At the India Economic Summit which opened today, government, industry and policy wonks will debate a report — the World Economic Forum’s assessment of global competitiveness — that makes many interesting observations and one utterly predictable one: China is ahead of India. WEF’s study ranks China 29th and India 49th in a group of 133 countries.

China-beats-India is one of the standard product features in the crowded market for global studies. But there’s an exception: a recent one, a remarkable one and one that has counter-intuitive lessons for both free market wallahs and market skeptics as they debate public policy in this country.

India is 45th and China, 75th, in the latest edition of the London-based Legatum Institute’s Prosperity Index. Released last month, the index processes data for 104 countries, covering 90% of the world’s population. This is the third Legatum Prosperity Index. But it has already captured global attention. It attempts to measure prosperity by going beyond GDP but by avoiding the woolliness usually associated with the GDP-is-not-enough crowd.

India being ranked far ahead of China in the 2009 Prosperity Index is even more eye-catching because in the first two editions of this index, in 2008 and 2007, the usual China-beats-India rule applied. In 2008, India was a lowly 70th and China, 54th. In 2007, India’s rank was 46th to China’s 42nd.

What changed in 2009? The basic reason seems to be that as the index covers more and more variables and finetunes the concept of ‘well-being’ — how citizens in a country feel about themselves — the importance of personal freedom, institutional maturity and mutual trust is increasing.

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