints in infrastructure development as per the World Economic Forum is given in the table below:

S.No. Areas of Constraints Percentage of Constraints
1. Corruption 90%
2. Access to Financing 70%
3. Access to qualified Staff 30%
4. Political and Regulatory Restriction 70%
5. Macroeconomic Instability 70%

Political and regulatory restrictions have many facets. It includes opposition on investment in infrastructure sector, changes to assets-specific regulations. In India refusal to give payments or delay in giving payments by the government will lead to breach of contractual agreements which in turn will have a bad influence on future investment decisions. One of the other constraint includes, access to financing and waiting for a long period of time to get returns from the investment. This affects financiers and investors who are looking for a long term and steady returns.

Conclusion

Even though with all these limitations/barriers in the improvement of the ranking in Global Competitiveness Index, India remains the most competitive country in South Asia. Even World Economic Forum said that India’s score is its highest ever according to the current methodology. The World Economic Forum has also appreciated India’s efforts in information and communications technology sector. However, according to World Economic Forum one cannot compare the recent report of 2017-18 with the previous report of 2016-17 as the methodology for computing ranks has changed.

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