THE LEGATUM PROSPERITY INDEX™ 2016

Bringing Prosperity to Life

India

Ranked 104th of 149

At a glance

Ranks

104 th on the Legatum
Prosperity Index™

67th
86th
47th
102nd
113th
135th
102nd
84th
140th

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.

Note:
In the chart above, each dot represents a country. The curve shows the general tendency with which prosperity increases as GDP per capita increases. If a country falls below the curve, then we can say that compared to all other countries, it is under-delivering prosperity for its citizens. Likewise, if a country rises above the curve, then we can say that it is over-delivering prosperity for its citizens. Learn more about the Prosperity Gap here.

Alternatively, have a look at the Prosperity Gap view on our Rankings table for a full list of countries and to see how each of them are performing on the various sub-indices.

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.

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.
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 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 where they live than in 2007. If economic growth is to lead to greater prosperity in India, these human development indicators must be improved.


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Data

How to read this graph:
When comparing multiple countries on a spider chart, data points that appear
further away from the center represent a better performance to the points that are closer to the center.

Special Analysis

Special Analysis

OVERALL

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.

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Areas of Success
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.

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Areas of Little Change
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 of Improvement
Areas of 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.