You have no idea what it takes to become an Indian entrepreneur.
What does it take to start a small business in New Delhi? What are the barriers in enforcing contracts across state borders? Do investors have protection from fraudulent corporate practices? Such questions on the evolving Indian economic environment are answered in the recently released 2009 World Bank Doing Business Report for 2009. The country brief on India measures over 10 indicators of business conditions in an economy (the complete list covers 181 countries).
Here’s a snapshot of some of the interesting findings from the report: On the ease of doing business index, India ranked 122, whereas its eastern neighbor China stood at eighty three, with Singapore ranking first. The report found that the number of procedures to enforce a contract in India is 46, as opposed to 38 in Mexico, and 20 in Ireland. The data clearly point to an unfriendly business environment in India, and a massive overhaul of governmental institutions is required to provide necessary support to businesses.
In spite of the poor performance, India has seen significant improvements in some aspects of the regulation of its business environment. The World Bank called India the “top reformer in trading across borders.” The World Economic Forum ranked India at 50 (out of 134 countries) in its 2008-09 Global Competitiveness Report, ahead of Mexico, Russia, Brazil, and Turkey. China was ranked 30th and the U.S. continues to be the most competitive economy in the world, topping the rankings.
Such findings reflect the evident lag between India’s economic growth and the evolution of a more efficient and corruption-free economic system. In Transparency International’s Corruption Perception Index, India’s ranking rose from 88 in 2005 to 72 in 2007, leaving room for a lot of improvement. Denmark came out on top, and the US was 20th.
More difficult to measure are the costs to entrepreneurs in India who try to bypass the corruption and bureaucratic red-tape to compete in a globalized economy. Entrepreneurship in India can be difficult to measure too – especially in the informal economy, which by some measures still contributes close to 50% of India’s GDP. Bridging the gap between regulation and economic efficiency will be important to improving the business climate in India. If not, businesses will find it harder to compete in the global economy, which iswitnessing an ever shrinking demand base and credit crunch that is limiting the ability of businesses to generate high levels of returns.
Perhaps, the answer lies in providing e-regulation services, wherein the businesses are able to use technology to streamline their regulatory requirements, all the while avoiding bureaucratic bottlenecks in government offices. As India goes to election, maybe one of the political parties will push for an agenda that moves towards greater use of e-regulation of the “doing business” aspect of India’s rapidly growing economy. India’s economic growth continues at a modest rate of 5-6% and is supported by a growing middle class. Such robust growth has given hopes to millions of budding entrepreneurs across the country. But whether it will transform the economic environment into a more transparent one in the world’s largest democracy remains to be seen.