Transcript india - World Bank

INDIA
KEY THEMES FROM THE
World Development Report 2005
Investment Climate Assessment 2004
And the Doing Business Indicators 2005
Simon Bell, World Bank
Mumbai, November 24, 2004
“Private Investment as a share of GDP nearly
doubled in both countries [India and China].
Per capita GDP in China rose tenfold from $440
in 1980 to $4,475 in 2002 (in international
prices), and India’s almost quadrupled from
$670 in 1980 to $2,570 in 2002. Both
experienced dramatic reductions in poverty ….
– each on distinctive paths, but both sustaining
efforts to improve the opportunities and
incentives for firms to invest productively”. (“A
Better Investment Climate for Everyone – World Development
Report 2005”, The World Bank, 2004)
“Chinese textile and garment firms have handily dominated
their Indian competitors, and analysts expect China to
strengthen its position further with the end of the exportquota restrictions mandated by the World Trade
Organization at the end of the year. China’s market share for
textiles in Europe has risen from 24% to 45% since 2001 in
the sectors where quotas were lifted there.”
“In contrast, according to a report by Khandwala
Research India, global market share for Indian textiles
has been nearly stagnant. Constrained by more
stringent labor laws and poor industry regulation, that
share has moved from 2.9% in 1995 to just 3.7 percent
in 2002”.
(“India and China: Clash of the Titans”, The Economist,
November 6th 2004)
Fast Economic Growth is
now possible – like no other
time in HISTORY
— Catch-up is possible —
Time to double income:
Pre-industrial:
Britain (1780-1830)
Britain in 19th century
Fast growers since WWII
(Japan, China, Thailand,
Botswana, Ireland, Chile….)
350 years
175 years
65 years
10 years
or less
THE IRISH STORY: A TOTAL
TURNAROUND
Doubling p.c. National Income in 10 to 15 years is do-able
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•
1987 Debt to GDP had grown to 117%
Fiscal Deficit was 10 % of GDP
Growth was stagnant
Unemployment was rampant
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•
•
•
•
In the period 1991 – 2001
Growth averaged 7% reaching 11% in 2000.
Achieved full employment
Propelled GDP above the EU average
Debt dropped to 36.5% of GDP
The Irish did it in a Decade
Economic Growth depends critically
on high levels of Investment
Country
Average GDP
Growth (%)
Investment/
GDP (%)
Saving/
GDP (%)
China
10.7
40
42
Singapore
8.0
33
52
Ireland
7.9
20
37
Malaysia
6.3
32
45
India
6.1
24
20
Thailand
5.7
27
34
Indonesia
4.7
21
32
Korea
4.7
14
24
Pakistan
4.0
15
11
INDIA’s GROWTH
While India achieved 8.2 percent growth last FY – it
has only sustained a lower 6 percent over the past two
decades. And growth forecasts for the current FY
have been down graded to between 6.0 and 6.5%
India’s Tenth Five Year Plan, calls for 8 percent
growth – which is necessary to have a meaningful
impact upon poverty reduction.
In addition, India’s growth has been very uneven,
with some states achieving over 8 percent growth rates
– while other populous states have achieved less than
half these levels.
INVESTMENT CLIMATE
A major determinant of high
investment is the conduciveness
of the Investment Climate.
It is no coincidence that the high
growth states in India tend to
have the better investment
climates.
Institutions are often more
important than capital
100
55
22
23
Out put per
immigrant
worker in
US
Out put per
worker in
home
count ry
Source: Calculations based on Hendricks (2002)
Dif f erence in
out put due
t o higher
physical
capit al in US
Dif f erence in
out put due
to
inst it ut ional
environment
THE ANALYSIS
INDIA
Investment Climate Assessment 2004
Improving Manufacturing Competitiveness
November
2004
Finance and Private Sector Development Unit
South Asia Region
The World Bank
Investment Climate
Assessment 2004
Doing Business
in 2005
World Development
2005
INVESTMENT
CLIMATE
ANALYSIS
INDIA
Investment Climate
Assessment 2004:
Improving Manufacturing Competitiveness
The World Bank has commenced
a substantial effort to assess the
overall investment climates of our
member borrowing countries.
To date we have undertaken two
ICAs in India – 2000 and 2003.
November 2004
Finance and Private Sector Development Unit
South Asia Region
The World Bank
Similar assessments have been
made in over 53 countries,
covering 26,000 firms, employing
4.8 million people. This has
permitted benchmarking with
other countries and with
competitors.
THE RESULTS – THE MAIN
CONSTRAINTS TO BUSINESS IN INDIA
(ICA 2004)
INDIA: Percent of firms identifying factor as a major or severe
obstacle to growth
Regulations & Corruption
51.3
Infrastructure
33.9
Tax & Customs Admin.
31.1
High Taxes
28.2
External Finance
27.3
Macro & Policy Instability
26.8
Skill Shortage
12.5
Access to Land
9.5
0
10
20
30
India
40
50
60
70
MAIN MESSAGES FROM ICA 2004
India’s situation is improving. In some aspects it is improving
faster than in China – compared to the ICA of two years ago –
particularly with respect to regulatory constraints/burdens.
