United States (Global Country Ranking)

India has jumped 16 places in the World Economic Forums global competitiveness ranking, a
result of the positive way in which the current government is viewed by investors.
The rankings show India ranked 55 out of 140 countries. While this is an improvement over last
years 71 out of 144 (and 2013s 60 out of 148; 2012s 59 out of 144; and 2011s 56 of 142), it is
lower than Indias rank in 2010 (49 of 133), 2009 (50 of 134), 2008 (48 of 131), and 2007 (43 of
125).

In its Global Competitiveness Report 2015-16, WEF said this dramatic reversal is largely
attributable to the momentum initiated by the election of Narendra Modi, whose pro-business,
pro-growth, and anti-corruption stance has improved the business communitys sentiment toward
the government.
After taking charge in May last year, the National Democratic Alliance government has launched
a drive to improve the countrys business environment, unveiling several campaigns (such as
Make in India, to boost manufacturing; Skill India, to equip Indians with vocational skills),
announcing swifter approvals for businesses; and moving towards a transparent and stable tax

regime. It is also working on making it easy to do business in India and has said it will improve
Indias ranking in the World Banks Ease of Doing Business rankings to under 50 in five years.
India dropped two places to rank 142 among 189 nations in the World Banks Ease of Doing
Business 2015 study. The next study will be released in October. India expects its ranks to go up
several notches.

India

Indias performance in the macroeconomic stability pillar has improved, although the situation
remains worrisome (91st, up 10). Thanks to lower commodity prices, inflation eased to 6% in
2014, down from near double-digit levels the previous year. The government budget deficit has
gradually dropped since its 2008 peak, although it still amounted to 7% of GDP (gross domestic
product) in 2014, one of the worlds highest (131st). Infrastructure has improved (81st, up six)
but remains a major growth bottleneckelectricity in particular, the report said.

The Global Competitiveness Index combines 113 indicators that capture concepts that matter for
productivity. These indicators are grouped into 12 pillars such as institutions, infrastructure and
macroeconomic environment. These are, in turn, organized into three sub-indexes, in line with
three main stages of development: basic requirements, efficiency enhancers and innovation and
sophistication factors. The three sub-indexes are given different weights in the calculation of the
overall index, depending on each economys stage of development, as proxied by its GDP per
capita and the share of exports represented by raw materials. India is categorized as a factordriven economy as its per capita income is less than $2,000.
The WEF report said the fact that the most notable improvements in India are in the basic drivers
of competitiveness bodes well for the future, especially for the development of manufacturing
sector. But other areas also deserve attention, including technological readiness: India remains
one of the least digitally connected countries in the world (up one rank to 120). Fewer than one
in five Indians access the Internet on a regular basis, and fewer than two in five are estimated to
own even a basic cell phone, it added.

The government has tried to address this with the launch of its Digital India campaign on 1 July.
Over the last weekend, CEOs of several technology firms reiterated their support to this.
WEF said seven years after the global financial crisis, the world economy is evolving against the
background of the new normal of lower economic growth, lower productivity growth, and high
unemployment.

Although overall prospects remain positive, growth is expected to remain below the levels
recorded in previous decades in most developed economies and in many emerging markets.
Growth prospects could still be derailed by the uncertainty fuelled by a slowdown in emerging
markets, geopolitical tensions and conflicts around the world, as well as by the unfolding
humanitarian crisis,

