April 03, 2020
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Can The Elephant Leapfrog?

India has reasons to celebrate the Global Competitiveness Report, but for China's steady march

Can The Elephant Leapfrog?
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The Global Competitiveness Report published by the World Economic Forum for the year 2001-2002 holds many insights for India. Seventy-five countries have been put under the microscope and classified and ranked under two indices—the Growth Competitiveness Index (gci) and the Current Competitiveness Index (cci). In the first, ranks are given according to the underlying potential of a country for medium-term (five years) growth. Under the cci, an economy is graded according to the effective utilisation of its current stock of resources.

India's performance has been mixed (see table). While its potential for growth in the next five years has fallen, its current outlook seems brighter. From being ranked 48th in 2000, it's now down to 57 in the gci. Finland tops this table ahead of the US, and, interestingly, China finds a place at 39, well above India.

But in the Current Competitiveness Index, there are reasons to cheer—India is at 36, improving its position one notch since the last survey in 2000. India is also quite a few positions above China, which stands at 47. The winners here too are Finland and the US.

The gci is calculated after taking into account the level of technology in an economy, the quality of its public institutions and the macro-economic conditions related to growth. The cci, on the other hand, looks more towards micro-economic competitiveness. It includes two sub-indices—one which looks at the sophistication of company operating practices in each country, and two, the quality of the business environment in a country.

According to the report, at low levels of development, economic growth is determined primarily by the mobilisation of primary factors of production like land and unskilled labour. As economies move from low to middle income status, global competitiveness becomes investment-driven, as economic growth is increasingly achieved by harnessing global technologies to local production. Foreign direct investment and joint ventures help integrate the economy into international production systems, thereby facilitating the improvement of technologies.

The report, written in collaboration with the Centre for International Development, Harvard University, also has country profiles which outline key advantages and disadvantages (see table) drawn from the variables and methodologies used in constructing the two indices. While India has more advantages listed in its favour vis-a-vis China, one interesting aspect to note is that our neighbour enjoys the top two slots in many of its positive features. For instance, it is No. 1 in the world when it comes to the employment to population ratio. For India, the biggest plus is its pool of engineers and scientists. In this regard, we are the fourth most competitive country in the world.

As for the negatives, on a macro-economic level we are ranked last (75) when it comes to access to foreign capital markets. For China too, its macro-economic environment is its biggest negative. Average tariff rates, exchange rate premiums and export permits are the problem areas.

However, there's a note of criticism. Planning Commission member N.K. Singh says that one of the infirmities of the report is that it hasn't taken into account the fact that all countries do not necessarily follow the natural transition from being primary producers to manufacturers to technology-based economies and finally an innovation-based society. He comments: "Some societies can leapfrog ahead. This issue has not been factored in." Also, he feels that the total development of a country depends on action taken on a constellation of issues and for a resource-strapped country, it's not always possible to allocate funds equally. Hence, some countries might look as if they are lagging behind in certain areas for this one reason.

While this may be some consolation, still, should India take the report with a pinch of salt?

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