Sharp fall in competitiveness rankings worrying
Given prime minister Narendra Modi’s make-in-India call in his first Independence Day speech, it has to be quite frustrating to see India’s global competitiveness index (GCI) ranking falling from 60 to 71, and in a smaller set of countries—while there were 148 countries in the set last year, there are 144 countries in the World Economic Forum’s GCI this year. That India is ranked below all its BRICS counterparts underscores how bad an idea it was to club the countries together as a group, but more worrying is the increasing gap between India and China. This was a mere 14 places in 2007, but has risen to 43 today; hardly surprising then, that while India’s per capita income was higher than China’s in 1991, China’s is four times higher today. Fortunately for India, much of Modi’s focus in the first 100 days, and in the medium term, has been on fixing the ease of doing business in India. So, one of the first acts of the government was to double the number of workers at which the Factories Act became operational—this will halve the number of units who have to toil under the inspector raj of this Act. To that extent, GCI-type reports are useful since they point to where the action areas are.
One major attention area for the Modi government has to be fixing labour relations, one of the areas where there has been the greatest fall in international investor perception. India ranked 61st last year in ‘cooperation in labour-employer relations’ in the GCI, and this has plummeted to 90th position in the latest GCI; on ‘flexibility of wage determination’, the ranking has fallen from 50th to 113th. In this case, sensibly since this will keep political opposition to the minimum, Modi’s strategy is to allow states to change their labour laws even as the Centre maintains a status quo. Sadly, for a country that prides itself for its mobile revolution, India’s ranking is very poor, and slipping at that. On the index of people using the internet, India has improved a wee bit, from 120 to 115, there has also been a marginal improvement in bandwidth availability and a deterioration in the number of mobile broadband subscriber base—the important thing to keep in mind is that for all these parameters, India’s rank is in the 103-115 range. Fixing this will mean the government will urgently need to release more spectrum. In the past, despite scoring poorly on GCI-type indices, India still attracted considerable FDI. But that was when global growth was booming and wages were low—so investors were willing to take the long delays and poor productivity. With wages rising as fast as they are, however, India is no longer in the same comfort zone. That is where the government’s attempts to improve labour productivity through skilling and improve business conditions become critical.