India in the global context

(This is the second and concluding part of the excerpts from a speech made by Dr. Y. V. Reddy, Deputy Governor, Reserve Bank of India on October 30. The first part appeared on November 23.)

THERE HAVE been several indices and ranking exercises undertaken by various international ranking or rating agencies. These indices have gained importance in the context of globalisation and countries are often ranked for purpose specific reasons on these indices. A cursory look at these indices will help understand where India stands with respect to peers as well as developed countries.

The indices are broadly classified under four major heads: (a) economic indicators; (b) institutional indicators; (c) infrastructural indicators; and (d) social indicators. Selection of indices was governed by the mere accident of availability and its relevance. Thus, they are tentative and illustrative, and certainly not conclusive. Nine countries are assumed to be fairly representative of geographical distribution of countries on the globe. Besides India, these countries are Singapore, China, Pakistan, Sri Lanka, South Africa, Mexico, the U.S. and Japan.

Economic indicators

Economic indicators include factors such as the level of income and its growth over a period, its capacity to grow as evidenced by savings and investment rate, and the performance of the external sector. India is admittedly a large economy, and in terms of size, is ranked 11th or 3rd in the world depending on the measure. In per capita terms, however, India is among the lowest in the world, irrespective of the measure. In 1999, India's Gross National Product (GNP), which is the sum total of all the factor incomes accruing to Indian citizen, stood at $442.2 billion and ranked 11th in the world. What each Indian on an average could get from this total, that is, the per capita GNP, was only $450 and ranked 162nd in the world which was the lowest among the nine countries in our group. But this GNP is calculated on the basis of market exchange rate, that is, the rate at which dollar exchange for rupee in the market. Some analysts question this methodology on the count that there are differences in the prices of comparable goods, which are not traded amongst countries.

When these differences are adjusted, we get the GNP measured in Purchasing Power Parity (PPP) terms. In this measure, India's GNP rises to $2144.1 billion and is behind only the U.S., China and Japan. The per capita GNP also rises to $2149. Even then, India was still ranked 153rd in the world, higher than only one country among these nine countries. In other words, despite the higher GDP growth during the last two decades, India continued to remain low in the league of per capita GNP. The culprits are the size and the rate of growth of population in our country and the low base of income with which we started.

Savings and investment rates of 20.3 per cent and 23.9 per cent, respectively, during 1997-99, have been comparable or were even better than many developing and developed countries. But these rates were much lower than high growth countries such as Singapore (savings rate of 51.4 per cent and investment rate of 34.5 per cent) and China (savings rate of 42.5 per cent and investment rate 38.8 per cent). Almost all the savings in India are from the household and the private corporate sectors. The savings in the public sector, during 1993-94 to 1998-99 averaged just around one per cent only. It is noteworthy that, the main reason for low savings in India lies in government savings being negative on account of revenue deficits.It may also be noted that growth of exports of goods and services at an annual average rate of 11.3 per cent during the Nineties was impressive and only lower than the high performers like China (13.0 per cent) and Mexico (14.3 per cent). The external debt to GDP ratio of 23.0 per cent in 1998 was also much lower than that of Pakistan, Sri Lanka and Mexico.

The flow of foreign direct investment (FDI) in India also increased during the Nineties and reached $2.26 billion in 1998, which was among the 20 largest FDI recipients among the developing countries. Yet, the level of inflow was still far lower than countries such as Singapore ($7.22 billion), China ($45.5 billion and Mexico ($10.24 billion).

To reflect dynamic elements of the economy, reference may also be made to several indices relating to country-risk, technology, economic creativity, competitiveness, globalisation, and recessionary expectation.

In the composite International Country Risk Guide (ICRG), risk rating, which is an overall index of investment risk in a country, as of March 2000, India with a rating of 64.3 was placed better than two of the nine countries in the group. The same is more or less true for the institutional investor credit rating, which indicates the probability of a country's default.

In the context of globalisation, technology is the propeller of growth. How active is the involvement of India in technological innovation and in the import of technology from abroad? And how conducive is the environment in India for business start-ups? The World Economic Forum (WEF) captures the former by Technology Index and the latter by Start-up Index. When these two indices are combined, an index is derived, which is called Economic Creativity Index that gets reflected in the growth performance of a country.

Out of the 59 countries surveyed in 2000, India was ranked 38th in all the three indices and was placed higher than that of China (48th). Though business start-up environment in Mexico is worse than India and that of Japan marginally more favourable than that of India, their involvement in technological innovations is considerable and consequently, their creativity indices are superior to India.

Institutional indicators

Evaluation of institutional factors is complex and methods are still in their infancy. As much of the data are from opinion surveys, the views are subjective rather than definitive. In this presentation, reference will be made to an index of perception on corruption and to five selected indicators of governance.

Transparency International and Gottingen University bring out a ranking of countries based on the perception of business people on the transparency of the politicians and public officials of a country. The index is called Corruption Perception Index. In its 1996 survey, of the 54 countries ranked by transparency, India was placed at the 46th position or as the 9th most corrupt country among these countries.

On governance, the World Bank in its publication India - Reducing Poverty, Accelerating Development (2000) has brought out five broad indicators. They are: (a) government effectiveness and stability; (b) role of law and business environment; (c) general public administration judged by quality of bureaucracy; (d) public finance; and (e) outcomes, in which most of the social indicators such as poverty, mortality and literacy are included. India's ranking on these indicators against five groups of countries in 1995 is available. The groups compared are: the developing countries; some select large countries comprising China, Mexico, South Africa, Brazil and Poland; Southeast Asia comprising Indonesia and Thailand; South Asia excluding India; and industrial countries represented by the U.K. and the U.S.

In the effectiveness of government and its stability, India fares worse than all groups of countries. With regard to the role of law and business environment, India is placed better than its neighbouring South Asian countries. But, in comparison to the group of selected large countries and the industrial countries, India is worse-off. Except for the industrial countries, our general public administration is ranked higher than all other groups of countries.

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