Explained: Why did India fall in the Global Competitiveness Index?

The basic notion behind the GCI is to map the factors that determine the Total Factor Productivity (TFP) in a country. The TFP is essentially the efficiency with which different factors of production such as land, labour and capital are put to use to create the final product. It is believed that it is the TFP in an economy that determines the long-term economic growth of a country.

So what factors does GCI map?

According to the report, the GCI 4.0 is “the product of an aggregation of 103 individual indicators, derived from a combination of data from international organizations as well as from the World Economic Forum’s Executive Opinion Survey”.

The GCI 4.0 tracks data and/or responses on 12 factors divided into 4 broad categories. The first category is the “Enabling Environment” and this includes factors such as the state of infrastructure, institutions, the macroeconomic stability of the country and its ability to adopt new technology. The second category is “Human Capital” and includes health and level of skills in the economy. The third is the state of “Markets” such as those for labour, product, financial and the overall market size. The last category is “Innovation Ecosystem” which includes business dynamism and innovation capability.

GCI map. (Source: World Economic Forum analysis)

Each of these 12 factors will further include sub-factors. For example, within “Institutions” under the “Enabling Environment” category, the GCI tracks the performance on detailed factors such as the performance of the public sector, the level of transparency and corruption, the state of corporate governance, the incidence of terrorism etc.

Overall, there are a total of 103 individual factors that GCI 4.0 maps to arrive at the final result.

How are countries ranked?

According to the report, “a country’s performance on the overall GCI results as well as each of its components is reported as a ‘progress score’ on a 0-to-100 scale, where 100 represents the ‘frontier’, an ideal state where an issue ceases to be a constraint to productivity growth”. For example, the average GCI score across the 141 economies that were studied this year was 60.7. This means that the ‘distance to the frontier’ stands at almost 40 points.

How did India fare?

India’s 2019 overall score (61.4) fell by merely 0.7 when compared to its 2018 score. But this slippage was enough for it to slide down 10 ranks in the list. The report states: “In South Asia, India, in 68th position, loses ground in the rankings despite a relatively stable score, mostly due to faster improvements of several countries previously ranked lower”. Some of the countries that were close to India and made rapid progress were Colombia (which had a score of 62.7, up 1.1 points from last year, and now ranked 57th), Azerbaijan (62.7, +2.7, 58th), South Africa (62.4, +1.7, 60th) and Turkey (62.1, +0.5, 61st).

India trails China (28th, 73.9) by 40 places and 14 points. But within South Asia (see chart), it is the best performer and is followed by Sri Lanka (the most improved country in the region at 84th), Bangladesh (105th), Nepal (108th) and Pakistan (110th).