How does Country ranking not hold any meaning during

Global economic Crisis. Compare with 2008 Recession
impact in USA and India
In the summer of 2008, the US financial sector suffered one of the most damaging events in its history. The volatile
stock market, induced by the subprime market, led to the default of Lehman Brothers, and subsequently to a massive
global crisis.
We are now in a post-crisis period. Yet, looking back to between 1945 and 2008, we see that the frequency of
financial crises and recessions is quite high: on average, there is one crisis every 58 months (using data from the US
National Bureau of Economic Research). In other words, statistically speaking we should expect the beginning of
the next crisis in April 2015, which would end by March 2016. So are we in a post- or a pre-crisis period?
I do not want to be the bearer of ill tidings, but I think we should always wonder what the cause of the next crisis
will be. There is no single episode of financial panic in the last 50 years that could not have been prevented. This
time, let us look ahead, not react after the crisis.
The world economy is now more interconnected than ever. Financial markets are heavily regulated while capital
markets are expanding in Asia, Africa and Latin America. The banking sector is going through a concentration
process with fewer and fewer players left. Mexico, Indonesia, Nigeria and Turkey (the MINT countries) are coming
into focus after Brazil, Russia, India, China and South Africa (the BRICS) have disappointed. Europe seems to be
back in the game, with Germany leading the recovery of the continent. The US is still the world's most competitive
economy, according to the IMD World Competitiveness Ranking. The process of deleveraging the balance sheets of
governments and companies is under way. Interest rates and government bond yields are at historical lows and stock
markets have recovered to pre-crisis levels.
So what is there to worry about? There are eight possible scenarios that could cause the next crisis, none more
important or likely than the others. For some, prevention is straightforward. For others, I am not sure there is much
we can do. Some of them represent imminent threats. A few are more long-term, less dramatic sources of instability.
Stock market bubble
Between June 2013 and June 2014, world stock markets returned 18 per cent on average. Of course, performance
was uneven, not unlike a "normal" year: the market return was 30 per cent in India, and a meager 8 per cent in
China. However, most companies that announced results during 2014 disappointed markets, and for most large
corporations, stock markets have reacted negatively to annual earnings. The reason is that, driven by excess liquidity
and a lack of alternative opportunities, a lot of money has flown in to equity markets. The Yale University economist
and Nobel Prize winner Robert Shiller has shown that the gap between stock prices and corporate earnings is now

larger than it was in the previous pre-crisis periods: 2000 and 2007. If markets were to return to their normal earning
levels, the average stock market in the world should fall by about 30 per cent.
Chinese banking system
Shadow banking (lending by anything other than a bank or outside the control of financial regulators) now
represents more than 100 per cent of GDP in the US, and about 70 per cent in China. This is more of a problem in
China than in the US, for two reasons. First, in China the banking sector is protected from foreign competition
only local banks are allowed to operate independently in the country. As a result, without any threat in a huge
market, the biggest banks in the world are now Chinese. They are truly too big to fail.
The second reason is that a big part of Chinese shadow lending goes to central government and provincial
governments. Banking regulation in China is considered to be very stringent, but we know what happens when
regulators become self-interested. Without a doubt, the next banking crisis will be triggered by a Chinese bank.
Energy crisis
An energy crisis now would not be caused by the scarcity of energy sources quite the opposite. The development
of fracking techniques and growing supply of gas in the US have turned shale gas into a potent geopolitical weapon.
If the US Congress were to allow energy exports, energy prices in the world would fall significantly. This would be
great for companies, but would trigger geopolitical problems in Russia and West Asia. These countries rely on
energy demand from western Europe and China, where energy costs are currently hurting competitiveness and
where a cheaper alternative would be welcomed with open arms.
New real estate bubble
The conditions in 2005-07 that led to a real estate bubble are back: low interest rates, growing demand, and
increasing real estate prices in some markets. With respect to the demand factor, in current market conditions, the
only attractive investments for institutional investors are real estate and equities. As a result, prices are increasing.
The Bank for International Settlements has recently released data on real estate prices in several markets from 2013.
Between the end of 2007 and the end of 2013, residential property prices increased by more than 80 per cent in
Brazil, 60 per cent in China, and 15 per cent in Canada.
There are also fears of a bubble in other countries such as Switzerland and the United Arab Emirates. Like any other
bubble, it will only become one once it bursts. What is different in 2014 is that now central banks have a great tool
to prevent real estate bubbles: Basel III and its countercyclical capital buffer.
Corporate failures
The norm for companies is now to be BBB-rated. In the US, there are only three firms that still are AAA-rated:
Johnson & Johnson, Exxon Mobil and Microsoft. There were 61 in 1982. Since interest rates are low, companies see
the benefits in debt financing. But this means that firms are also more sensitive to changes in interest rates. Typically
a BBB rating is associated with a probability of default of about 4 per cent in five years. Therefore, we should
expect that in the next five years, about 16 companies in the S&P500 index will go bankrupt. One of them could be
the new Enron.
Geopolitical crisis
From Nigeria to Ukraine, and from Syria to Venezuela, the world risk map shows too many hot areas where
geopolitical events could trigger a world crisis. Why should anyone care about Ukraine or Syria? Because financial
markets tend to overreact to political events. And because, given the financial linkages among countries, negative

