In a survey of 485 senior executives worldwide carried out by Hong Kong-based Economist Intelligence Unit, Japan has emerged as the world's most innovative nation in terms of business practices, followed by Switzerland, US and Sweden.

India has been ranked at 58th position, ahead of China's 59th position in a ranking of 82 economies, based on their level of innovation during 2002-06.

According to the study released Wednesday, the top four economies are set to maintain their position during 2007-2011, while China will move up to 54th position, overtaking India.

India would also rise in the ranking, but not as much as China and would be positioned at 56th rank in 2011.

The study further found that both China and India were breaking out of their position as members of the under-developed world.

The US emerged as the country with best conditions for innovation, followed by India at the second position, UK at the third and Japan at the fourth.

However, China is likely to have more favourable conditions for innovation than India in the next four years, the study found.

"While it is still not as efficient at innovation as India, the huge sums of money it is pouring into Research and Development (R&D) and education will ensure that it climbs steadily up the rankings, leaving India behind," it added.

Besides, the commercial infrastructure in China is also modernising rapidly and multinational companies are opening research centres there, lured by low salary costs, the business information unit of Economist Group says.

Local scientists are paid only about 20 percent of what western scientists get, the study reveals, adding more than 300 foreign companies, including major life science firms, have established R&D centres in China.

With annual expenditure of USD 136 billion on research and development, China has already become the world's second largest R&D investors after the US, out-speeding the most innovative nation Japan.

The R&D spending in the US stood at USD 330 billion in 2006, as against Japan's USD 130 billion.

China can also expect to benefit more than India from foreign direct investment because of its more favourable regulatory and economic climate, the study says.