IMF says Indian business climate tougher than China

IMF says Indian business climate tougher than China
(The News, March 18, 2005)MUMBAI: India is ready to take off economically but must make it easier for foreigners to do business in order to secure sustained growth, IMF chief Rodrigo Rato said on Thursday. "India appears to be in the first stages of the sort of take off that several other Asian countries have experienced over recent decades," Rato said in a talk at the central bank to Indian financial experts and business leaders.
India’s business environment, he added however, needed to be eased to fuel long-term sustainable growth of more than eight percent. "India lags well behind much of Asia in attracting foreign direct investment," Rato said, pointing to the fact that in 2003 FDI to India totalled just five per cent of gross domestic product compared to 31 per cent for Thailand and 35 per cent for China.
"Yet surveys consistently point to India as being one of the top two or three destinations for FDI in the coming years, so opportunity is there for the taking. What is perhaps important is to make India an easier place to do business," Rato said.
The International Monetary Fund chief said that to start a business in South Korea it takes 22 days and in China 41, "but in India it takes 89 days." "And enforcing a contract takes 425 days in this country, more than five times longer than in Korea and nearly double than in China."
Rato called for "bold" economic steps to keep a growth momentum that would create 100 million jobs in the next 10 years. "India needs to put public finances on a solid footing and reduce government’s borrowing needs that would help free resources for private investment, which remains low by regional standards," Rato said.
"The government’s ability to finance large deficits domestically with apparent ease may have reduced the sense of urgency to make the difficult choices necessary to turn the fiscal situation around."Large deficits have a major, if almost "silent cost", he added.
India has been struggling to rein in its fiscal deficit over the last few years, with Finance Minister Palaniappan Chidambaram in his budget for the year to March 2006 targeting the deficit at 4.3 per cent of GDP.
Rato said despite the reforms over the past decade or so, the Indian economy remains a closed one. "While the economy has been growing robustly in recent years, India still accounts for less than one per cent of total global exports while average tariffs are at about 22 per cent," he said.