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India:
Country Forecast
August 2010
India
Editor: Gerard Walsh
Editorial closing date: 4th August 2010
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India:
Five-year forecast summary
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Five-year forecast summary
Although it lacks a reliable majority in parliament, the ruling United Progressive Alliance coalition, led
by the Indian National Congress party, will dominate the political scene and is likely to serve a full
five-year term, which ends in May 2014.
India’s business environment ranking improves in the forecast period (2010-14), owing to progress on the foreign investment and foreign payments regimes, together with more favourable policies
on private enterprise and competition. However, a cumbersome political system will slow the pace of
reform, and the quality of infrastructure will remain poor.
Economic growth is forecast at 8.1% a year during the forecast period. Despite India's current
strong growth performance, there are a number of clouds hanging over the economy, including the
stubbornly high inflation rate and the wide (albeit narrowing) budget deficit.
Real GDP growth
(%)
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Five-year forecast summary
The forecast for market opportunities is strong. Relatively strong GDP growth will raise personal
incomes, increasing the size of the middle class and making India an increasingly attractive market for
foreign companies. Average income levels will nevertheless remain low, and most opportunities will be
concentrated in urban areas.
Prospects for long-term economic growth are excellent, as India is forecast to be the fastestgrowing major economy in the world in 2010-30. The rapidly expanding information technology
industry will need to move up the value added chain, and the slowly growing agricultural sector will
need to increase its efficiency.
Household consumption per head
(US$)
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Business environment rankings
Value of index a
Global rankb
Regional rankc
2005-09
5.56
2010-14
6.09
2005-09
59
2010-14
58
2005-09
12
2010-14
12
5.2
5.3
51
51
9
9
Political stability
5.5
5.5
54
55
10
11
Political effectiveness
4.9
5.2
44
45
9
9
Macroeconomic environment
6.6
6.6
55
51
13
13
Market opportunities
7.6
7.9
3
5
2
2
Policy towards private enterprise & competition
5.5
6.0
46
45
9
10
Policy towards foreign investment
5.5
6.9
64
47
15
8
Foreign trade & exchange controls
5.1
6.0
72
68
16
16
Taxes
5.6
6.0
49
47
13
14
Financing
5.1
5.5
56
51
11
13
The labour market
5.8
6.1
52
52
12
13
3.7
4.7
75
73
14
14
Overall position
Political environment
Infrastructure
a
b
c
Out of 10. Out of 82 countries. Out of 17 countries: Australia, Bangladesh, China, Hong Kong, India, Indonesia,
Japan, Malaysia, New Zealand, Pakistan, Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand and
Vietnam.
Methodology
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India:
The political environment
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Political outlook
Highlights

Despite its lack of a reliable parliamentary majority, the Indian National Congress-led United
Progressive Alliance (UPA) coalition government is expected to serve a full second term until
2014. The main opposition Bharatiya Janata Party is unlikely to challenge Congress's dominance
in the near future.

The government survived a confidence vote in parliament in April 2010, but a nationwide strike on
July 5th against high food and petrol prices showed that the opposition will continue to make life
difficult for the UPA.

The balance of power between the states and the central government is likely to shift in favour of
the former. As a result, the gap in capabilities between the more progressive state governments
and the more laggardly ones will continue to grow.

The dispute with Pakistan over the future of Kashmir will remain at the centre of India's
international relations. India's disquiet about crossborder terrorism has been one of the main
obstacles to efforts to improve its relationship with Pakistan.

India and the US have strong reasons to build a strategic partnership during the forecast period
(2010-14). India's attitude towards China will remain ambivalent, but concerns about China's
strategic ambitions will continue to be subordinated to the pursuit of mutual economic interests.
More from ViewsWire…
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India:
Demographics
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Demographic outlook
Population (m)
2005
2009
2014
1,093.6
1,166.1
1,255.8
2005-09
2010-14
Population growth
1.6
1.5
Labour force growth
2.0
2.1
Total
Period averages (%)
The need to improve opportunities in rural areas to deter migration and to stimulate the rural
economy is an important priority for the government, but achieving quick results will be difficult.
