By Sarah Watson —
On September 29 the World Economic Forum released the 2016-2017 Global Competitiveness Report, which ranks 138 countries according to a list of dozens of indicators ranging from malaria incidence to size of gross domestic product. The release of the report prompted celebration in India: for the second year in a row, India had jumped 16 places in the rankings, this time advancing to 39th. With an assist from Finance Minister Arun Jaitley, the news also increased excitement about India’s prospects of advancement in the upcoming Ease of Doing Business Index and perhaps even a sovereign ratings upgrade. This optimism is misplaced: a deeper dive into the data behind India’s surge in the rankings shows that the Competitiveness Report is a better measure of investor emotion than of actual performance upgrades.
About a third of the report’s indicators are based on objective measures of India’s performance. But, as others have noted, the Competitiveness Report relies heavily on the findings of an Executive Opinion Survey, which polled over 14,000 executives in 141 economies. For the most recent edition of the report, 266 executives answered questions about India. Since the questions ranged over such a wide range of topics, it is unlikely that most of the executives had first-hand experience with many of the issues they were asked to comment on.
Examining the data shows that India’s gains on the competitiveness rankings are mostly due to massive strides in a few of the subjective criteria. Since the 2014-15 report, data collection for which ended just after Modi entered office, India has moved up at least 20 places in the rankings for 40 indicators — 38 of which were based on the survey. (The two hard-data items are inflation, where India moved from 133rd to 101st, and strength of investor protection, where India moved from 34th to 8th.) Conversely, of the 17 indicators where India slipped in the rankings, 12 were based on hard data. Survey respondents were far less bullish in previous years; between 2012 and 2014, for instance, India’s ranking dropped 10 or more places in 41 categories, 4 of which were based on hard data.
The reliability of subjective data is further called into question by occasional massive and inexplicable swings in India’s ranking on certain indicators across years. Since the 2014 survey, India has risen 53 places in the rankings for prevalence of trade barriers — despite the fact that the Modi government’s trade policy bears a strong resemblance to that of its predecessor. And occasionally the hard data and the survey data appear contradictory; survey results moved India’s ranking for quality of primary education up 48 spots between 2014 and 2016 (from 88 to 40), even though India dropped 14 places in terms of primary school enrollment over the same period.
This methodology makes the Global Competitiveness Report a poor guide to how India will perform in the upcoming edition of the Ease of Doing Business (EODB) Report. The EODB Report covers a far narrower set of issues (in fact, many of its findings are used as inputs for the Competitiveness Report) and its methodology relies on a mix of published policies and interviews with experts who are asked to comment only on issues with which they are highly familiar.
India’s rapid improvement in the minds of business executives may of course be a sign of shifts on the ground that are hard to quantify and invisible to those who are not involved in day-to-day business. They may also be a sign that the Modi administration’s efforts to seek maximum possible publicity for its reforms are having an effect. Despite efforts to fact check administration claims that, for instance “India is the most open economy in the world for foreign direct investment,” such statements are generally repeated unquestioned in the Indian media. Such dubious claims run the risk of harming the administration’s credibility with foreign executives who have looked into investing in India and discovered that many barriers still remain.
India’s intense focus on international rankings shows a laudable desire to become a more attractive destination for foreign business. But it will not become a Switzerland — or even a China — until its leaders and business community are willing to take an objective, clear-eyed look at what they are doing well and where they are falling short.
Sarah Watson is an associate fellow with the Wadhwani Chair in U.S.-India Policy Studies at CSIS.