A story of government failures

A story of government failures

There is one overwhelming story from India in The Global Competitiveness Report (GCR) 2009-10, issued by the World Economic Forum on Tuesday: government failure.

The report ranks India at 49 out of 133 countries in competitive terms. In some of the indicators, India is way ahead of countries of its kind: It ranked fourth in terms of market size, something that would cause envy, if not heartburn, for many. In terms of innovation and sophistical factors, it is ranked 28th ahead of its peers in the Brazil, Russia, India and China (Bric) group. This is something to be celebrated.

Where the country gets a beating is in terms of basic requirements that fuel competitiveness: It stands at a poor 79/133, behind China (36) and Russia (64). Basic requirements, as analysed in GCR, include institutions, infrastructure, macroeconomic stability and health and primary education. It performs poorly on all counts. Of these, the most worrisome are macroeconomic stability (rank: 96/133) and infrastructure (76/133). For the fourth largest market of the world, this is plainly bad.

Among the macroeconomic factors, government deficit and debt can be singled out as being particularly worrisome factors. In this, India compares poorly with other Bric countries.

This is a story of an economy raring to go ahead, but one that has been shackled due to a poorly performing government. Had the government done its job, we could have powered ahead. Here it is instructive to look at health and primary education indicators in GCR. In all the 11 indicators, (such as quality of primary education, education expenditure and infant mortality) India suffers from competitive disadvantages. This is true, by and large, of most areas where the government has a role to play.

It is, of course, possible to argue away high deficits and debts on account of the global economic crisis. That would be a lie. This is a problem that India had even before the crisis began. It continues even after the emergence of green shoots and will be around even when the shoots have turned into trees.

Here is the rub: No one is arguing against government expenditure where it is called for—it is the quality of government expenditure that is abysmal. While India is relatively better off in terms of its institutions, its macroeconomic performance leads to doubts on that count.

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