India slips in global business climate ranking

India has slipped 13 places to 64th rank in a global list that measured business climate in 121 countries, as inflation and differences between the government and its Left allies dampened investor confidence. India has dropped from 51st place, whereas China is two notches down from last year's ranking at 79 in the Forbes list of 'best countries to do business. The list is topped by Denmark, climbing three spots from the previous year, followed by Ireland and Finland.


"India and China fell in this year's ranking as political instability demonstrated resistance to increasing personal freedoms. Higher inflation from food and other commodity costs, as well as increased burdens on entrepreneurs also held the world's most populous nations back as business destinations," Forbes said in an accompanying report.

Denmark, which rose three slots from last year, Ireland (up 19 places to No 2), Finland (up four to third place), the US (down three to fourth) and UK (up five to fifth). Big movers like Ireland, Estonia (No 10, up 24 spots) and Saudi Arabia (No 47, up 37) have limited bureaucracy standing in the way of entrepreneurs hoping to do business there. However, the world's largest economy United States declined one spot to the fourth place, whereas another economic giant United Kingdom retained its fifth position.

Pointing out that the Indian government has reduced controls on foreign trade and investment, Forbes said tariff spikes in sensitive categories, including agriculture, and incremental progress on economic reforms still hinder foreign access to India's vast and growing market.

"Privatisation of government-owned industries remains stalled and continues to generate political debate; populist pressure from within the UPA government and from its Left Front allies continues to restrain needed initiatives," the report noted. Forbes said that strong growth combined with easy consumer credit and a real estate boom fuelled inflation concerns in 2006 and 2007. This had led to a series of central bank interest rate hikes that have slowed credit growth and eased inflation concerns.


"The huge and growing population is the fundamental social, economic, and environmental problem," it said. Forbes analysed the business climates of countries, focusing on degrees of personal freedoms such as freedom of expression and right to participate in free and fair elections. "Investor protection examines the recourse held by minority shareholders in cases of corporate misdeeds, while corruption looks at the number and frequency of similar misuse of corporate assets for personal gain. Together with economic policies supportive of free trade and low inflation, these key points form a snapshot of countries' suitability for capital investment," the magazine said.


Developed countries like Germany (21st rank) and France saw declines in their respective rankings due to scandals in the banking sector and tougher barriers for entrepreneurs. One of the biggest falls came from Japan, which dropped to 24th rank from 21st position. On Japan, the report said, "... a Council on Economic and Fiscal Policy spelled out problems with the world's second-largest economy earlier this year. Among others, the committee's report cites the nation's 40 per cent corporate tax rate as uncompetitive compared with regional rivals like Hong Kong at 17.5 per cent and South Korea at 25 per cent."

"India's Biggest challenge is inflation " - P.Chitambaram

Finance Minister P Chidambaram considers inflation the country's biggest challenge today and regards becoming an open market as the way forward. Expressing concern at "the relentless rise" of crude oil, commodity and food prices, he put partial blame for the rising food prices on the "foolish" diversion of food to fuel. But he did not name the US, where food crops like corn are used for making ethanol. "Food prices have also been on the rise thanks to foolish diversion of food to fuel," he said, appearing on an hour-long special about India's business and economy - "India Rising: The New Empire" - on CNBC Sunday night.

Chidambaram also did not think that recent acts of terrorist violence would affect the investment climate in India. "Please remember, terrorist violence has affected bigger cities like London, Madrid, Tokyo, New York," he told the show host Erin Burnett discussing India's economic challenges. "If terrorist violence, terrorist action affects any city in India, it concerns all of us but that does not mean that investment has been jeopardised or is in peril," Chidambaram said. "India's biggest challenge now is inflation." India is building thousands of kilometres of roads, power plants, refineries and sea ports, he said referring to investment in infrastructure. "But surely the way forward is to become an open market."

Commerce and Industry Minister Kamal Nath, too, viewed infrastructure as "also a big challenge for us to keep pace with our growth." Infrastructure is just not roads, ports and airports, but also rural roads, which connect villages, drinking water, health and access to medical facilities. Envisaging large investment in infrastructure over the next five years, he said: "It is happening. We have to have huge investments in energy sector, ports.

So that's all happening, that's on the anvil." Asked how long controls on foreign investment would stay, Kamal Nath noted that retail is one of the very few sectors which are not open. "Rest are all absolutely open and we are taking in investments." Obviously because of liberalisation, foreign direct investment (FDI) had grown from $2.2 billion four years ago to 25 billion this year, he said. Asked if India could remain self-sufficient in food in view of its growing population, Kamal Nath said: "We have been self-sufficient except in edible oil and lentils, which are imported. And unless we have a monsoon failure, we don't see a problem even with these growing numbers."

Comparing India and China, the minister said: "We call ourselves the fastest growing free market economy. And there are differences in governance too." And while India's growth story is domestic market-driven, China's growth story is export market-driven. "But China has its own genius, we have our own genius," Kamal Nath said noting the two countries have good relations even as they compete with each other. Besides India's growth story, the CNBC special also featured a look at Tata Motors and the world's cheapest car, Indian movies, the world of call centres and Burnett practicing cricket with a team in India.

The programme also took a look at India's growing upper class, including the 60-storey house being built in Mumbai by the country's wealthiest man, Mukesh Ambani. And in stark contrast, it also took a quick glance at millions of India's homeless and others living in the world's biggest slum at Dharavi.

- Economic times