There's finally something to cheer about the Indian economy. India’s global competitiveness as a business destination has increased over the last year and that’s largely attributable to Prime Minister Narendra Modi’s pro-business stance, according to the yearly report released by the World Economic Forum on Wednesday. India has jumped 16 places to be ranked at the 55th position this year (out of 144 countries) from last year’s 71st position (out of 140 countries).
This means that India is viewed more positively by business owners and economists as a trade and manufacturing destination as compared to last year even as India’s rank has risen after five years of decline. This is due to the recent economic recovery at a time when many major economies around the world are struggling to maintain growth and a “slight improvement” in infrastructure, WEF said in the report.
The index took account of 113 basic requirements to businesses such as infrastructure, health and access to finance, which were divided into 12 pillars upon which countries were rated.
The report hailed the fact that the most notable improvements in India were observed in the basic drivers of competitiveness as opposed to ancillary indicators which it said, bodes well for the future, especially for development of the manufacturing sector and praised the Modi government for improving business conditions.
Reason to cheer
“This dramatic reversal is largely attributable to the momentum initiated by the election of Narendra Modi, whose pro-business, pro-growth, and anti-corruption stance has improved the business community’s sentiment toward the government,” the report stated and added that “the quality of India’s institutions is judged more favorably.”
There’s good news on the macroeconomic front as the recent rate cuts by the Reserve Bank of India could lower monthly loan installments of people and leave them with more cash in hand to spend on consumer goods. The report, however, took stock of the falling inflation and indicated that it might be too early to get complacent.
“India’s performance in the macroeconomic stability pillar has improved,” it said. “Although the situation remains worrisome (91st, up 10). Thanks to lower commodity prices, inflation eased to 6 percent in 2014, down from near double-digit levels the previous year.”
However, it is important to remember that India’s current rank is still below the level it has hit before. In 2007, India was ranked at 43 (out of 125) which subsequently came down to 49 (out of 133) by 2010.
Problem areas
An explanation could be the continued bottlenecks that the report said still remain in the business environment in the country. The government budgetary deficit has come down since the peak levels of 2008 but at 7% of the Gross Domestic Product in 2014, it still remains among the world’s highest at 131st position. Even though the report lauded the betterment in infrastructure, it pointed out that some elements still remain “a major growth bottleneck – electricity in particular”.
Another concern area among the business owners is the widespread corruption climate in the country, which the WEF said is considered to be the “biggest obstacle” to doing business in a country. Among the top five concerns felt by the businessmen in the country were policy instability, inflation, access to capital and even “government instability/coups.”
Despite being the third-biggest country by market size and having a good innovation rank at 42nd position, India’s technological readiness continues to be a cause of concern where it could only manage a lowly 120th position.
“India remains one of the least digitally connected countries in the world,” the report said. “Fewer than one in five Indians access the Internet on a regular basis, and fewer than two in five are estimated to own even a basic cell phone.”
With the high fiscal burden on GDP, stumbling exports and the window for reforms closing in soon, Modi government would do well to get the rest of its act together if it wants to ensure that this jump doesn’t end up being just another flash in the pan.
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This means that India is viewed more positively by business owners and economists as a trade and manufacturing destination as compared to last year even as India’s rank has risen after five years of decline. This is due to the recent economic recovery at a time when many major economies around the world are struggling to maintain growth and a “slight improvement” in infrastructure, WEF said in the report.
The index took account of 113 basic requirements to businesses such as infrastructure, health and access to finance, which were divided into 12 pillars upon which countries were rated.
The report hailed the fact that the most notable improvements in India were observed in the basic drivers of competitiveness as opposed to ancillary indicators which it said, bodes well for the future, especially for development of the manufacturing sector and praised the Modi government for improving business conditions.
Reason to cheer
“This dramatic reversal is largely attributable to the momentum initiated by the election of Narendra Modi, whose pro-business, pro-growth, and anti-corruption stance has improved the business community’s sentiment toward the government,” the report stated and added that “the quality of India’s institutions is judged more favorably.”
There’s good news on the macroeconomic front as the recent rate cuts by the Reserve Bank of India could lower monthly loan installments of people and leave them with more cash in hand to spend on consumer goods. The report, however, took stock of the falling inflation and indicated that it might be too early to get complacent.
“India’s performance in the macroeconomic stability pillar has improved,” it said. “Although the situation remains worrisome (91st, up 10). Thanks to lower commodity prices, inflation eased to 6 percent in 2014, down from near double-digit levels the previous year.”
However, it is important to remember that India’s current rank is still below the level it has hit before. In 2007, India was ranked at 43 (out of 125) which subsequently came down to 49 (out of 133) by 2010.
Problem areas
An explanation could be the continued bottlenecks that the report said still remain in the business environment in the country. The government budgetary deficit has come down since the peak levels of 2008 but at 7% of the Gross Domestic Product in 2014, it still remains among the world’s highest at 131st position. Even though the report lauded the betterment in infrastructure, it pointed out that some elements still remain “a major growth bottleneck – electricity in particular”.
Another concern area among the business owners is the widespread corruption climate in the country, which the WEF said is considered to be the “biggest obstacle” to doing business in a country. Among the top five concerns felt by the businessmen in the country were policy instability, inflation, access to capital and even “government instability/coups.”
Despite being the third-biggest country by market size and having a good innovation rank at 42nd position, India’s technological readiness continues to be a cause of concern where it could only manage a lowly 120th position.
“India remains one of the least digitally connected countries in the world,” the report said. “Fewer than one in five Indians access the Internet on a regular basis, and fewer than two in five are estimated to own even a basic cell phone.”
With the high fiscal burden on GDP, stumbling exports and the window for reforms closing in soon, Modi government would do well to get the rest of its act together if it wants to ensure that this jump doesn’t end up being just another flash in the pan.