Strong growth in the working-age population and the lack of a national pensions system mean that
India will not face the financial burden of underfunded pension liabilities.
A rising population will lead to environmental and resource problems, and will result in an increase
in unemployment if the government cannot raise the rate of job creation.
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India:
The business environment forecast
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Business environment outlook
The Economist Intelligence Unit’s business environment rankings assess a country’s relative
attractiveness as an investment location, both globally and regionally.
India's overall score in the our business environment rankings rises to 6.09 in the forecast
period (2010-14), from 5.56 in the historical period (2005-09). The improvement reflects
progress in the foreign investment and foreign payments regimes, together with better policies
towards private enterprise and competition.
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Macroeconomic environment
India is likely to continue to enjoy relatively rapid GDP growth during the forecast period, but
there is a danger that the government’s populist stimulus measures will boost short-term growth
at the cost of running up an unsustainable fiscal deficit that threatens the country's continued
strong economic growth in the long run. The volatility of foreign investment inflows and the threat
posed by inflationary pressures will also remain major concerns.
Monetary policy will focus on containing inflation. The Reserve Bank of India (RBI, the central
bank) will raise interest rates steadily in 2010-11. Interest rates should be relatively stable in the
latter part of the forecast period, provided that inflation is kept under control.
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Fiscal policy
Central government budget balance
(% of GDP)
The fiscal year 2010/11 (April-March) budget
contains a strong focus on fiscal consolidation.
The budget outlines a schedule of progressive
deficit reduction, according to which the budget
shortfall is targeted to narrow to 5.5% in 2010/11,
4.8% in 2011/12 and 4.1% in 2012/13.
Part of the improvement in the fiscal position will
be a function of rapid economic growth. The
other main contributory factors will be the proceeds from the divestment of shares in stateowned firms and auctions of third-generation
(3G) telecommunications licences, together with
reforms to the fuel-subsidy programme.
We forecast that the government will meet its
budget deficit target for 2010/11, although the
Ministry of Finance has said that government
now stands a good chance of beating this target.
We expect the deficit to narrow gradually during
the forecast period.
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Monetary policy
Money market interest rate
(%)
The RBI has been tightening monetary policy since January 2010 in response to stubbornly high
inflation.
We forecast that the repurchase (repo) rate will rise to 6.25% by the end of 2010 and to 6.5% by
end-2011. This should be sufficient to turn real interest rates positive in 2011, assuming that the
current inflationary surge abates.
However, the RBI will be mindful that higher interest rates could undermine the government's
plans for fiscal consolidation, encourage volatile capital inflows and put upward pressure on the
value of the rupee.
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Policy towards private enterprise & competition
2010-11:
The government maintains its focus on populist measures. It sells stakes (up to a
maximum of 49%) in state-owned firms and moves forward with modest reforms in order
to increase competition, but the pace of change is slow.
2012-14:
Pressure from domestic and foreign investors drives further reform, opening up
previously closed sectors and raising limits on foreign ownership in others. The
government encourages private and foreign participation in areas such as education,
healthcare and infrastructure to further its aim of inclusive economic growth.
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Policy towards foreign investment
2010-11:
Limits on foreign direct investment are relaxed in some sectors. The government
simplifies investment procedures and reduces bottlenecks.
2012-14:
Rapid real GDP growth, overall liberalisation of the economy and a growing need for
investment—particularly in infrastructure and industry—lead to a more investor-friendly
climate. Foreign investment is particularly strongly encouraged in infrastructure and in
underserved but high-potential areas, such as healthcare.
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Foreign trade and exchange controls
2010-11:
The free-trade agreement (FTA) with the Association of South-East Asian Nations
(ASEAN) that came into effect in January 2010 leads to the start of a significant reduction
in tariffs. Restrictions on outward direct and portfolio investment by companies and
individuals, and on foreign borrowing, are relaxed further.
