Madan Sabnavis: Global Competitiveness Report 2014-15 - We can improve if we want to

Instead of slipping into denial over our poor score, let's look at what we can do better

It is but natural that we have taken umbrage at the World Bank Doing Business concept as some of the numbers reported are incorrect. But from a progressive view, one needs to keep an open mind and introspect when such numbers are put up and look at ways of improving the "parameters" on which we did not score well. The World Economic Forum has brought out its Global Competitiveness Report for 2014-15 that ranks us 71 in a set of 144 countries. Further, it states that our position has slipped continuously in the last six years and in terms of rank is lower than the other BRIC (Brazil, Russia, India and China) nations. The Confederation of Indian Industry is an affiliate organisation and a lot is based on replies to a questionnaire sent out. Therefore, one should treat these numbers as having some value. There will, of course, tend to be biases since industry responses will tend to be more demanding of the system.

The report looks at 12 pillars classified under three headings of basic requirements (four pillars within), efficiency enhancers (six pillars) and innovation and sophistication (two pillars). We do not rank well under the basic requirements with a rank of 92, within which we hit the middle with a rank of 70 for institutions, 87 for infrastructure, 101 for macros and 98 for health and primary education. We do better with efficiency enhancers with a rank of 61, within which we gain a lot in terms of market size with the third rank and 51 for financial markets developments. For the others it is quite abysmally low for higher education (93), goods market efficiency (95), labour market efficiency (112), and technology (121). The overall rank has been propped by the third criteria of innovation and sophistication, which have ranks of 59 and 57 respectively.

The report looks at both absolute data and perceptions through surveys since this is what finally counts when one has to analyse, in a relative sense, how countries fare. There are 114 parameters within these 12 pillars that have elicited views. In general, it was found that 40 per cent of the respondents found access to finance, taxes paid, financial regulation, and infrastructure and tax regulation to be the main stumbling blocks. Another 15.6 per cent found corruption and government red tape as being irksome, while 17.7 per cent found labour regulation, changes in government and its policy as being barriers to business. Uneducated workforce and low work ethic accounted for another 11 per cent of the problems for industry.

The table (Pillars of performance) has highlighted the score that India gets for 40 of the 114 parameters and juxtaposes them with the average for the world. The scale runs from 1-7 with 7 being the best and 1 the lowest.

What are the key takeaways from this table? First, we need to appreciate that India has done better than average on several scores, especially in the area of sophistication and innovation.

Second, contrary to perception, the government has not been quite an inhibiting factor relative to the average in the world even though this does come high in the list of grievances. Therefore, economic reforms have brought about substantial changes in the way in which we function.

Third, infrastructure is a major lacuna in our growth story and clearly, the emphasis has to be on bringing about rapid development to sustain growth. Surprisingly, the railways, a public sector venture, has done us well on the global map.

Fourth, corporations also need to do something about governance standards, both in the way they operate as well as the conduct of their boards. Fifth, there is still a lot to be done on the social front (not provided in this table since the elements have absolute numbers and not scores). Health and primary education needs improvement and the government should continue to channel efforts here. There have been some moves made on financial inclusion, but this needs to be expanded to ensure equitable growth. This can be related to the fact that our reforms process has been largely driven by focusing on the productive sectors i.e. industry and services, to the neglect of these sectors.

At a broader level, a rank of 71 calls for some serious effort to be put in since we need to leverage the high economic growth that we have attained to become more competitive or else we will lose out to other nations when it comes to attracting investment. We should refrain from getting into a denial mode and bring about improvements. In fact, on the positive side, we can take pride in remaining attractive notwithstanding these failings. Clearly, bringing about these improvements will take India to another level. The current government has it in its veins to do so, and one does hope to see this rank improve substantially in the next three to four years.

The writer is chief economist, CARE Ratings
These views are personal