Sometimes I wonder whether we are obsessed with indices. Inter-country comparisons made by international bodies. Intra-country comparisons, pitting State against State, creating what is thought to be “competitive federalism”. The conditions are different, the base is different, yardsticks used are different. Indices can at best provide some policy pointers; they cannot form the basis of development administration.
Good administration is beyond indices. Good administration means understanding the nature, needs and internal diversity of the entity that is administered and finding ways to address challenges and to fulfil needs. It means planning not for sectoral growth but for holistic, inclusive growth maintained over a sustained period of time. It means being alive to changes, never falling into traps like the middle income trap, which interrupt the momentum of growth. It means, too, dealing with crises as and when they arise, without engaging in intellectual debates on whether they are structural or cyclical.
An index must be perceived in the light of its limitations. The World Bank’s Ease of Doing Business Index, released last week, showed that India had moved up from the 77th place to 63rd place out of 190 countries. The top ten countries that improved their rankings were Saudi Arabia, Jordan, Togo, Bahrain, Tajikistan, Pakistan, Kuwait, China, India and Nigeria. “India’s impressive progression in the Doing Business rankings over the past few years is a tremendous achievement for an economy that is as large and complex as India’s. Special focus given by the top leadership of the country, and the persistent efforts to drive the business reforms agenda, not only at the central level but also at the State level, helped India make significant improvements,“ said Junaid Ahmed, World Bank Country Director in India.
The Ease of Doing Business Index presents one side of the story. Nadia Daar of Oxfam International, said,” The Bank wants to remain relevant to today’s pressing issues, yet its flagship product continues to reward governments for policies that worsen inequality.” The Ease of Doing Business Index is compiled on the basis of identified regulatory areas including speed of starting businesses and issuing construction permits, registration of property, getting credit, tax rates and taxpaying mechanisms, enforcement and resolution of contracts, training, trading across borders and dissemination. Scores are calculated based on improvements in the selected areas. In India, one of the improvements cited related to ease of obtaining construction permits in Delhi and Mumbai. The fact that Pakistan and Togo are ahead of India in the list of countries showing most improvement must make us sit up and think. As the World Bank report titled “Doing Business 2019” itself says, “Doing Business does not claim to cover all the areas pertinent to private sector development and growth. Doing Business data are not sufficient to assess the overall competitiveness or foreign investment prospects of an economy. Doing Business does not assess market size, the soundness and depth of financial markets, macroeconomic conditions, foreign investment or political stability.” The index is based on business friendliness of big cities and does not cover the vast hinterland of India. Too much emphasis on the index can distort macroeconomic policy making. It can lead to segmented, short term approaches while what we need to do is to view the economy in its entirety and plan for its future.
If the Doing Business index of the World Bank ranked India higher, the Global Competitiveness Index brought out by the World Economic Forum this year shows that India has slipped down from the 58th to the 68th position out of 141countries based on 103 indicators organised into 12 pillars. These twelve pillars are assigned scores and cover data on institutions, infrastructure, ICT adoption, macroeconomic stability, health, skills, product market, labour market, financial system, market size, business dynamism and innovation capacity. India and Brazil are the lowest ranked among BRICS countries at 68 and 71 respectively. (Economic Times, October 9th, 2019). India's strong points, according to the survey, are macroeconomic stability, market size, depth of financial sector, corporate governance, shareholder governance, renewable energy regulation and innovation, while the weak areas are ICT adoption, poor health conditions and low healthy life expectancy (which is rated to be the shortest after Africa and well below the South Asian average). The divergence between the two indices in essentially the same sphere of business competitiveness underscores the unreliability of short term indices in determining performance and the attractiveness of India as an investment destination. Fortunately, the serious foreign direct investor will make his own assessment, based on his calculations regarding business prospects.
Earlier this year, the Global Innovation Index was released, the result of a collaborative effort by Cornell University, INSEAD and the World Intellectual Property Organisation. This exercise used 80 indicators encompassing both innovation inputs and innovation outputs and was intended to “capture the multi-dimensional facets of innovation and provide the tools that can assist in tailoring policies to promote long-term output growth, improved productivity and job growth.” India climbed 29 positions in this index and rose from 81 in 2015 to 52 this year. While our position in the Global Innovation Index has risen, it does not seem to reflect the effort, or the lack of it, made in our country to strengthen research and development.