2012-14:
India pushes for more bilateral FTAs. Outward investment and overseas borrowing
continue to be liberalised, but some regulatory restrictions on capital mobility remain in
place. More Chinese-style special economic zones become operational.
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Taxes
2010-11:
The government plans to introduce a goods and service tax in April 2011, but this
timetable may prove optimistic. It also wants to implement a new Direct Tax Code at the
same time, which would reduce exemptions and also reform corporate tax and income
tax laws and rates.
2012-14:
Tax compliance and dispute resolution improve slowly, as does tax administration. The
government relies less on indirect taxes (notably customs and excise duties) and more
on direct taxes, while also broadening the scope and coverage of services taxes.
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Financing
2010-11:
Significant government control persists in the banking sector. Conservative regulation
reduces the risk of a banking sector collapse, but state-directed lending will continue to
be a major obstacle to sustained improvement in the banking system.
2012-14:
Competition from private-sector banks increases, and the regulatory structure improves.
New rules make banking mergers and acquisitions easier and allow greater foreign
investment in private domestic banks. The government focuses on improving financing
and risk management and on strengthening the debt and derivatives markets.
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: The labour market
2010-11:
Labour laws continue to be restrictive, but average wages remain low. Political and union
resistance slows the pace of labour market liberalisation, but some states are more
flexible than others. New enterprises and those in the services sector are better able to
set the terms of labour contracts.
2012-14:
The government begins to attempt to reform labour laws, and trade union influence is
diluted. The government introduces new compromises, such as allowing companies more
flexibility in hiring temporary workers while mandating better benefits and security for
such contract workers.
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Infrastructure
2010-11:
Infrastructure improves most rapidly in sectors, such as telecoms and ports, in which the
private sector believes it can make a profit. It lags in areas including water and roads,
where the ability to generate revenue is less evident.
2012-14:
The level of investment in infrastructure rises and new models of public-private
partnership evolve, but severe bottlenecks continue to plague India’s rail and road
networks. Telecoms infrastructure and Internet penetration improve markedly.
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India:
The economic forecast
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: International assumptions
Economic growth (%)
The Economist Intelligence Unit expects the world economy measured at purchasing power parity
exchange rates to grow by 4.2% in 2010 and 3.6% in 2011, following an estimated contraction of
0.7% in 2009.
However, the outlook remains uncertain, and growth could slow more sharply than forecast in 2011
as the impact of stimulatory measures dissipates.
Supply factors should ensure that oil prices remain well below their recent highs in 2010-11. We
expect international oil prices (dated Brent Blend) to average US$80/barrel in 2010 and US$78.5/b
in 2011.
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Economic outlook
Economic outlook
(% real change)
India's GDP growth will be rapid by international standards in the coming five years, averaging
8.1% a year between fiscal year 2010/11 (April-March) and 2014/15.
India’s strong growth fundamentals—high savings and investment rates, fast labour growth and
the rapidly expanding middle class—will ensure a steady performance, with little volatility in
growth rates from year to year.
However, there are a number of clouds hanging over the local economy, including the stubbornly
high rate of inflation and the wide (albeit narrowing) budget deficit.
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Wage and price inflation
Consumer price inflation
(%; annual av)
Inflation will remain one of the major risks to
India's economic outlook in the forecast period
(2010-14), as has been clearly demonstrated by
the inflationary surge in the first half of 2010.
Even assuming that inflationary pressures
diminish in the second half of 2010 as food price
inflation moderates and monetary policy is
tightened further, we forecast that consumer
prices will increase by 11.4% on average in 2010,
representing an acceleration from 10.9% in 2009.
Our year-on-year inflation forecast of 5.4% on
average in 2011-14 is based on the assumption
that there will be only moderate increases in
global commodity prices, a normal monsoon
pattern, a regime of positive real interest rates
and a steady improvement in the government's
fiscal position.
