The third edition of the Legatum Prosperity Index ranks 104 countries (covering 90 per cent of the world's population), based on a definition of prosperity that combines economic growth together with measures of happiness and quality of life.
Although outperformed by China on several economic indicators, India's superior overall ranking is achieved through its performance in the critical non-economic factors such as personal freedom which encompasses freedom of speech and religion, national tolerance for immigrants and ethnic and racial minorities.
India also ranks highly on measures of social capital, reflected in the percentage of citizens who volunteer, give to charity, help strangers, and who feel they can rely on family and friends. In this area, India ranks fifth in the world, ahead of the United States, the United Kingdom and Finland.
"India is a classic example of a country whose prosperity stems largely from its social capital and quality of life rather than its performance on the purely economic measures. Although China outperforms India on several economic indicators, India is 30 places higher in the final rankings because of China's poor levels of personal freedom and democracy," said William Inboden, senior vice president of the Legatum Institute.
"However, there are some areas of concern for India, particularly in the quality of healthcare and education for which India ranks 88th and 86th respectively," concluded Inboden.
India's low global ranking on health indicators results from a number of factors: severe underinvestment in medical facilities resulting in poor standards of healthcare; low levels of improved sanitation facilities; undernourishment affecting 20 per cent of Indian citizens; a low average health adjusted life expectancy of 53 years; and a high number of citizens are reporting that they suffer from health problems. It is ranked 55th in entrepreneurship and innovation.
Ranking
Average Life Satisfaction Ranking -- 68th/104
Per Capita GDP Ranking -- 83rd/104
WEF Global Competitiveness Index -- 49th/133
UN Human Development Index -- 132nd/179
Heritage/WSJ Economic Freedom Index -- 123rd/178
TI Corruption Perceptions Index -- 85th/180
Vision of Humanity Global Peace Index -- 122nd/144
China
China is ranked at the 75th position with unemployment is at 4 per cent and inflation rate at only 5 per cent. Despite the large availability of jobs, the workforce is hindered by a relatively small amount of physical capital which limits their production capacity.
While net interest margins are low at 2.6 percentage points, the percentage of defaulted loans is relatively high at 6.7 per cent, indicating weak vetting of borrowers.
Household expenditure as a share of GDP is the fifth highest by international standards, providing a large domestic market for Chinese firms while not compromising the domestic savings rate which is the third highest globally, at over 53 per cent of GDP. It is ranked 38th in entrepreneurship and innovation.
Ranking
Average Life Satisfaction Ranking -- 82nd/104
Per Capita GDP Ranking -- 71st/104
WEF Global Competitiveness Index -- 29th/133
UN Human Development Index -- 94th/179
Heritage/WSJ Economic Freedom Index -- 132nd/178
TI Corruption Perceptions Index -- 72nd/180
Vision of Humanity Global Peace Index -- 74th/144
Finland
Finland scores high in economic fundamentals, with unemployment at 7 per cent and a low inflation rate of 3 per cent. Finnish workers have access to a large amount of physical capital, such as offices and machinery, placing the country at 16th on this variable.
Domestic savings are at 27 per cent of GDP and household expenditure at 25 per cent of GDP. The banking sector is highly efficient, with 0.3 per cent of loans in default and narrow lending and borrowing margins that rank Finland's banking sector the second highest, internationally.
The country's level of foreign direct investment is average according to global standards. A strong ratio of export revenues to the cost of imports indicate good terms of trade and a low raw material concentration points toward a heavily industrialised nation, focused on high value-added products and services. It is ranked 9th in entrepreneurship and innovation.
Ranking
Average Life Satisfaction Ranking -- 2nd/104
Per Capita GDP Ranking -- 16th/104
WEF Global Competitiveness Index -- 6th/133
UN Human Development Index -- 12th/179
Heritage/WSJ Economic Freedom Index -- 17th/178
TI Corruption Perceptions Index -- 5th/180
Vision of Humanity Global Peace Index -- 9th/144
2. Switzerland
Switzerland's foreign direct investment is high by global standards, and Swiss workers have extremely high access to physical capital, with Switzerland ranking sixth on this variable.
