India climbed 16 notches to 39th place in the annual Global Competitive Index of the World Economic Forum, becoming the fastest climber in the rankings of 138 countries.
India lead the group of South Asian economies, with improvements across the board, including institutions and infrastructure, particularly in goods market efficiency, business sophistication, and innovation, said WEF.
"Thanks to improved monetary and fiscal policies, as well as lower oil prices, the Indian economy has stabilized and now boasts the highest growth among G20 countries," WEF noted.
While India's recent reform push have focused on improving public institutions further (up 16), opening up the economy to foreign investments and international trade (up four), and increasing transparency in the financial system (up 15), a "lot still needs to be done," by the country, added the report .
Among the challenges that the country faces are the labor market, which is segmented between workers protected by rigid regulation on one hand and centralised wage determination, especially in the manufacturing sector, and millions of unprotected and informal workers.
The utilities sector and the financial market, with its well-documented problem of non-performing loans, as well as lack of infrastructure and information technology use remain bottlenecks, according to the report.
"The country's biggest relative weakness today is in technological readiness, where initiatives such as Digital India could lead to significant improvements in the next years. India outperforms countries in the same stage of development, mostly those in sub-Saharan Africa, in all pillars except labour market efficiency," said the report.
However, even on indicators where India has made progress, comparisons with other countries can be sobering: although life expectancy has increased, for example, it is still low by global standards, with India ranking only 106th in the world, the report pointed out.
And while India almost halved infant mortality, other countries seem to have done even better, leading to a drop of nine places this year to 115th.
"Huge challenges still lie ahead on India's path to prosperity," the report cautioned.
In comparison, China retained its 28th rank for the third year in row, thanks to progress in innovation (30th), higher education (54th), and business sophistication (34th, up four) – which all bodes well for its future. Yet, even China China lags behind in technological readiness (74th, unchanged) despite a significant improvement in all components of this category since last year, said the report, adding a widespread adoption of technology by business and the population at large should increase productivity and foster more innovation.
Pakistan trailed the group of South Asian economies in the report, and climbed four places to 122nd. The country was beset by a "climate of instability during this period," which has weighed down on the country's economic development.