Average wages are forecast to rise by 8.6% a
year in nominal terms in 2010-14, translating into
a real increase averaging 2% a year. Wage
growth will vary greatly by sector and location.
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Exchange rates
Exchange rates
We expect India’s currency, the rupee, to average Rs46.1:US$1 in 2010 and Rs46:US$1 in 2011,
representing a year-on-year nominal appreciation of 4.9% in 2010 and 0.3% in 2011. Given India's
high inflation rate in 2010, this will represent an average real appreciation of 17.1% in 2010 and
5.3% in 2011.
Although the strength of the economy and the buoyancy of capital inflows should lend support to
the rupee in the forecast period, there is a risk that the exchange rate could come under strong
downward pressure if inflationary pressures do not moderate as forecast.
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: External sector
External sector
(US$ bn unless otherwise indicated )
The current-account deficit is forecast to widen to US$51bn (equivalent to 2.4% of GDP) in 2012,
from US$26.6bn (2.1% of GDP) in 2009, as the increase in the combined trade and income
deficits exceeds the rise in the services and current transfers surpluses. However, the situation
will reverse in the final two years of the forecast period, so that the current-account deficit will
narrow to US$43bn (1.5% of GDP) by 2014.
Substantial capital inflows in the period will ensure that the shortfall on the current account poses
little risk to the economy, and India will continue to accumulate foreign-exchange reserves, which
are forecast to rise to over US$450bn in 2014, up from US$275bn in 2009.
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India:
Foreign direct investment
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Foreign direct investment
Stocks and flows
Foreign direct investment (FDI) inflows to India fell to US$34.6bn in 2009 in response to the global
economic recession. This followed a sharp increase in 2008, to US$41bn, up from an annual average
of US$1bn-2bn during most of the early years of the 2000s.
Having suffered a drop-off in FDI inflows in 2009, India is back in favour with foreign investors. FDI
inflows will follow an upward trend in the forecast period (2010-14), reaching US$75bn in the final year
of the period, although inflows will still be equivalent to less than 3% of GDP in 2014. The stock of FDI
will rise to the equivalent of 14.8% of GDP in that year.
FDI inflows to India were equivalent to 2.7% of GDP in 2009, while the stock of inward FDI stood at
around US$158bn, equivalent to 12% of GDP and to US$135 per head.
Inward foreign direct investment stock, 2010
(% of GDP)
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Foreign direct investment
Determinants
India's skilled, English-speaking workforce has been a significant attraction for FDI, particularly in the
information technology (IT) sector. Caps on FDI in protected industries have also been steadily raised,
with many companies in such sectors now open to a maximum of 74% of foreign investment.
The Indian National Congress-led government's timid approach to liberalisation since 2004 has
disappointed investors, and its willingness to undertake major reforms will be limited by its populist
focus and its lack of a parliamentary majority. The government is nevertheless likely to raise investment
limits in a number of sectors and streamline investment procedures during the forecast period.
The FDI approvals process is gradually being simplified, and the government is expanding the number
of industries for which automatic approval is granted. However, state-level impediments can be severe,
and companies have been known to abandon FDI projects midway through the implementation stage.
Inward foreign direct investment stock per head, 2010
(US$)
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Foreign direct investment
Potential
India's potential to attract increased FDI inflows is vast, although poor infrastructure, excessive
bureaucracy and interdepartmental wrangling will slow the pace of opening in many sectors.
The infrastructure, energy, telecoms, IT and insurance sectors are likely to be the main magnets for
FDI. Producers and assemblers of cars and automotive components are also re-evaluating India's
potential, as are biotechnology firms.
The establishment of special economic zones (in which 100% foreign ownership is allowed) in order to
promote exports should attract increased FDI flows into export-oriented industries. India's privatisation
programme has stalled in recent years, but the re-elected UPA government is expected revive the
programme through a series of part-privatisations.
