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  • [ — Divider — ]
  • Preface
  • Chapter 1.1 – Index Analysis
    • Introduction
    • Methodology
    • Rankings and Analysis
      • Top 10
      • Europe and Eurasia
      • Asia and the Pacific
      • Latin America and the Caribbean
      • Middle East and North Africa
      • Sub-Saharan Africa
      • Box 1: The Competitiveness of Cities
      • Box 2: India’s Competitiveness Crisis
      • Box 3: The Need for Structural Reforms
      • Box 4: Building Strategic Collaborations
    • Conclusions
    • References
    • Appendix A: Statistically testing the validity of the Global Competitiveness Index
    • Appendix B: Computation and Structure of the Global Competitiveness Index
    • Technical Notes and Sources
  • Chapter 1.2 – Sustainable Competitiveness
    • Introduction
    • Defining Sustainable Competitiveness
    • The Measurement of Sustainable Competitiveness
    • Results for Selected Economies
    • Box 1: The Advisory Board on Sustainable Competitiveness
    • Box 2: Progress toward stronger environmental regulations
    • Box 3: The World Economic Forum’s Global Project on Inclusive Growth
    • Box 4: The Sustainable Development Goals: A sound basis for sustainable growth
    • Conclusions and Next Steps
    • References
    • Appendix A: Calculation of the Sustainability-adjusted GCI
    • Appendix B: Technical Notes and Sources for Sustainability Indicators
  • Chapter 1.3 – The Executive Opinion Survey
    • Introduction
    • Administration
    • Results Computation
    • Box 1 – A brief history of the Executive Opinion Survey and The Global Competitiveness Report
    • Box 2: Example of a typical Survey question
    • Box 3: Insights from the Executive Opinion Survey 2014
    • Box 4: Country/Economy Score Calculation
  • Partner Institutes
  • Downloads
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  • Acknowledgements
  • Contact Us
Global Competitiveness Report 2014-2015 Home
  • Report Home
  • Report Highlights
  • Competitiveness Rankings
  • Interactive Heatmap
  • Competitiveness Dataset (XLS)
  • Blogs and Opinions
  • Top 10 Infographics
  • Videos
  • Press Releases
  • [ — Divider — ]
  • Preface
  • Chapter 1.1 – Index Analysis
    • Introduction
    • Methodology
    • Rankings and Analysis
      • Top 10
      • Europe and Eurasia
      • Asia and the Pacific
      • Latin America and the Caribbean
      • Middle East and North Africa
      • Sub-Saharan Africa
      • Box 1: The Competitiveness of Cities
      • Box 2: India’s Competitiveness Crisis
      • Box 3: The Need for Structural Reforms
      • Box 4: Building Strategic Collaborations
    • Conclusions
    • References
    • Appendix A: Statistically testing the validity of the Global Competitiveness Index
    • Appendix B: Computation and Structure of the Global Competitiveness Index
    • Technical Notes and Sources
  • Chapter 1.2 – Sustainable Competitiveness
    • Introduction
    • Defining Sustainable Competitiveness
    • The Measurement of Sustainable Competitiveness
    • Results for Selected Economies
    • Box 1: The Advisory Board on Sustainable Competitiveness
    • Box 2: Progress toward stronger environmental regulations
    • Box 3: The World Economic Forum’s Global Project on Inclusive Growth
    • Box 4: The Sustainable Development Goals: A sound basis for sustainable growth
    • Conclusions and Next Steps
    • References
    • Appendix A: Calculation of the Sustainability-adjusted GCI
    • Appendix B: Technical Notes and Sources for Sustainability Indicators
  • Chapter 1.3 – The Executive Opinion Survey
    • Introduction
    • Administration
    • Results Computation
    • Box 1 – A brief history of the Executive Opinion Survey and The Global Competitiveness Report
    • Box 2: Example of a typical Survey question
    • Box 3: Insights from the Executive Opinion Survey 2014
    • Box 4: Country/Economy Score Calculation
  • Partner Institutes
  • Downloads
  • Competitiveness Library
  • Acknowledgements
  • Contact Us

Box 2: India's Competitiveness Crisis

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Despite its immense potential and promise, by many accounts India continues to suffer from poverty. A third of its population still lives in extreme poverty—possibly the highest incidence outside sub-Saharan Africa—and many people still lack access to basic services and opportunities, such as sanitation, healthcare, and quality schooling. Improving the standards of living of the Indian population will require the country to accelerate its growth. Yet, since 2011, India has experienced a slowdown. In 2013, its economy grew by a modest 4.4 percent (see Figure 1). Improving competitiveness in order to put growth on a more stable footing should therefore be a priority for the new government.

Figure 1: GDP growth and GDP per capita of India and China since 1980
Source: IMF 2014c.

Dropping for the sixth consecutive edition, India ranks 71st (down 11) out of 144 economies in the Global Competitiveness Index (GCI) 2014-2015 (see Figure 2). It is the lowest ranked among the BRICS economies. The rank differential with China (28th) has grown from 14 places in 2007 to 43 today; while India’s GDP per capita was higher than China’s in 1991,1 today China is four times richer (see Figure 1). This competitiveness divide helps to explain the different trajectories of these two economies.

