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The quality of secondary education, the cost of starting a business and the lack of government effectiveness are among the reasons why India has been ranked 70 among 104 nations on the World Prosperity Index 2008.
"India has a relatively entrepreneurial culture. It requires government effectiveness and the tackling of corruption," Alan McCormick, managing director, Legatum Institute, which has brought out the index, told PTI.
The increase in capital and education costs contributes directly to the value of physical and human capital and thus directly increases economic output. Poor governance and excessive bureaucracy impose costs on business and thus restrain growth, said the report, which was released last week.
The Institute also ranks India at No 10 on its 'Who's Going Places' list, with China on No 6. "These countries have the best context right now within which to create wealth," McCormick said. Both economies have recently grown faster than almost any country in the rich world. Since these two giant nations are home to more than two billion people, these improvements in competitiveness are bringing about a dramatic lessening of the global wealth gap and are very good news for global prosperity, the report said.
"India outstrips many South Asian nations in various aspects of wealth creation. It ranks stronger with reference to other Asian countries in terms of avoiding dependence on commodity exports and foreign aid," McCormick said.
The Index, which calculates a country's prosperity on the basis of economic competitiveness and comparative liveability, has been prepared by assessing drivers of prosperity based on 22 key indicators and 44 sub-indicators.
Australia topped the overall Index, Austria earned top scores in education and in health and Finland rated excellent governance, the report said. Every one of the top 29 countries in the overall Prosperity Index score half a standard deviation or more above the global mean on good governance, the report said.
India has an exceptionally weak score in commercialising new ideas via entrepreneurship, a factor which the Index identifies as a major contributor to growth. India's score in terms of entrepreneurship is surprisingly better than Austria at 2 and Canada at 14. It, however, is doing a lot in terms of commercialising innovation.
"One of the measures we use to analyse innovation is the number of patents registered by a country with the World Intellectual Organisation. When a country is issuing lots of patents, it indicates that there is a lot of research and development taking place within the country and, importantly, it is being commercialised. India has increased its patents rapidly over the last few years, most notably in the pharmaceutical sector," McCormick said.
Singapore and Hong Kong have a remarkably high score in commercialising new ideas via economic openness. Neighbouring Sri Lanka, which ranks 60 on the Index, beats India at it by scoring high on commercialising new ideas via education and entrepreneurship and building social support through family and community life.
Australia ranks higher in terms of investing productively via good governance, commercialising new ideas via better education and building social support through community life. India scores low in all these factors.
Germany at number 4, Kuwait at 30, Russia at 57, Mongolia at 77 score comparatively higher than India in terms of commercialising new ideas via education.
This is the second year in succession that the Institute has come up with the Prosperity Index. In 2007, only 50 countries were analysed as compared to 104 this year.
"India was featured in last year's Index and was ranked 46th of the 50 countries analysed. Although comparisons between 2007 and 2008 rankings are not valid due to changes in the methodology of the survey, the drivers and restrainers of India's prosperity are quite similar to last year," Legatum Corporate Communications Hamish Banks said. "They include significant weaknesses in economic openness, entrepreneurship and higher standards of education; health issues remain a problem, but religious belief is a strength."
Almost all of the countries that ranked lower than India last year -- Pakistan, Zimbabwe and Bangladesh -- are again ranked lower in 2008 with the exception of Egypt, which is now ranked very slightly higher than India at 67, he said.
On a plot of 'competitiveness' and 'liveability,' India comes in the bottom left quadrant ie neither liveable nor competitive as opposed to Australia, Japan and Singapore that are both competitive and liveable, Russia and Ukraine that are more competitive than liveable and Saudi Arabia and Venezeula that are more liveable than competitive.