India’s economy suffers a perception problem
WEF’S latest global competitiveness report shows that the global business community’s opinions are often at variance with the facts
There are some surprising ranks in the Global Competitiveness Report, 2019, released by the World Economic Forum (WEF) last week. On perceived market dominance by a company over a country, WEF ranks Saudi Arabia 17 notches better than India — despite Riyadh being a one-trick pony with Aramco which generates almost 90 per cent of the kingdom’s income. Or Malaysia at nine despite Petronas, which accounts for 30 per cent of government revenue (a higher rank denotes less dominance by a company or a industrial group over the economy). There are some more, such as the same dismal rank for India’s i nsolvency regime which is, surprisingly, on a par with Singapore. Albania far outshines these economies, it seems.
Still, such inconsistencies aside, the annual report published by the WEF since 1979 shows the global business community has a clear perception problem with the Indian economy. This carries a risk for the economy in its effort to draw in skittish global capital. Improvements on the ground often are not reflected adequately in corporate boardrooms when they evaluate i nvestment destinations. India’s reform story seems to be a bits and parts story, like the country ’s Olympic Games contingents. In no sector is the economy seen to be playing like a global leader, and there are plenty of fields with no-hopers.
The report has ranked India overall at 68 among the 141 countries, a dip of 10 ranks from 2018. The fall is partly because “of a relatively small decline in score (61.4, - 0.7 points), but also, and more significantly, the progress made by several countries ranked close t o India,” it notes.
A closer look shows why India has dipped. Of the 103 indicators to track the economies included in the report, 47, accounting for 30 per cent of the overall, are derived from the World Economic Forum’s Executive Opinion Survey. There is a questionnaire administered to approximately 15,000 business executives worldwide with the help of 150 partner institutes.
Based on the business leaders’ responses and another set of scores generated from data sets such as those of the World Bank, a detailed score sheet is prepared. Those scores are clubbed into 12 pillars: Institutions, infrastructure, macroeconomic stability, labour and product markets, education, skills and innovation capability, among others. The numbers for India show that among business people, the perception is either mediocre or, at best, somewhere in the middle of the pack.
India’s scores on all the 103 indicators can thus be bunched into three types. They are the worst in pillars like health and labour. They are indifferent even when there have been reforms but have not kept pace with what has happened in the rest of the world such as insolvency and capacity-building. The only bright spots are in infrastructure and environment issues. But here, too, perception often trails performance. For instance, the index ranks India very high on airport connectivity at fourth position globally. But on the perceived efficiency of air transport services in India is 59th. The question was, “In your country, how efficient (i.e. frequency, punctuality, speed, price) are air transport services?”
Similarly for shipping services India ranks 25th among the nations. But when quizzed about the efficiency of seaport services, the rank dips to 49. The quality of India’s transport infrastructure is ranked 28th, behind only the developed nations. It could have been far better if the perceptions had improved. Shyamal Mukherjee, Chairman (India), PricewaterhouseCoopers, agrees. “Quite a few of the changes made in the business policies need to get a wider audience,” he told Business Standard.
India is losing the perception battle even in areas in which it has supposed strengths. On judiciary, for instance, on the question, “In your country, how independent is the judicial system from influences of the government, individuals, or companies?” respondents have ranked India at 51 behind China at 47. Malaysia is at 29 and Qatar at 23.
Equally striking is the perceptional score for the strength of auditing and accounting standards. India ranks 67, behind Zimbabwe, a basket case for global audit standards. No surprise, then, that in response to the survey question “In your country, how competitive are the provision of professional services (legal services, accounting, engineering, etc.) India ranks a poor 78th . The one sector where India does quite well is on environmental regulations. It ranks 21st on commitment to sustainability. That decent ranking, perhaps, may be on account of the fact that no surveys being conducted in this sector.
The one sector where India seems to be clearly on the move is innovation. It weighs in at 35 and the perception based questions show a similar rank. Dilip Chenoy, Secretary General, Ficci, said India has become an attractive destination for foreign investment. “Still on competitiveness, the challenge is to improve the perception on certain issues. Once it is done, the ranks will climb steadily”.
In sectors where the economy ’s failings are demonstrably high, the ranks are made worse by perceptions. “In your country, to what extent does organized crime (mafia-oriented racketeering, extortion) impose costs on businesses?” India ranks 91, behind every major developing economy. It takes about the last position in trade but on labour issues there is an interesting dichotomy. India ranks quite well in its hiring and firing practices for labour but seems to be making itself uncompetitive by paying more on labour tax and contributions as a percentage of commercial profits compared with nimble competitors such as Bangladesh, Cambodia or even Kenya. They pay far less and top the league, while India is at a distant 93. If it’s any consolation, the Nordic countries are even further behind.