December 15, 2004
CLIMATE CHANGE:
Opening shop in India? Bring scissors to cut red tape.: Much has been done in the past decade to simplify business rules, but the challenges of giving India an economic makeover are vast. (Scott Baldauf, 12/16/04, CS M
Much has been done in the past decade to simplify business rules here - to the applause of the World Bank and foreign investors. The new government last month made clear that economic reform would be its top priority. But the challenges of giving India an economic makeover are vast. For one, many bureaucrats like to keep things as they are, since it is how they derive their power and income. Also, many rules protect Indian businesses from foreign markets, and removing them is cause for concern.But as a new World Bank report makes clear, India must improve its investment climate soon - from easing regulations to improving roads, airports, and power grids - or it will remain mired in poverty for another century at least.
"Until India does more to simplify its regulatory environment and improve its infrastructure, it will never achieve [the government's goal of] 8 percent growth," says one Western diplomat based in Delhi, speaking privately. Many businesses are bullish on India today because of the potential they see, he adds, but "few of those businesses are finding profits today."
India's government leaders - many of whom set India on its current reform path after a 40-year flirtation with socialism - seem to recognize how much work they have to do. Last month, Montek Singh Ahluwalia, the chairman of the Planning Commission, India's top economic panel, admitted that it would be difficult to meet his own government's goal. But he promised more reforms and economic benefits to follow.
Meanwhile, as foreign investors have pumped nearly $3 billion in investments this year, India-based businesses complain that the country is still far too regulated. In a survey of business owners conducted for the World Bank, 51 percent of respondents said that regulations and corruption were "major or severe obstacles to growth." One-third also cited poor infrastructure, such as bad roads or unreliable electricity. On average, Indian manufacturers face 17 significant power outages per month, versus one per month in Malaysia and around five in China, according to the report. "As a result, almost 61 percent of all Indian factories run their own generators. That's a duplication that adds nearly 20 percent to many businesses' operating costs," says Priya Basu, who wrote the report.
The greatest regulatory impact comes from setting up businesses and closing them down. It takes a staggering 89 days to get government clearance to start a business, compared with 41 days in China and 30 days in Malaysia. And it takes 10 years to complete bankruptcy proceedings in India, compared with 2.4 years in China.
For the first time though there's a sense that India is finally up to meeting such challenges.
MORE:
Mike Daley refers us to an interesting looking Indian blog, India Uncut.