India's Competitiveness - A fall of 10 places from 2009-2012

If the news of GDP growth slowing to 5.5 pct last quarter was not bad enough, India's competitiveness in 2012 dropped 3 places to 59.

Quoting from the report:

• Since reaching its peak at 49th in 2009, India has lost 10 places. Once ahead of Brazil and South Africa, India now trails them by some 10 places and lags behind China by a margin of 30 positions.
• The country’s supply of transport, ICT, and energy infrastructure remains largely insufficient and ill-adapted to the needs of the economy (84th).
• The picture is even bleaker in the health and basic education pillar (101st). Despite improvements across the board over the past few years, poor public health and education standards remain a prime cause of India’s low productivity.
• Once ranked a satisfactory 37th in 'Trust in Institutions' dimension, India now ranks 70th driven largely by lack of trust in politicians (106th).
• The macroeconomic environment (99th) continues to be characterized by large and repeated public deficits and the highest debt-to-GDP ratio among the BRICS.

Despite the above, report does point out a couple of strengths:

• Fairly well developed and sophisticated financial market (21st) that can channel financial resources to good use.
• Reasonably sophisticated (40th) and innovative (41th) businesses.

The decline in competitiveness should come as no surprise to anyone given that the current government has been focused in carrying out and then managing the fallout of scandals failing to push through any meaningful reforms, especially in the last 3 years during which we lost 10 places in competitiveness.

In the recent past, we have seen corruption at an unprecedented scale (Commonwealth games, Defense procurement, 2G, Coalgate, Thorium etc), widespread failure in the running and maintenance of existing infrastructure (grid failures, T&D losses, coal mining below potential, railway accidents etc), repeated delays and cost overruns in infrastructure projects (Bangalore Metro, JNPT upgrade, Delhi Mumbai Industrial corridor, numerous power plants and the list can go on) and policy and regulatory gridlock leading to delays and uncertainty in private sector and FDI ($12 Bn Posco steel plant, $9 Bn Mittal Steel plant, multi-billion dollar Himalayan Ski Village project near Manali, Vodafone tax dispute, renegotiation of Mauritius tax treaty. FDI in retail etc). 

Incompetence of this government is so widespread that finding adjectives to describe the tragic state of affairs is difficult. Times Magazine's portrayal of Manmohan Singh (MMS) as an 'Underachiever' and Washington Post's description of him as a 'Tragic Figure' can be characterized as a mild judgement at best. It does not come as surprise that the day India dropped 3 places in competitiveness, this Government was demanding an apology from Washington Post for labeling MMS as 'Tragic Figure' and trying to push through a bill that would kill little remaining meritocracy among government employees.

Reports highlight of the two areas of strength also do not come as a surprise. Reserve Bank of India (RBI) is the only institutions that has managed to remain independent and take tough and independent decisions regarding bank supervision and conduct of monetary policy. While one could argue RBI has been painfully slow in opening up the banking sector to foreign competition and launch reforms that would create a corporate bond market and foster efficiency, it could not be denied that RBI has managed the monetary policy impeccably despite governments push to keep rates low, supervised banks diligently to limit credit risk and been pragmatic in helping them manage cyclical risks in a downturn.

Similarly the vibrancy of our private sector is a hallmark of our culture that places a lot of emphasis on hard work (talking about work life balance is more or less still taboo), education, mobility and most importantly to learn to succeed despite the government.

I am eager to see how long the party continues on these two fronts given that private sector is beginning to feel more and more disenchanted with lack of infrastructure and an extremely inefficient judiciary coupled with an uncertain regulatory environment while government is eager to get RBI into its fold to pander to minorities (islamic banking), direct lending to its cronies and manage an ever growing deficit at low rates.