Annual inflows of foreign direct investment
(US$ bn)
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India:
Market opportunities
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Market opportunities
GDP per head
(US$ at PPP)
Relatively strong GDP growth will raise personal incomes, expanding the size of the middle class
and making India an increasingly attractive market for foreign companies. But average income
levels will remain low, and most opportunities will be concentrated in urban areas.
The Indian market will remain fragmented, and market opportunities will vary widely, not only
between urban and rural areas but also from one urban area to another.
Non-income-related factors, such as local cultural differences and infrastructure deficiencies, will
also influence market opportunities for foreign firms.
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India:
The long-term forecast
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Long-term outlook
Real GDP growth
(% annual change)
Since transcending the "Hindu rate of growth" in GDP of 2-3% a year in the late 1980s, India has
recorded consistently rapid economic expansion rates in recent years, although its achievement in
this respect has been overshadowed by comparisons with better-performing China.
Average productivity in India is low, although the differential between the agricultural sector and
high-growth sectors, such as information technology (IT), is vast.
The policy environment is blighted by an excessive concern with short-term goals, which
discourages governments from taking difficult policy decisions.
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Long-term outlook
Demographic trends: In contrast to most other countries, India will see its working-age
population grow over the forecast period. This will prove to be a catalyst either for sustained, rapid
economic growth or for social discontent—or, most likely, for both. In the optimistic scenario,
India's workforce will fill the gaps in the labour markets of other countries. However, for this to
occur there will need to be a match between the skills offered by Indian workers and those
required in other countries—at present only India's most highly skilled workers are globally
competitive.
External conditions: India is intent on taking on a more prominent global role in the next 20
years. But the combination of rapid GDP growth and a large population will ensure that, even if it
succeeds in establishing itself as a global power, the country will remain vulnerable to
developments in its own region. India is focusing on its relations with countries in South-east Asia,
partly in reaction to greater Chinese involvement with the members of the Association of SouthEast Asian Nations (ASEAN), and is pushing for the closer integration of countries in South Asia.
However, relations with Pakistan fluctuate dramatically, and the dispute over Kashmir remains
unresolved.
Long-term performance: Growth in real GDP is forecast to average 6.5% a year in 2010-30,
making India the fastest-growing economy in the world during the period. India's expected
economic progress is premised on a shift up the value chain in IT, pharmaceutical manufacturing
and other sectors. It will also depend on the extent to which the country manages to exploit the
strengths of its high-performing sectors to assist more laggardly ones, notably agriculture. If it fails
to do this, the persistence of widespread poverty is likely to pose significant political problems.
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Long-term outlook
GDP per head
(US$ at PPP; index, US=100)
Nominal GDP
(US$ at PPP; index, India=100)
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India:
Resources
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Map
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Comparative GDP, 2009
Gross domestic product
(US$ bn; market exchange rates)
Country Forecast August 2010
Gross domestic product per head
(US$; market exchange rates)
© The Economist Intelligence Unit Limited 2010
India: Basic data
Land area
Population
Climate
3,287,263 sq km (including Indian-administered Kashmir); 57% is agricultural
land and 16% forest area
1.13bn (mid-2007)
Varied; humid subtropical in Ganges basin, semi-arid in the north-west, tropical
humid in north-east and most of the peninsula, tundra in the Himalayas; all areas
receive rain from the south-west monsoon in June-September; the south is also
served by the north-east monsoon in January-March
Weather in New Delhi Hottest month, May, 26-41°C (average daily minimum and maximum); coldest
month, January, 7-21°C; driest month, November, 4 mm average rainfall; wettest
month, July, 180 mm average rainfall
Language
Currency
Time
Public holidays
Hindi is the national language and primary tongue of 30% of the population.