Again, the innovation index is puzzling. India has been among the top four countries that have outperformed in innovation relative to GDP for the last nine years consecutively. Yet, as all our figures show, we have been lagging behind in investment in R&D. Either inputs have been higher than estimated or we are incredibly efficient in converting inputs into output. Whichever way, this is a mystery that remains to be explained. (Reji K. Joseph, August 2019).
India is a large country with its own strengths and we must rely on ourselves to grow. We must not evaluate ourselves or the Indian States by indices reflecting only parts of the whole. If we do, it will be like the story of the four blind men and the elephant.
The Prime Minister’s Economic Advisory Council, in a report titled “R&D Expenditure Ecosystem” released earlier this year, pointed out that India’s expenditure on R&D remained constant over the years, hovering around 0.6% to 0.7%, well below major countries such as the US ( 2.8%), China (2.1%), Israel ( 4.3%) and South Korea (4.2%). The Council made several suggestions to stimulate private sector R&D, such as mandating that a certain proportion of the turnover of large and medium enterprises be invested for such activity, joint action by States and Centre to fund R&D and reconsidering Government’s decision to withdraw weighted deduction for tax purposes with effect from 1st April, 2020.
Indeed, it is China that shows the way. R&D expenditure in China zoomed up from 0.7% in the nineties to 2.1% of GDP currently. China is fast catching up with the current world leader, the US. Huawei Technologies is presently in the forefront of telecom technology, preparing to roll out 5G. In every new sphere of modern science and technology, China is striving to develop its strength. New breakthroughs in Defence technologies have made the Chinese more self- sufficient in weapons and systems. The Marine Lizard is an amphibious trimaran which can travel both on land and in water. The Blowship A2 is a helicopter drone which can carry a 12 kilogram payload. The Mighty Dragon is a single seater, twin jet, fifth generation fighter aircraft. Chinese scientists are also reported to have developed a material that can hide a hot object from heat sensing infrared cameras, thus creating new stealth capacities. President Xi Jinping highlighted the importance of continuously upgrading Defence technology at the National People’s Congress in 2016. “The capacity to innovate will determine the future of the Chinese armed forces”, he said(Claude Arni in The Pioneer,April 25th, 2019).China employs 738000 people in R&D as compared to 158000 in India. Their vision is clear. In the words of Science and Technology Minister, Wan Gang, “China needs to enter the ranks of innovative countries and become a big technological innovation power by 2050.”
We have not only to pump in more resources, we have to make procedural and systemic changes to ensure flexibility and cost-effectiveness in the R&D structure in India. The Space Commission and the Atomic Energy Commission are outliers. The autonomy that was given to them from the very inception and their strong leadership reporting only to the highest level in the political executive, gave them muscle power far in excess of that available to other institutions and Departments engaged in science and technology. The success of these two organisations itself provides a model that can be replicated in all other areas by creating one or more strong organisations on similar lines with funding and with autonomy. R&D institutions must have the space to grow by themselves, adopting their own systems, untroubled by the shackles of routine-bound bureaucracy.
Defence is another area that can provide a springboard for sharp economic acceleration. The US and Israel, France, Sweden and Germany, and lately,China, have shown how investment in Defence can pay off. India starts with an advantage as our armed forces are huge and hungry for modernisation and technological innovation. Development of Defence production, backed by strong R&D, will not only make our country impregnable, it will spawn a whole range of upstream and downstream industries which would create business and employment opportunities everywhere. DRDO and the public sector alone cannot meet this need. The private sector, with its resources, its skills, its flexibility, its innovative capacity, needs to be fully harnessed. In several other countries, the private sector has been at the forefront of Defence production and R&D.
The Centre, the States, centres of higher learning and the private sector can together create a new environment, conducive to rapid growth of R&D. Together we need to lay out time-bound roadmaps for the future. We have been repeating the mantra of achieving the goal of spending 2% of GDP for too long - in speeches, in plans, even in party manifestos. We still remain at levels considerably short of 1%. We need to put our heads together and evolve a game plan. We have the brains, the skills, the spirit of innovation, entrepreneurial abilities. If we add to these organisation, imagination and drive, we have all the ingredients for quick and efficient take-off.
Let us grow, let different regions of the country grow in their own fashion, and the indices will take care of themselves.