The ease of doing business comes from infrastructure
Depending on what you’re comparing it with, India’s position in the World Bank’s Doing Business rankings has moved up four or 12 places. The variance, because of a tweak in the formula, hasn’t stopped officials from exulting as this is the first time in several years that India has moved up in the annual World Bank exercise rather than sliding.columns Updated: Nov 02, 2015 07:25 IST
Depending on what you’re comparing it with, India’s position in the World Bank’s Doing Business rankings has moved up four or 12 places. The variance, because of a tweak in the formula, hasn’t stopped officials from exulting as this is the first time in several years that India has moved up in the annual World Bank exercise rather than sliding. India ranks 130 in the newest Doing Business report, which places it higher than Egypt, Pakistan and several sub-Saharan African nations but way lower than China (84), Brazil (116), the Russian Federation (51) and South Africa (73), all four, incidentally, are co-members with India in BRICS, the association of emerging national economies. The exultation, therefore, may be a bit out of place.
Also, the World Bank’s Doing Business ranking tells only half the story of how easy or how hard it is to do business somewhere. The World Bank rankings are a measure of procedural or administrative ease: How long or how costly is it to start a business? What does it take to register property? How quickly can you get electricity supply? How many types of taxes need to be paid? And so on. India has improved on many such parameters: the number of days that it takes to get all the permissions to start a business has shrunk from an average of 127 in 2004 to 29 in 2015. The NDA government’s Make in India campaign has made procedures easier by cutting red-tape and simplifying things. No doubt the World Bank computation reflects some of this. But there’s something more to doing business than procedures: Infrastructure. That’s where India still has a lot of heavy lifting to do.
Just compare things with China. On an average, India spends 8% of its GDP on infrastructure; China spends 11%. Don’t forget that China’s GDP is $10.8 trillion; and India’s $2.2 trillion so the difference in the amounts both countries spend on infrastructure is staggering. China generates more than six times the electricity that India does; its container ports can handle 107.8 million TEUs (20-foot equivalent units), while India’s ports have a comparable capacity of just 5.8 million TEUs; and China has nearly double the number of functional airports that India has. There are many more infrastructure parameters for the two countries that can be compared — usually embarrassingly so for India. Consider one other thing: after China’s President Xi Jinping’s recent visit, the UK is expecting Chinese investment of more than $40 billion, much of it in infrastructure.
China’s infrastructure; its vast market, fuelled by decades of high growth (I don’t think anyone should be fooled by the recent slowdown); its relatively stable policies; and the ease with which MNCs can do business there, have attracted the world’s top corporations to set up shop. When Elon Musk, the co-founder of Tesla, recently disclosed that his company was planning to make electric cars in China, Indians may have been dismayed. After all, India’s Prime Minister Narendra Modi had toured Tesla’s plant in California and Musk has met Modi at least twice. The point is Tesla, like many other foreign corporations, finds China a more conducive place to manufacture and market its products.
So high are the stakes for MNCs in China that they prefer to grin and bear it when its government flexes its muscles or twists their arms. China is notorious for meting out harsh treatment and many, including names such as IBM, Cisco, GlaxoSmithKline, WalMart and Apple, have experienced the rough end of the stick. Some have had to tender humiliating apologies; others have been warned or their officials arrested; and many have faced investigation. China’s draconian internet laws block nearly 3,000 websites, including some icons of the global new economy — Facebook, Google and Twitter. And China’s record on human rights violation is infamous. Yet, because of the market and the infrastructure that China offers, it remains nearly universally on top of the list of destinations for foreign investment by MNCs.
If Make In India has to work, India has to get super serious about ratcheting up infrastructure. But it could also work on the one area where it could score over China: its treatment of foreign investors. On that there’s little to complain about. But things could be better if instances such as the rather arbitrary retroactive tax on Vodafone when it bought out a rival telco, and the unwarranted ban on Swiss foods major, Nestle’s noodle brand, Maggi, could be avoided.
Sanjoy Narayan is Editor-in-chief, Hindustan Times.