There are 14 other official languages: Bengali, Telugu, Marathi, Tamil, Urdu,
Gujarati, Malayalam, Kannada, Oriya, Punjabi, Assamese, Kashmiri, Sindhi and
Sanskrit. English is widespread in business circles and as a second language
Rupee (Rs); Rs1 = 100 paise.
5 hours 30 minutes ahead of GMT
January 26th; August 15th; October 2nd; also major Hindu, Muslim, Christian and
other religious holidays
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India:
Business environment rankings: Methodology
Outline of the model
The business rankings model measures the quality or attractiveness of the business environment in the 82 countries
covered by Country Forecasts using a standard analytical framework. It is designed to reflect the main criteria used by
companies to formulate their global business strategies, and is based not only on historical conditions but also on
expectations about conditions prevailing over the next five years. This allows the Economist Intelligence Unit to utilise the
regularity, depth and detail of its forecasting work to generate a unique set of forward-looking business environment
rankings on a regional and global basis.
The business rankings model examines ten separate criteria or categories, covering the political environment, the
macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign
investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure. Each category
contains a number of indicators that are assessed by the Economist Intelligence Unit for the last five years and the next
five years. The number of indicators in each category varies from five (foreign trade and exchange regimes) to 16
(infrastructure), and there are 91 indicators in total.
Almost one-half of the indicators are based on quantitative data (eg, GDP growth), and are mostly drawn from national
and international statistical sources for the historical period (2005-09) and from Economist Intelligence Unit assessments
for the forecast period (2010-14). The other indicators are qualitative in nature (eg, quality of the financial regulatory
system), and are drawn from a range of data sources and business surveys adjusted by the Economist Intelligence Unit,
for 2005-09. All forecasts for the qualitative indicators covering 2010-14 are based on Economist Intelligence Unit
assessments.
The main sources used in the business rankings model include CIA, World Factbook; Economist Intelligence Unit,
Country Risk Service, Country Finance, Country Commerce; Freedom House, Annual Survey of Political Rights and Civil
Liberties; Heritage Foundation, Index of Economic Freedom; IMF, Annual Report on Foreign Exchange Restrictions;
International Institute for Management Development, World Competitiveness Yearbook; International Labour
Organisation, International Labour Statistics Yearbook; UN, Human Development Report; US Social Security
Administration, Social Security Programs Throughout the World; World Bank, World Development Report; World
Development Indicators; World Economic Forum, Global Competitiveness Report.
Back to Rankings
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India:
Business environment rankings: Methodology
Calculating the rankings
The rankings are calculated in several stages. First, each of the 91 indicators is scored on a scale from 1 (very bad for
business) to 5 (very good for business). The aggregate category scores are derived on the basis of simple or weighted
averages of the indicator scores within a given category. These are then adjusted, on the basis of a linear transformation,
to produce index values on a 1-10 scale. An arithmetic average of the ten category index values is then calculated to yield
the aggregate business environment score for each country, again on a 1-10 scale.
The use of equal weights for the categories to derive the overall score reflects in part the theoretical uncertainty about the
relative importance of the primary determinants of investment. Surveys of foreign direct investors' intentions yield widely
differing results on the relative importance of different factors. Weighted scores for individual categories based on
correlation coefficients of recent foreign direct investment inflows do not in any case produce overall results that are
significantly different to those derived from a system based on equal weights.
For most quantitative indicators the data are arrayed in ascending or descending order and split into five bands (quintiles).
The countries falling in the first quintile are assigned scores of 5, those falling in the second quintile score 4 and so on. The
cut-off points between bands are based on the average of the raw indicator values for the top and bottom countries in
adjacent quintiles. The 2005-09 ranges are then used to derive 2010-14 scores. This allows for intertemporal as well as
cross-country comparisons of the indicator and category scores.
Measurement and grading issues
The indices and rankings attempt to measure the average quality of the business environment over the entire historical or
forecast period, not simply at the start or at the end of the period. Thus in the forecast we assign an average grade to
elements of the business environment over 2010-14, not to the likely situation in 2014 only.