sentiment in China will trigger a market collapse in the US and vice versa. Let us not forget the lessons of the Great
War (we are now commemorating the 100-year anniversary): the butterfly effect can be deadly in politics.
Poverty crisis
Over the last few decades the world has become richer and more prosperous. While the percentage of the population
in absolute poverty is today at its lowest level ever, the absolute number of poor people continues to grow. In this
context income inequality is one of the social battles that we need to fight. But the problem with fighting income
inequality is that the usual solutions (typically taxes) hinder the competitiveness of nations. This is one of the longterm crises that will require smart leadership to avoid inefficient solutions.
Cash crisis
There is too much money out there. It is the result of quantitative easing policies that central banks have followed.
The excess liquidity in the system is concentrated among financial and non-financial firms. Citigroup has more than
$487 billion in cash; Apple about $150 billion. It is paradoxical that, in some cases, banks and firms are so rich that
they could buy entire countries (if one takes into account the total GDP minus government debt). If the corporate
sector were to unload such massive financial resources (as is their moral obligation) on to society, they would create
hyperinflation and hence financial crisis. But otherwise we are in a situation in which central banks print money that
they will have to take out of the system later. We know how quantitative easing works, but we do not know how to
exit from it.
While we can already see these eight sources of a new coming crisis, the problem is that many obvious solutions that
governments can implement would be detrimental to world competitiveness and could hinder local economies. More
taxes, more regulation and more protectionism all create a more hostile environment to economic growth and
competitiveness.
Politicians and corporate executives should now look to diversify, to seek varied geographical presence, to be
flexible, resilient and to manage risk. They should cultivate and reward talent and improve their credibility in
society. To boost their nations' competitiveness and their chances of inclusive economic success, leaders need to
invest internationally and make acquisitions in order to make their countries attractive to foreign capital. In order to
avert the next crisis and others after that, global leaders should be making employment, sustainability and social
cohesion the top priorities of their nations.

What are the main reasons India survived the

global economic recession of 2008?
Less dependency on housing sector: Unlike US, Japan and Europe, private
housing is not that big a part of the domestic economy. Even the concept of home
mortgages from banks are barely 2 decades old. In early 1990s, all of Indian banks
gave less than $1 billion in loans for housing and most of this is for
government/bank employees.

Low base. At $1100/person as per-capita GDP there is way bigger room to grow up
than go down. Contrary to popular myth, neither India nor China are the fastest
growing countries. Some of the poorer countries do much better. The thing is, if the
past is so shitty, you can even produce a triple digit growth rate. Here is last year's
GDP growth rate of 12 fastest growing countries.

1. Strong central bank. India has a very good central bank, RBI, that is managed by
some of the best finance guys. Both Subbarao and his predecessor YV Reddy are
very prudent bankers. They applied brakes on banking loans even before the crisis.
2. General health of the economy. There is a colorful saying in the US that when tide
goes away, you know who has been swimming naked. In the US and Europe, the
housing crisis has just made their bad economy look even more bad. But, in most
indicators (such as GDP growth, innovation), West has been sliding since 1990s.
For Europe it is the lack of innovation, for Japan it is demographics and US it is
healthcare. There is hardly any wage growth since that period. India and China have
a sound fundamental economy that is ripe for boom.
3. Disconnected from the global economy. In 1990s India was opening up in a big
way. As they were about to take the next round of reforms, the Asian financial crisis
came up in 1997. It was the single worst event we discussed in our school. It took a
decade for India to shakeout from that shock of just missing the trainwreck, and
before it could make a round of currency reforms, this wreck happened. In either
case, we were saved by luck of not connecting well with global economy. Global
trade is a very small part of what we do.
4. India has her own "huge" internal demand which ideally should sustain her growth
(but as we see now, it isn't). So we didn't "survive" the crash due to our internal
demand alone. Yes, India has an insulated banking system, but the rupee, the
currency of India is not insulated, its highly correlated to the international economy.
So we didn't survive the crisis due to our banks or our savings either. How did we
survive? Did we survive then to suffer now? Let us examine.
We all know of the subprime crisis, the Euro banking crisis, the contagion spreading
from Greece to Spain, Italy, Portugal, the Irish crisis etc. So what id this do to
India?