Nonetheless, the main constraints continue to be:
1.
Regulatory Burdens and Government Red Tape (51%);
2.
Major concerns over infrastructure – power, roads, railways,
ports, and airports (34%);
3.
Access to Finance, remains an issue for many firms (27%); &
4.
Labor Regulations continue to adversely impact labor market
flexibility and firm’s ability to operate efficiently.
DOING BUSINESS
INDICATORS
Measures 5 main business
indicators and makes comparisons
with 145 other countries worldwide:
1.
Starting a Business – Entry
Regulations
2.
Hiring and Firing Workers –
Employment Regulations
3.
Registering Property –
Regulations on Property
Transfers
4.
Enforcing a Contract –
Country Efficiency
5.
Business Licensing –
Construction Regulations
IN GENERAL INDIA DOES NOT DO WELL
ON THESE INDICATORS
Time to Start a Business (Days)
100
90
89
Shortest Time - Global
80
70
60
47
50
50
41
40
35
30
30
21
24
20
10
2
0
Australia
Nepal
Pakistan
Malaysia Bangladesh
China
S. A.
Average
Sri Lanka
India
……. INDIA DOES NOT DO WELL, cont’d
Rigidity of Employment Index
100
90
80
Least Rigid - Global
70
60
50
40
42
44
South Asia
Average
Nepal
48
49
India
Pakistan
40
30
30
24
20
10
0
3
0
Hong Kong,
China
Malaysia
Bangladesh
China
Sri Lanka
…. and THERE ARE LARGE VARIATIONS
ACROSS STATES
Time to Start a Business (Days)
100
90
89
Shortest Time - Region
83
79
80
68
70
60
57
57
58
59
Punjab
(Chandigarh)
Karnataka
(Bangalore)
Tamil Nadu
(Chennai)
Rajasthan
(Jaipur)
61
50
40
30
20
10
0
Uttar Pradesh Andhra Pradesh
Orissa
West Bengal
(Lucknow)
(Hyderabad) (Bhubaneshawar) (Calcutta)
Maharashtra
(Mumbai)
…. LARGE VARIATIONS ACROSS STATES,
continued
Time to Enforce a Contract (Days)
1400
Shortest Time - Region
1165
1200
1000
934
942
875
800
683
709
712
765
600
425
400
200
0
Maharashtra
(Mumbai)
Tamil Nadu
(Chennai)
Karnataka Andhra Pradesh
Orissa
(Bangalore)
(Hyderabad) (Bhubaneshwar)
Rajasthan
(Jaipur)
Punjab
(Chandigarh)
West Bengal Uttar Pradesh
(Calcutta)
(Lucknow)
“In India, firms in states with poor investment climates have 40
percent lower productivity than those in states with good
investment climates”. WDR 2005
TIME AND COST OF SETTING UP A
BUSINESS IN MUMBAI
India - Mumbai
90
60
Time
(left axis)
50
80
Time, days
70
40
60
50
30
40
Cost
(right axis)
20
30
20
Cost, % of income per capita
100
10
10
0
0
1
2
3
4
5
6
7
8
9
10
11
Procedure
1.
2.
3.
4.
5.
6.
1. Obtain pre-approval of name, have documents vetted
3. File for registration
5. Obtain permanent account number (PAN)
7. File for central sales tax*
9. File for Employees State Insurance Act (ESIC)*
11. Register for Profession Tax*
2.
6.
8.
Engross documents
4.
Make a seal
Obtain a tax account number (TAN)*
File for Employees Provident Fund (EPF)*
10. Register with Shops and Establishment Act*
The World Bank considered
this issue so fundamental to
development that the 2005
World Development Report
of the Bank is totally devoted
to
INVESTMENT CLIMATE
issues.
Despite this – India does have some outstanding success
stories. Infosys Technologies, Reliance Industries, the Tata
Group, and Wipro (among others) have all been rated
among the world’s most respected and outstanding
companies.
In addition, India’s successes in ICT industries has bred
the feeling that it may well be able to maintain a leading
edge over China in this sector. China is thought to lag
India by as much as 12 years in ICT – and continues to be
hobbled by mediocre English language skills, poor quality
control and a dearth of managerial talent.
China may have been well placed to excel in years past
where the “perspiration industries” are what counted. But
now that it is the “inspiration industries” that matter,
China is at a disadvantage compared with India. (“India and
China: Clash of the Titans”, The Economist, November 6th 2004)
THE PRECEDENT FOR DYNAMIC GROWTH
EXISTS IN INDIA
If India can emulate the significant achievements
that it has made in the services sector – within the
manufacturing sector – then the future would indeed
look very bright.
Indeed, a major reason why the services sector has
performed so well is that it has specifically NOT
been hobbled by the same sort of constraints as the
manufacturing/industrial sector.
India, and its services sector has shown that IT CAN
BE DONE.
November 2004
Simon Bell
Thank
you
THE
World
Bank