Next year’s ranking could increase even more since, as WEF points out, the introduction of the GST will improve India’s ranking in the ‘goods market efficiency’ parameter. (Source: PTI)

Jumping 16 spots in the World Economic Forum’s (WEF) Global Competitiveness Index, and for the second year in a row, highlights how India’s standing has gone up in the global community since the Narendra Modi government assumed power. Two years ago, India was a celebrated member of the Fragile Five; today, with inflation under control, the current account deficit all but over and growth at over 7%, it looks like one of the best-performers across the world. And while it is true local investment levels remain stagnant and rating agencies like Moody’s have said they are not going to upgrade India’s ratings till they see action on the ground, foreign investors are putting in money like never before. On a standalone basis, FDI flows have almost doubled over the past five year, from $21.7bn in FY11 to $40bn in FY16 – if you include reinvested earnings of these firms, which is the international definition of FDI, the rise is from $34.9bn to $55.5bn. Next year’s ranking could increase even more since, as WEF points out, the introduction of the GST will improve India’s ranking in the ‘goods market efficiency’ parameter. Similarly, with a firm control over inflation, India’s rank cannot remain at a low 101 out of 138.

That said, it is important to put the dramatic jump in rankings in perspective. Certainly the government has made important steps in reforms in many areas, but most of the change in rankings is not based on actual data, it is based on an opinion poll of executives in the country. To the extent the UPA years were marred by corruption charges – from 2G to CWG, Coalgate and more – and by evidence of policy paralysis, the Modi government lifted sentiment even before its actions were felt on the ground. This is evident from the way some of the rankings have changed. One of the biggest change areas is ‘institutions’ which includes ‘trust in politicians’ – rankings here rose from 115 in FY14 to 31 in FY16, from 110 to 49 in the case of ‘irregular payments and bribes’, from 94 to 29 in the case of ‘favoritism by government’ and from 104 to 23 in the case of ‘burden of government regulation’. While the jump in rankings in the infrastructure sector seems reasonable given the massive roads/railway programme, surely the same cannot be said about labour market efficiency? In the case of ‘hiring and firing practices’, rankings have improved from 52 in FY14 to 15 in FY16 and from 58 to 33 in the case of ‘pay and productivity’ – since the government has made no meaningful changes in labour laws, what this means is that those surveyed were quite optimistic of changed based on what the government was planning.

What this means is that, if the government’s intention is not translated into action by this time next year, the opinion survey could well go the other way. Equally worrying, despite the reforms being made by the government, most of those polled thought tax regulations continue to be a problem – think not just Vodafone and Cairn, but more recently MakeMyTrip. In terms of the skills levels of the work force – so critical if the nation is to remain competitive – those polled ranked India 104th out of 138 countries. Actual data, as opposed to an opinion poll, on enrolment rates show India poorly – ranking in primary education enrolment has fallen from 80 to 92 and while it has improved for secondary/tertiary levels, the rank remains poor at 102/93. It is important to celebrate the movement in the WEF rankings, but as vital to recognize the work ahead.