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Global Competitiveness Index 2019 and India

  Jun 13, 2020

Global Competitiveness Index 2019 and India

The Global Competitiveness Report is an annual report published by the World Economic Forum. Since 2004, the Global Competitiveness Report ranks countries based on the Global Competitiveness Index. The Global Competitiveness Index integrates the macroeconomic and the micro/business aspects of competitiveness into a single index.

What is the aim of the report?

The report "assesses the ability of countries to provide high levels of prosperity to their citizens". This in turn depends on how productively a country uses available resources. To this end, the Global Competitiveness Index measures the set of relevant institutions, policies, and factors.

What is the basis of the assessment and quantification?

The Global Competitiveness Index (GCI) maps the competitiveness landscape of 141 economies through 103 indicators organised into 12 pillars. Two thirds come from the Executive Opinion Survey and one third comes from publicly available sources such as the United Nations. The variables are organized into twelve pillars, with each pillar representing an area considered as an important determinant of competitiveness.

The report has twelve pillars of competitiveness. What are they?

These are:

  1. Institutions
  2. Appropriate infrastructure
  3. Stable macroeconomic framework
  4. Good health and primary education
  5. Higher education and training
  6. Efficient goods markets
  7. Efficient labor markets
  8. Developed financial markets
  9. Ability to harness existing technology
  10. Market sizeboth domestic and international
  11. Production of new and different goods using the most sophisticated production processes
  12. Innovation

GCI separates countries into three specific stages. Why and how?

The report notes that as a nation develops, wages tend to increase, and that in order to sustain this higher income, labor productivity must improve for the nation to be competitive. In addition, what creates productivity in Sweden is necessarily different from what drives it in Ghana. Therefore, the GCI separates countries into three specific stages: factor-driven, efficiency-driven, and innovation-driven, each implying a growing degree of complexity in the operation of the economy.

Can you elaborate the economic development process?

In the factor-driven stage countries compete based on their factor endowments, primarily unskilled labor and natural resources. Companies compete on the basis of prices and sell basic products or commodities, with their low productivity reflected in low wages. To maintain competitiveness at this stage of development, competitiveness hinges mainly on well-functioning public and private institutions (pillar 1), appropriate infrastructure (pillar 2), a stable macroeconomic framework (pillar 3), and good health and primary education (pillar 4).

As wages rise with advancing development, countries move into the efficiency-driven stage of development, when they must begin to develop more efficient production processes and increase product quality. At this point, competitiveness becomes increasingly driven by higher education and training (pillar 5), efficient goods markets (pillar 6), efficient labor markets (pillar 7), developed financial markets (pillar 8), the ability to harness the benefits of existing technologies (pillar 9), and its market size, both domestic and international (pillar 10).

Finally, as countries move into the innovation-driven stage, they are only able to sustain higher wages and a higher standard of living if their businesses are able to compete by providing new or unique products. At this stage, companies must compete by producing new and different goods using the most sophisticated production processes (pillar 11) and through innovation (pillar 12).

Thus, the impact of each pillar on competitiveness varies across countries, in function of their stages of economic development. 

Do these 12 pillars carry equal weight in the calculation of the GCI?

No. For the reasons given above, in the calculation of the GCI, pillars are given different weights depending on the per capita income of the nation. The weights used are the values that best explain growth in recent years. For example, the sophistication and innovation factors contribute 10% to the final score in factor and efficiency-driven economies, but 30% in innovation-driven economies. Intermediate values are used for economies in transition between stages.

Are the GCI reports related to Ease of Doing Business Index?

In terms of overlap of factors, yes. The Global Competitiveness Index's annual reports are somewhat similar to the Ease of Doing Business Index which also looks at similar factors affecting economic growth.

GCI 2019 and India

How did India fare?

India slipped sharply by 10 points to 68th position in the Global Competitiveness Index, 2019.India’s score fell in eight out of 12 parameters. India’s fall is mostly due to faster improvements of several countries previously ranked lower.

What are some important rankings?

Singapore replaced the US to take the first position. In South Asia, India is followed by Sri Lanka (84), Bangladesh (105), Nepal (108) and Pakistan (110). India trails China by 40 places and 14 points even though China’s position remained unchanged from last year’s survey at 28.

Did India fall in all pillars/variables?

India ranks below 100 on five parameters, and features in the top 50 in four. 

India is ranked high at 15th place in terms of corporate governance, while it is ranked second globally for shareholder governance and has third rank for renewable energy regulation.

India ranks high on macroeconomic stability (43) and market size (3). 

India’s financial sector (40) is relatively deep and stable despite the high level of loan defaults (106), which weakens the banking system (89).

India performs well when it comes to innovation (35), ahead of most emerging economies and on par with several advanced economies. This contrasts with major shortcomings in some of the basic enablers of competitiveness. ICT (information and communications technology) adoption is limited (120).

With a ratio of female workers to male workers of 0.26, India has been ranked very low at 128th place. India is also ranked low at 118th in terms of meritocracy and incentivisation and at 107th place for skills.

India had mixed results on various aspects of governance (59). Transport (28) and electricity (103) infrastructure have improved significantly over the past two years, though from a low base. The electrification rate was almost 90% in 2017, up 7 percentage points from 2015. At the same time, health conditions remain poor, as reflected in low healthy life expectancy (59.4 years, 109th), which is one of the shortest outside Africa and significantly below the South Asian average.

WEF said India must grow its skills base (107). 

Its product market efficiency (101st) is undermined by a lack of trade openness (131st) and the labour market is characterised by a lack of worker rights’ protections, insufficiently developed active labour market policies, and critically low participation of women.

What is Healthy life expectancy (HLE)?

It is a population health measure to estimate expected years of life in good health for persons at a given age.