India rides high on WEF index

India rides high on WEF index

A major improvement in India’s position in the World Economic Forum’s (WEF) Global Competitiveness Index for 2016-17 is an indication of improved sentiments about the country among the global business community. India has jumped 16 places to be ranked 39th, rising fast from last year’s 55th position, the highest among the 138 economies studied for the index. Last year, too, India’s ranking had gone up and so there is a 32 point improvement in two years. This is a creditable performance and is a sign of the improved business environment in the country. Most of the factors that make up the index showed improvement, especially innovation, business sophistication and goods market efficiency. The WEF considers competitiveness as a function of institutions, policies and factors that determine the level of productivity of a country. There is a view that the ranking would have been better if a different methodology was used.

Many of the structural reforms undertaken by the government and policies announced by it have contributed to the rise in the ranking. While the overall performance is creditable, there is unevenness in the performance of the constituent elements. The working of public institutions has improved, but labour market efficiency is not high. The infrastructure sector has scored points. But the best improvement was in perceptions related to government regulations, and in attitudes that usually affect decisions, like trust in politicians. This is because the index was based on surveys and opinion polls among executives, and not on actual economic data. But the improvement is important because it is the perceptions of the business class that should be taken as the first indicator of a change of environment. The index shows that the assessment has vastly improved in the last two years, especially because the second term of the previous UPA government was marked by negative perceptions relating to corruption and indecision. The challenge is to improve the actual performance of the economy in line with the perceptions and expectations.

Investments have to increase at a faster pace, and the working of financial institutions like public sector banks and public utilities like state electricity boards have to improve. Social sector parameters like access to education are still low. The passage of the GST bill is a major boost, and inflation is also coming down. Their impact is likely to be felt in the coming months. But India still has a low ranking in the ease of doing business index where its ranking is only 130 among 189 countries. The perception change has to translate into actual performance.

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