The scores based on quantitative data are usually calculated on the basis of the numeric average for an indicator over the
period. In some cases, the "average" is represented, as an approximation, by the recorded value at the mid-point of the
period (2007 or 2012). In only a few cases is the relevant variable appropriately measured by the value at the start of the
period (eg, educational attainments). For one indicator (the natural resources endowment), the score remains constant for
both the historical and forecast periods.
Back to Rankings
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Indicator scores in the business rankings model
2005-09
Regional
a
2010-14
Regional
a
India
average
India
average
1. Risk of armed conflict
3
3.4
3
3.6
2. Risk of social unrest
2
3.1
2
3.1
3. Constitutional mechanisms for the orderly transfer of power
5
3.1
5
3.3
4. Government and opposition
4
3.6
4
3.8
5. Threat of politically motivated violence
2
3.5
2
3.3
6. International disputes or tensions
2
3.2
2
3.1
7. Government policy towards business
3
3.5
3
3.6
8. Effectiveness of political system in policy formulation and execution
3
3.2
3
3.2
9. Quality of the bureaucracy
2
3.2
2
3.3
10. Transparency and fairness of legal system
3
2.9
3
3.1
11. Efficiency of legal system
3
3.5
3
3.5
12. Corruption
1
2.5
2
2.7
13. Impact of crime
4
3.5
4
3.6
Political environment
a
Out of 17 countries: Australia, Bangladesh, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand,
Pakistan, Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand and Vietnam.
Note. A single asterisk (*) denotes scores based on quantitative indicators. Indicators with a double asterisk (**) are partly
based on data. All other indicators are qualitative in nature.
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Indicator scores in the business rankings model
2005-09
Regional
a
2010-14
Regional
a
India
average
India
average
1. Inflation*
4
4.4
4
4.5
2. Budget balance as % of GDP*
3
3.6
2
3.4
3. Government debt as % of GDP*
4
3.9
4
4.0
4. Exchange-rate volatility*
4
4.1
4
4.3
5. Current-account balance as % of GDP*
4
3.8
4
4.1
6. Quality of policymaking
3
3.6
3
3.5
7. Institutional underpinnings
4
3.7
4
3.8
8. Asset prices
2
2.3
3
3.0
Macroeconomic environment
a
Out of 17 countries: Australia, Bangladesh, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand,
Pakistan, Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand and Vietnam.
Note. A single asterisk (*) denotes scores based on quantitative indicators. Indicators with a double asterisk (**) are partly
based on data. All other indicators are qualitative in nature.
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Indicator scores in the business rankings model
2005-09
Regional
a
2010-14
Regional
a
India
average
India
average
1. GDP, US$ bn at PPP*
5
3.7
5
3.9
2. GDP per head, US$ at PPP*
1
2.8
1
2.9
3. Real GDP growth*
5
3.7
5
4.1
4. Share of world merchandise trade*
4
3.4
5
3.6
5. Average annual rate of growth of exports*
5
2.6
5
3.3
6. Average annual rate of growth of imports*
5
2.6
5
3.6
7. The natural resource endowment*
3
2.5
3
2.5
8. Profitability*
5
3.8
5
4.2
9. Regional integration
2
2.9
2
3.1
10. Proximity to markets
2
2.4
2
2.4
Market opportunities
a
Out of 17 countries: Australia, Bangladesh, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand,
Pakistan, Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand and Vietnam.
Note. A single asterisk (*) denotes scores based on quantitative indicators. Indicators with a double asterisk (**) are partly
based on data. All other indicators are qualitative in nature.