Very low interest margins and default rates on loans indicate a highly efficient banking sector. An unemployment rate of 4 per cent, inflation rate of 1 per cent and domestic savings rate of 30 per cent of GDP create a stable foundation for the economy. It is ranked 2nd in entrepreneurship and innovation.
Average Life Satisfaction Ranking -- 8th/104
Per Capita GDP Ranking -- 7th/104
WEF Global Competitiveness Index -- 1st /133
UN Human Development Index -- 10th/179
Heritage/WSJ Economic Freedom Index -- 9th / 178
TI Corruption Perceptions Index -- 5th/180
Vision of Humanity Global Peace Index-- 18th/144
3. Sweden
Swedish workers benefit from access to very high levels of physical capital, placing Sweden 20th in the index on this variable.
Unemployment and inflation rates are both low at 6 per cent and 2 per cent, respectively. Sweden's domestic savings rate, at 27 per cent of GDP, rate near the global average, as does household expenditure at 26 per cent, while the proportion of loans in default is extremely low, pointing towards an efficient banking sector.
It prides to offer high value added goods and services. It is ranked 3rd in entrepreneurship and innovation.
Average Life Satisfaction Ranking -- 6th/104
Per Capita GDP Ranking -- 13th/104
WEF Global Competitiveness Index -- 4th/133
UN Human Development Index -- 7th/179
Heritage/WSJ Economic Freedom Index -- 26th/178
TI Corruption Perceptions Index -- 1st/180
Vision of Humanity Global Peace Index -- 6th/144
4. Denmark
Inflation rates are very low in Denmark, indicating high levels of price stability. The banking sector is amongst the most efficient as non-performing loans and delinquency rates remain low.
Danes have a very high rate of employment and access to a high level of physical capital used to produce goods and services, ranking the country at 13th on capital stock. However, foreign direct investment remains low at 4 per cent of GDP. It is ranked 6th in entrepreneurship and innovation.
Ranking
Average Life Satisfaction Ranking -- 1st/104
Per Capita GDP Ranking --15th/104
WEF Global Competitiveness Index -- 5th /133
UN Human Development Index --13th / 179
Heritage/WSJ Economic Freedom Index -- 8th/178
TI Corruption Perceptions Index -- 1st/180
Vision of Humanity Global Peace Index -- 2nd/144
5. Norway
Workers benefit from access to an extremely high level of physical capital, placing Norway in the top three countries on this variable. Both unemployment and inflation rates are very low at 2 per cent and 1 per cent, respectively.
At 39 per cent of GDP, Norway's domestic savings rate is high, and this coupled with moderate household expenditure indicates a stable domestic market. With less than 1% of loans defaulting and interest margins of 1.7 percentage points, the Norwegian banking sector is highly efficient. It is ranked 17th in entrepreneurship and innovation.
Ranking
Average Life Satisfaction Ranking -- 3rd/104
Per Capita GDP Ranking -- 1st/104
WEF Global Competitiveness Index -- 14th/133
UN Human Development Index -- 2nd/179
Heritage/WSJ Economic Freedom Index -- 28th/178
TI Corruption Perceptions Index -- 14th/180
Vision of Humanity Global Peace Index -- 2nd/144
6. Australia
The unemployment rate in Australia is low at 4 per cent and Australian workers have access to extremely high levels of physical capital per worker, and inflation is low at 2 per cent per year.
Australia's financial sector is strong with the lowest level of non-performing loans worldwide, and low lending and borrowing margins, indicating very high levels of banking competition and efficiency.
Household expenditure and the domestic savings rate in Australia are both near global averages at 26 per cent and 28 per cent, respectively. It is ranked 15th in entrepreneurship and innovation.
