Why India dropped in World Economic Forum Competitiveness Index?

Last Updated at: Dec 14, 2019

India slipped ten places to the 68th rank in the World Economic Forum (WEF) Competitiveness Index 2019 rankings published earlier this month. India is also among the worst-performing BRICS nations along with Brazil (ranked lower than India at 71st this year). In this post, we analyse reasons for India’s declining performance in the competitiveness rankings and assess possible paths for correction.

What constitutes the Global Competitiveness Index?

The World Economic Forum has been publishing the Global Competitiveness Index annually since 1979 and maps the competitiveness landscape of 141 economies through 103 indicators organised into 12 pillars. The index is an annual yardstick for policy-makers to look beyond short-term and reactionary measures and to instead assess their progress against the full set of factors that determine productivity.

These pillars are:

    • Institutions
    • Infrastructure
    • Information and Communication Technology Adoption
    • Macroeconomic stability
    • Health
    • Skills
    • Product market
    • Labour market
    • Financial system
    • Market size
    • Business Dynamism
    • Innovation capability

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Assessing India’s performance in various parameters

The Good

  • Of the 141 countries assessed in the index rankings, India emerged as a top performer with a rank under 50 in areas such as market size (third), innovation capability (thirty-fifth), financial system (fortieth) and macroeconomic stability (forty-third).
  • While market size can be attributed to a number of domestic and international businesses and a large consumer base, India’s high rank in innovation capability indicates that we are well ahead of most emerging economies. Several government schemes to promote STEM education, research in Artificial Intelligence and encouragement to start-ups are some factors that led to an improved position in innovation.
  • Despite rising non-performing assets and reluctance of banks to extend fresh credit, India could retain a fairly high position in the “financial system” and “macro stability” pillars, largely due to government interventions and a robust financial regime. India also performs well on adapting legal regime to changes necessitated by technological and digital improvements, such as amendments to Income Tax Act, GST Laws, Insolvency and Bankruptcy Code, Information Technology Act etc.

The Bad

In pillars such as institutions, infrastructure and business dynamism, India displayed a sub-par performance with ranks ranging between 59 and 100. Indian universities still do not feature in the global top 100 rankings, there exists a severe gap between the population and number of quality educational institutions. On the infrastructure front, public spending has globally declined on research. India also faces twin challenges of balancing its resources between competing social and business needs.

The Ugly

India’s performance in critical pillars such as Health where it ranks 110th, Skills with 107th rank and Information and Communication Technology Adoption (ICT) where it ranks 120th is dismal. Despite good ranking in innovation, if commensurate progress is not made in sectors of social and labour benefits such as health and skills, there are risks of negative social spillovers. These may be pollution-related issues, low human capital investment and unemployment due to lack of skills, as can already be seen by the 45-year high unemployment in India (Periodic Labour Force Survey Report 2017-18). Even though almost 88% population in India is covered by telecommunication lines, the ICT adoption levels in small and medium businesses remain low. To improve our score in these areas, efforts are needed in the following directions –

  • Enhancing women’s participation in the workforce, which has declined compared to 2007 figures, despite improvements in women literacy.
  • Improving health care and delivery of health and wellness services, where India only ranks above African countries.
  • Advancing worker’s protection through improved socio-economic law enforcement
  • Improving skill base, alongside parameters on overall literacy of the population

Key Takeaways and Way Forward

Singapore, USA and Hong Kong have emerged as top performers The index notes that the global economy is ill-prepared for a downturn after a lost decade for productivity-enhancing measures. Persistent weaknesses in the drivers of productivity growth such as health, infrastructure and skills, highlighted by the GCI 4.0, are among the principal culprits of the lacklustre performance and frailty of the global economy over the past decade.

The report praises Sweden, Denmark and Finland for working towards innovation alongside social and environmental protection. It also states that environmental, social and economic agendas can no longer be pursued separately and in parallel and that they must be merged into a single sustainable and inclusive growth agenda, which are good guidelines for shaping India’s future business policies.

Last year in the annual Global Competitiveness Index compiled by Geneva-based World Economic Forum, India was ranked 58th.

Avani Mishra is a graduate in law from the National Law Institute University, Bhopal. She qualified the Company Secretary course with an All India Rank 1 and is a recipient of the President’s Gold Medal for her academic distinctions. She also holds a B.Com degree with a specialization in Corporate Affairs and Administration.