Standstill phase

The first thing that strikes you about the latest World Competitiveness rankings from the Lausanne-based business school IMD is that India's rankings haven't moved in the last year; indeed, in the three-year period, since the UPA came to power, the change has been glacial. While the ranking improved from 42nd to 30th between 2003 and 2004, it fell to 33rd in 2005, improved to 27th in 2006 and then remained stuck there. China's ranking improved three points in the last year. This more or less ties in with what most have observed over the past few years""that economic reforms have got stuck in critical areas and in many others relating to freedom of the market (in futures, exports, and so on), the government appears to be moving backward. This is unfortunate since it is obvious that India's growth depends upon vital improvements in productivity, especially at a time when the rupee is appreciating the way it is, and this requires a sharp increase in the pace of reforms. In the case of government efficiency, India ranks 35th out of 55 countries, a figure that looks even worse when compared with China's 17th position.

The other striking thing, given that this year's report also ranks the ability of nations to catch up with the US, is the nations that are losing their competitiveness. The big problem here is that prominent European countries""the UK, France, Spain and Italy""are among those expected to do badly. This, as the IMD says, is likely to result in a year of rising protectionist measures, best seen in terms of the number of complaints filed at the WTO for unfair trade practices. Germany, which even the IMF says is a future engine of growth, is ranked as a country which is catching up in competitiveness.

Purists will argue that such surveys are irrelevant, even inconsistent, and to some extent they are right. The equally prestigious World Economic Forum's Global Competitiveness Index, for instance, ranks India at 43rd out of 125 countries but ranks China at a lower 54th in 2006. While India scores much more than China on the quality of its institutions (it is ranked 34th versus China's 80th) and market efficiency (21st versus 56th), the infrastructure rankings are somewhat unbelievable for all those used to praising China and running down India""at 62nd, India is ranked just two places behind China. The WEF's Business Competitiveness Index (BCI), which ranks microeconomic competitiveness, puts India's rank at 27th as compared to China's 64th. So, the question is how seriously one should take these surveys. Clearly, the different weights assigned by different surveys to various attributes make comparisons somewhat risky. However, the IMD's conclusions are more consistent with global capital flows, and with growth rates.

But if, to use the IMD survey's findings, India is at a standstill in terms of global competitiveness, how does one explain the fact that this is also the year when India has seen its largest investment inflow? The answer to that could lie in the increase in the productivity of Indian enterprises (in terms of business efficiency, India's position has improved from 23rd to 19th over the year and is far ahead of China's 30th rank). But if the country's infrastructure, both physical and social, does not improve, and there is no big reforms push, there is a limit beyond which increases in productivity will also stop. That is the lesson of the IMD's report.