Figure 2: Historical performance of selected countries in the Global Competitiveness Index
Note: Higher value means better rank

India’s slide in the competitiveness rankings began in 2009, when its economy was still growing at 8.5 percent (it even grew by 10.3 percent in 2010). Back then, however, India’s showing in the GCI was already casting doubt about the sustainability of this growth.2 Since then, the country has been struggling to achieve growth of 5 percent. The country has declined in most areas assessed by the GCI since 2007, most strikingly in institutions, business sophistication, financial market development, and goods market efficiency.

Figure 3: India in the 12 pillars of the GCI 2014–2015
Note: India’s rank (out of 144 economies) in the pillar is indicated in parentheses.

Figure 3 sheds light on the main strengths and weaknesses of India’s competitiveness and presents the country’s performance along the 12 dimensions of the GCI. Overall, India does best in the more complex areas of the GCI: innovation (49th) and business sophistication (57th). In contrast, it obtains low marks in the more basic and more fundamental drivers of competitiveness. For instance, India ranks 98th on the health and primary education pillar. The health situation is indeed alarming: infant mortality and malnutrition incidence are among the highest in the world; only 36 percent of the population have access to improved sanitation; and life expectancy is Asia’s second shortest, after Myanmar. On a more positive note, India is on track to achieve universal primary education, although the quality of primary education remains poor (88th) and it ranks a low 93rd in the higher education and training pillar of the GCI. Transport and electricity infrastructure are in need of upgrading (87th). In 2012, a working group appointed by the Planning Commission of India had recommended that a trillion US dollars—or almost 10 percent of India’s GDP—be spent on infrastructure by 2017.3 Given the country’s strained public finances, addressing the infrastructure gap will require very strong participation on the part of private and foreign investors through public-private partnerships.

But for these types of investments to materialize, the institutional framework needs to improve. There are encouraging signs. India has achieved spectacular progress in various measures of corruption and now ranks 65th. Red tape seems to be less of an issue than it had been, and government efficiency is equally improving. However, the overall business environment and market efficiency (95th, down 10 places) are undermined by protectionism, monopolies, and various distortionary measures, including subsidies and administrative barriers to entry and operation. The World Bank estimated that it takes 12 procedures (130th) and almost a month to register a business (106th). In addition, it calculated that taxes for a typical registered firm amount, on average, to 63 percent of its profits (130th). Furthermore, the labor market is inefficient and rigid (112th). These factors contribute to the high cost of integrating more businesses into the formal economy. Some estimates find that the informal sector accounts for half of India’s economic output and 90 percent of its employment.4 It is therefore urgent that the government create the right incentives for businesses to register and contribute their fair share to the provision of public services.

India achieves its lowest rank among the 12 pillars in technological readiness (121st). Despite mobile telephony being almost ubiquitous, India is one of the world’s least digitally connected countries. Only 15 percent of Indians access the Internet on a regular basis. Broadband Internet, if available at all, remains the privilege of a very few. India’s knack for frugal innovation should contribute to providing cheap solutions for bridging this digital divide.

The financial resources required for delivering basic services, including sanitation and healthcare, and for improving India’s physical and digital connectivity are considerable. But India’s fiscal situation remains in disarray, as evidenced by the country’s 101st rank in the macroeconomic environment pillar of the GCI. With the exception of 2007, the central government has consistently run deficits since 2000. Because of the high degree of informality, its tax base is relatively narrow, representing less than 10 percent of GDP. In addition, over the past several years India has experienced persistently high, in some years near double-digit, inflation, which reached 9.5 percent in 2013. The Reserve Bank of India is torn between keeping interest rates low to stimulate the faltering economy and tightening monetary policy to stem inflation.

Improving competitiveness will yield India huge benefits. In particular, it will help rebalance the economy and move the country up the value chain so as to ensure more solid and stable growth; this in turn could result in more employment opportunities for the country’s rapidly growing population. Despite the abundance of low-cost labor, India has a very narrow manufacturing base. Manufacturing accounts for less than 15 percent of India’s GDP.5 Agriculture represents 18 percent of output and employs 47 percent of the workforce. Low productivity in the sector means very low wages and a life of mere subsistence for many. The services sector accounts for just 28 percent of employment but for 56 percent of the economy. Most services jobs are low-skilled and poorly paid ones, though. White collar jobs remain rare. For example, the vibrant business-process outsourcing sector employs 3.1 million workers, or 0.6 percent of India’s 482 million strong labor force (but accounts for 6 percent of GDP).6 India needs to create jobs in the “missing middle” for the 610 million youths under 25—half of India’s population—who have recently entered or will soon enter the workforce.

In a parliamentary address in June 2014, President Mukherjee outlined the government’s economic agenda. It envisages building smart cities, establishing world-class industrial zones, and transforming the country into a manufacturing hub. It remains to be seen whether the new administration will succeed in convincing the public opinion, mobilizing the resources, and passing the reforms necessary to achieve this vision.

1
1 When measured at purchasing power parity. GDP figures are from IMF 2014c.
2
2 See World Economic Forum 2009.
3
3 In the Plan, “infrastructure” covers all modes of transportation, as well as telecommunication, sanitation, and irrigation infrastructures. See Planning Commission of India 2012.
4
4 Credit Suisse 2013.
5
5 World Bank, World Development Indicators database (accessed May 12, 2014).
6
6 Estimates are for fiscal year 2014. NASSCOM, “India IT-BPM Overview,” available at http://www.nasscom.in/impact-indias-growth (accessed August 3, 2014). Labor force size estimates for 2012 are from the World Bank, World Development Indicators database (accessed August 3, 2014). The GDP estimate is for 2013 and sourced from IMF 2014c.
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