There is something of a paradox in market economics. While market forces favour competitive economies, the most competitive nations tend to be those strong on health, education and environment – each of which requires appropriate state intervention. India has climbed three spots this year in global rankings of the World Competitiveness Centre to 41 from 44 among 61 countries, indicating a positive current as it takes stage as the world’s fastest growing major economy, but the caveats that come along suggest there is a long way to go. Economic performance, government efficiency, business efficiency and infrastructure are key factors in the rankings. India was at the 35th position in 2012 while China has slipped this year from 22 to 25. It is a greased pole we are looking at. The Lausanne-based centre observes that health, environment and education are lacking in investments in India, alongside social disparities, though its overall image and openness have improved.
The Modi government can pat itself on the back for working to improve India’s rank in the “Ease of Doing Business” list in which India has climbed to the 130th position from 134 in a year. Some of that no doubt has had a knock-on effect in the competitiveness stakes. But India’s exports have dropped year-on-year for 17 months in a row and the country has trade deficits with as many as 27 major economies. True competitiveness must show up in sustainable exports.
Inflation, tax rates, productivity and exchange rate are more visible short-term determinants of a nation’s competitiveness but in the long-term, infrastructure, health, education and innovation matter a lot. Infrastructure needs special attention to get more bang out of the fiscal buck. State-controlled educational institutions need to boost linkages with industry and overseas partners to foster research. State spending needs to constantly make public health and quality education affordable. A green environment reduces stresses that hamper productivity. Now is the time to examine long-term issues that will sustain competitiveness. In the words of competitiveness guru Michael E Porter, “Differences in national values, culture, economic structures, institutions, and histories all contribute to competitive success.” Each of these should be taken as an item on a checklist for public policy. The “Make In India slogan will be an empty one unless there is deep institutional and cultural reform.