Legatum Prosperity Index 2016
India
Ranked 104th of 149 on the 2016 Legatum Prosperity Index™
OVERVIEW
The world’s largest democracy, a powerful economy, and a population of 1.2
billion, yet India struggles to reach the top 100 in the 2016 Prosperity Index.
A lower-middle-income country with a key place in the global economy, India is in the midst
of a historical transition economically, socially, and politically. With a population of 1.2
billion, which is estimated to exceed China’s by 2028, India faces unprecedented challenges
in accommodating the growing aspirations of its young population, generating enough jobs,
and lifting four hundred million people out of poverty. India needs to climb out of its current
downward growth cycle and improve the weakest areas of its prosperity, including Health
and Education, if it is to improve its citizens' quality of life and lay the foundations for a truly
prosperous future.
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Sub-Index Rankings
In the Prosperity Sub-Index rankings, India
performs best on Governance and Economic
Quality and scores lowest on the Natural
Environment sub-index.
Visit our Rankings table to see how India
compares to other countries.
PROSPERITY GAP
The ‘Prosperity Gap’ takes a country's GDP and uses it as the yardstick to measure a nation's
expected Prosperity Index ranking.
India slightly under-delivers prosperity compared to its wealth. Yet, since 2012 its negative
prosperity gap has been contracting rapidly. If this trend continues at its current pace, the
country can hope to achieve a neutral prosperity gap within the next five years.
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COMMENTARY
As depicted in the Legatum Institute's 2014 ‘Democracy works’ report,India is an example of
a large successful emerging economy which has achieved rapid growth without the need for
authoritarianism unlike its BRICS peer, China. However, democracy does not automatically
lead to inclusive growth and the Modi government must confront many challenges if it is to
ensure that prosperity reaches all and bring the country to a middle-income status.
Level of Democracy in Pakistan, Nepal, Sri Lanka, India, Bangladesh and Afghanistan according to the 2016 Prosperity
Index
India’s democracy level is the highest in South Asia, showing that it is possible to enjoy rapid growth and democracy in an
emerging economy.
Much of India's prosperity performance is driven by the Governance sub-index, where India
has an impressive track record of continuously ranking in the global top 50 over the last
decade and significantly ahead of its regional peers. Although India has the best South Asian
scores for the transparency of government policy making, judicial independence, rule of
law, and political rights, these have been declining slightly over the last decade and have yet
to reach the standards of developed countries.
The election of Narendra Modi as Prime Minister in 2014 represented a historical political
shift. It defied all past trends as his party, the Bhartiya Janta Party (BJP), replaced the Indian
National Congress which had led India’s independence movement and ruled for forty-nine
of the last sixty-seven years. It represents a key shift in Indian society, driven by an
emerging middle-class who are no longer satisfied with a government that provides just
poverty reduction, but demand higher living standards, greater investment in human
capital, better delivery of public services, and an end to corruption. While satisfaction with
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living standards in India has been static for a decade, corruption has improved by 10% since
the 2011 anti-corruption movement which gained momentum when activist Anna Hazare
began a hunger strike in New Delhi.
Modi has begun to implement reforms, particularly to improve India’s dwindling business
environment. These include tax breaks to encourage investment in the power sector,
irrigation, key infrastructure like ports; and inviting fresh applications for those looking to
set up small banks and payment banks. These are essential as transport connectivity and
access to electricity is very limited in rural areas and, since 2007, the Index has recorded a
decline in affordability of financial services and ease of obtaining credit in India.
There have been successes. The Digital India Programme, launched in 2014 to improve
internet connectivity, has driven a 4% rise in fixed broadband subscriptions. The ease of
resolving insolvency has improved by 19% since a globally comparable bankruptcy law was
established and the ease of starting a business increased by 21% after the number of days
required to start a business dropped from 38 in 2007 to 29 in 2015. Consequently, India has
already moved up four ranks in the Business environment sub-index in the last two years,
suggesting that Modi’s sharp focus on the development agenda could help reverse India’s
current downward investment and growth cycle.