Ranking
Average Life Satisfaction Ranking -- 13th/104
Per Capita GDP Ranking -- 12th/104
WEF Global Competitiveness Index -- 15th/133
UN Human Development Index -- 4th/179
Heritage/WSJ Economic Freedom Index -- 3rd/178
TI Corruption Perceptions Index -- 9th/180
Vision of Humanity Global Peace Index -- 19th/144
7. Canada
Canadian workers have access to a very high level of physical capital. The economy benefits from low rates of unemployment and inflation. Low lending and borrowing margins together with extremely low level of non-performing loans suggest high efficiency in the banking sector.
The domestic savings rate is around 25 per cent of GDP, which is average by global standards. Canada ranks in the top ten countries in terms of household expenditure rate as a percentage of GDP, which suggests a thriving domestic market. It is ranked 4th in entrepreneurship and innovation.
Ranking
Average Life Satisfaction Ranking -- 7th/104
Per Capita GDP Ranking -- 11th/104
WEF Global Competitiveness Index -- 9th/133
UN Human Development Index -- 3rd/179
Heritage/WSJ Economic Freedom Index -- 7th/178
TI Corruption Perceptions Index -- 9th/180
Vision of Humanity Global Peace Index -- 8th/144
8. The Netherlands
The Netherlands has a stable economy with low unemployment at 4 per cent and inflation at 2 per cent. There is a strong investment environment allowing for capital accumulation and high levels of physical capital per worker.
An interest margin of 1.3 percentage points coupled with less than 1per cent of non-performing loans reflect a strong banking sector. The savings rate, at 28 per cent, is low, whilst household consumption is high at 26 per cent, placing the country in the top 20 in the latter variable. It is ranked 5th in entrepreneurship and innovation.
Ranking
Average Life Satisfaction Ranking -- 4th/104
Per Capita GDP Ranking -- 8th/104
WEF Global Competitiveness Index --10th/133
UN Human Development Index -- 6th/179
Heritage/WSJ Economic Freedom Index --12th/178
TI Corruption Perceptions Index --7th/180
Vision of Humanity Global Peace Index -- 22nd/144
9. United States
America's household spending is the highest in the world as a proportion of GDP, although domestic savings rates are only 14 per cent of income, ranking the country 82nd in the world.
Levels of capital stock per worker are in the top 10, and inflation was 3 per cent in 2007. The US economy focuses on high value added goods and services, and is not dependent on exports of raw materials. However, its ratio of export prices relative to the cost of imported goods is weaker, ranking the country 78th in the world.
The US also attracts relatively little foreign direct investment, which accounts for just 2% of GDP, ranking the country 83rd on this variable. The US leads the world in fostering entrepreneurship and generating intellectual property.
Ranking
Average Life Satisfaction Ranking --11th/104
Per Capita GDP Ranking -- 4th/104
WEF Global Competitiveness Index -- 2nd/133
UN Human Development Index -- 15th/179
Heritage/WSJ Economic Freedom Index -- 6th/178
TI Corruption Perceptions Index -- 18th/180
Vision of Humanity Global Peace Index -- 83rd/144
10. New Zealand
Unemployment and inflation rates are low at 4 per cent and 2 per cent, respectively. Domestic savings run near the international average at 21 per cent, and New Zealand's interest margin of two percentage points is low, indicating that the banking sector operates at a high level of efficiency.
While the country is demonstrably stable and productive, its export performance has been less than optimal, as indicated by the low ratio of export revenues to the cost of imports. It is ranked 18th in entrepreneurship and innovation.
Ranking
Average Life Satisfaction Ranking -- 9th/104
Per Capita GDP Ranking -- 27th/104
WEF Global Competitiveness Index -- 20th/133
UN Human Development Index -- 20th/179
Heritage/WSJ Economic Freedom Index -- 5th/178
TI Corruption Perceptions Index --1st /180
Vision of Humanity Global Peace Index -- 1st/144