When the crisis first hit in 2007-2008, it was actually hailed as a good thing in
India! Foreign investors fleeing the crashing markets of the west, heavily dumped
money in India via FIIs. However, when the general panic and the volatility spread
across the world, these FIIs fled out India equally fast. A cursory glance at the graph
below shows the change in investment in India overall, from 200 to 2008.

The GDP also, understandably started taking a hit, as the effects of the crisis began to sink in
across the world. The exports declined concomitant with the fall in demand in export
markets.
Before the crisis hit, the RBI was worried about excessive capital inflows, it took measures to
curb inflation which arose as a result of the huge capital inflows. However, once the flight of
capital started, the RBI had to step in to increase liquidity and provide a fiscal stimulus to the
sagging economy by 2008.

As a result of the fiscal stimulus given, India's fiscal deficit increased from 2.7% in FY
'07-08 to 6.2% in FY '08-09. Consequently the fall in GDP was somewhat arrested. The
RBI repeatedly moved in to ensure liquidity as well during this time, via lenient CRRs
etc. India's GDP seemed back on track in 2010, although inflation remained a double
digit worry. Inflation resulting primarily from the increased liquidity, the fiscal stimulus.
So what happened suddenly in 2011? Indian rupee became the worst performer
among all currencies in the world, India's GDP took a hit, and has remained
between 5 and 6% ever since. Most alarmingly, India by the end of 2012, has a fiscal
deficit of around 5.6% and a current account deficit of around 5.9% of GDP
respectively. This is an alarming situation, reminding one of the twin deficits and
balance of payments crisis of 1991 which led to the reforms of 1992.
Herein lies to the answer to the question posed. Despite the worsening economic situation
abroad which sent shockwaves down home, India did nothing to curb matters, except for
RBI following an expansionary monetary policy for a while, encouraging liquidity
(which also increased the inflation) and then later on tightening its belt (which continues
to this day) to curb that resulting double digit inflation (which also continues to this day).
While the world was reeling from the aftermath, Indians at large still enjoyed massive
subsidies on everything from fertilizers to oil. India had one of its biggest farm loan
waiver scheme in the midst of the crisis. How was the Government paying for this?
Through stimuli which increased the burden on the fiscal deficit. However, given the
infrastructural weaknesses inherent in our system, supply side is also very volatile due to
poor production efficiency, and thus prone to wild price upswings. Therefore, despite
stimuli, prices of essential commodities like food etc. still keep rising. Apart from this, it
also means India will have a high current account deficit, will import than it exports
thanks to our supply side deficiencies.

5.
6.
Higher current account deficit means higher demand for foreign currency, which
results in depreciation of the domestic currency. It also discourages capital inflow
and leads to capital flight from the country. Therefore to limit the deficit, India
needs even more inflows to stem the capital flight. Such high dependence on capital
flow naturally results in higher appetite for short-term and risky flows.
According to the Reserve Bank of Indias Financial Stability Report, December
2012, the ratio of volatile capital flows to foreign exchange reserves was 81.3% at
the end of June 2012 compared with 67.3% at the end of March 2011. Rising
dependence on short-term flows is risky as any reversal could pose serious
challenges in financing the deficit and may lead to a sharp fall in currency.
So this is a vicious cycle, on the one hand, a high current account deficit leads to a
weak rupee which leads to risky capital inflows (mostly FIIs), which in turn with
the slightest change in world economy (like say, price of oil) can further weaken our
own currency.