Slowed economic growth over the last years has led to India moving down 13 ranks in the
Economic Quality sub-index since 2007. Trailing 5-year GDP has dropped by 1.73 percentage
points from 6.6% to 4.9% between 2007 and 2016. With 50% of its population under the age
of 25, India’s challenge lies in creating over twelve million jobs a year to absorb its rapidly
growing workforce and increase its low labour force participation. With slower growth, this
is a significant ask. The manufacturing sector, vital for job creation, remains small and
underdeveloped. A burgeoning IT sector has made India increasingly popular to
international companies, but these highly-skilled jobs are only open to a very small part of
the population.
Trade barriers are still high by global standards and anti-monopoly policy is less effective
than a decade ago. According to a report by the Legatum Institute into India's economy
published in May 2016, an extensive amount of anti-competitive market distortions ,which
arise in an effort to protect certain industries or firms often to the detriment of others, are
preventing India’s economy from flourishing. For example, in the aviation and cotton and
garment sectors they come in the form of subsidies, import duties, and price controls
amongst other things. These distortions cause huge inefficiencies and losses to welfare as
India favours many of its state owned monopolies which have existed since independence.
As India’s economy develops it becomes increasingly vital to raise education levels to move
towards higher skilled jobs. Primary completion rate may reach 96% but secondary
education per worker only averages 2.7 years. Literacy rates, at 69% for adults and 90% for
youth, are improving too slowly. India needs to raise quality of education, as well as
coverage, to generate a workforce that has the knowledge and skills to compete in today’s
global job market.
Health too matters. While India has added three years to life expectancy in the past decade,
rapid urbanisation has led to a 29% rise in health problems. Slow sanitation improvement is
second in the region only to Afghanistan, and fewer people are satisfied with the healthcare
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where they live than in 2007. If economic growth is to lead to greater prosperity in India,
these human development indicators must be improved.
Ways to make a change
Click on the Tweets to help make a change in your nation.
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A historical political shift: will Modi’s government bring India to the forefront of the
global economy?
Education and electricity: deliver on the Indian middle-class' demands for a prosperous
future
Lost potential: time to remove the economic distortions which stop India being the 5th
largest economy in the world.
With only 12% representation in parliament and a labour force participation rate of
30%, it is time to empower the women of India!
SPECIAL ANALYSIS
Economic slowdown has stinted India’s prosperity level over the last decade, especially in
the Economic Quality and Business Environment sub-indices. Yet, recently India has
benefited from reforms by Modi’s government, a shrinking prosperity deficit, and a
growing middle class and youthful population. These are strong reasons to believe that
India is en route to reaffirm its position as an important regional power and a powerful
economy.
Areas of success
India’s biggest achievement lies in the Social Capital sub-index, having moved up 58 ranks
from the global bottom ten to 84th place in nine years. Volunteering is an increasingly
popular activity and financial help to households has increased by 37.5%. Trust in the local
police force is higher than average and the country boasts the best voter turnout in South
Asia. On an individual level, almost 80% of Indians feel that they are treated with respect
and there has been a staggering 72% improvement in the number of people helping
strangers. Most notably, with 83% of respondents satisfied with the opportunity to make
friends and meet people, India has climbed to the global top fifty in this variable.
Areas of little change
An area of little change in India has been in Safety & Security, consistently ranking in the
global bottom 20 in this sub-index for the last decade. Since partition in 1947 sowed the
seeds for conflict with Pakistan, India has never truly been at peace. Consequently,
battlefield deaths continue with many reported deceased (mainly due to extreme weather
conditions) in Siachen, a glacier disputed by the two nations. Civil and ethnic war casualties
are exceedingly high due to caste and religious tensions which threaten the country’s
democratic spirit. Finally, terrorism poses a significant threat to Indians. Trailing 5-year
terrorist attack causalities in the country are amongst the highest in South Asia. Terrorism
found in India includes ethno-nationalist, religious, left-wing, and narco terrorism.
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Areas for improvement
Ranked 140th, Environment is India’s worst performing sub-index and in need of much
improvement. Rapid urbanisation has caused air pollution levels to rise by 8% over the last
decade and is putting an increasing strain on resources. Access to drinking water is very high
but water resources are under strain due to a rapidly growing population and India’s failure
to treat waste water. The nation has the lowest percentage of terrestrial protected areas
and the worst marine protection in South Asia. If India is to provide decent standards of
living for 1.2 billion people, it is essential that rigorous environmental laws of high standard
are implemented.
Visit India’s country profile on www.prosperity.com.
Legatum Prosperity Index 2016
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