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Indicator scores in the business rankings model
2005-09
Regional
a
2010-14
Regional
a
India
average
India
average
1. Degree to which private property rights are protected
3
3.9
4
4.2
2. Government regulation on setting up new private businesses
3
3.2
3
3.5
3. Freedom of existing businesses to compete
3
3.4
3
3.6
4. Promotion of competition
3
2.8
3
3.2
5. Protection of intellectual property
3
3.0
3
3.2
6. Price controls
4
3.6
4
3.7
7. Distortions arising from lobbying by special interest groups
2
2.6
2
2.9
8. Distortions arising from state ownership/control
2
3.1
3
3.3
9. Minority shareholders
4
3.6
4
3.6
Policy towards private enterprise and competition
a
Out of 17 countries: Australia, Bangladesh, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand,
Pakistan, Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand and Vietnam.
Note. A single asterisk (*) denotes scores based on quantitative indicators. Indicators with a double asterisk (**) are partly
based on data. All other indicators are qualitative in nature.
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Indicator scores in the business rankings model
2005-09
Regional
India
a
average
2010-14
Regional
a
India
average
Policy towards foreign investment
1. Government policy towards foreign capital
3
3.6
4
3.9
2. Openness of national culture to foreign influences
3
3.4
4
3.5
3. Risk of expropriation of foreign assets
4
4.1
4
4.2
4. Availability of investment protection schemes
2
3.4
3
3.6
5. Government favouritism
3
3.6
3
3.7
a
Out of 17 countries: Australia, Bangladesh, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand,
Pakistan, Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand and Vietnam.
Note. A single asterisk (*) denotes scores based on quantitative indicators. Indicators with a double asterisk (**) are partly
based on data. All other indicators are qualitative in nature.
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Indicator scores in the business rankings model
2005-09
Regional
a
2010-14
Regional
a
India
average
India
average
1. Capital-account liberalisation
2
3.6
3
3.9
2. Tariff and non-tariff protection**
2
3.5
2
3.6
3. Ease of trading
1
3.8
2
4.0
4. Openness of trade*
5
4.4
5
4.2
5. Restrictions on the current account
4
4.5
4
4.7
Foreign trade and exchange controls
a
Out of 17 countries: Australia, Bangladesh, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand,
Pakistan, Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand and Vietnam.
Note. A single asterisk (*) denotes scores based on quantitative indicators. Indicators with a double asterisk (**) are partly
based on data. All other indicators are qualitative in nature.
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Indicator scores in the business rankings model
2005-09
Regional
a
2010-14
Regional
a
India
average
India
average
1. The corporate tax burden**
3
3.6
3
3.6
2. The top marginal personal income tax*
5
4.1
5
4.2
3. Value-added tax*
4
4.2
4
4.2
4. Employers' social security contributions
2
4.1
2
4.0
5. Degree to which fiscal regime encourages new investment
4
3.2
4
3.4
6. Consistency and fairness of the tax system
3
3.4
3
3.5
7. Tax complexity
2
3.4
3
3.6
Taxes
a
Out of 17 countries: Australia, Bangladesh, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand,
Pakistan, Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand and Vietnam.
Note. A single asterisk (*) denotes scores based on quantitative indicators. Indicators with a double asterisk (**) are partly
based on data. All other indicators are qualitative in nature.
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Indicator scores in the business rankings model
2005-09
Regional
a
2010-14
Regional
a
India
average
India
average
1. Openness of banking sector
3
3.3
3
3.4
2. Stockmarket capitalisation
3
3.4
3
3.6
3. Distortions in financial markets**
4
3.8
4
4.1
4. Quality of the financial regulatory system
2
2.9
3
3.5
5. Access of foreigners to local capital market
2
3.1
2
3.4
6. Access to medium-term finance for investment
3
3.2
3
3.2
Financing
a
Out of 17 countries: Australia, Bangladesh, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand,
Pakistan, Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand and Vietnam.
Note. A single asterisk (*) denotes scores based on quantitative indicators. Indicators with a double asterisk (**) are partly
based on data. All other indicators are qualitative in nature.
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Indicator scores in the business rankings model
2005-09
Regional
a
2010-14
Regional
a
India
average
India
average
1. Labour costs adjusted for productivity*
3
3.6
4
3.9
2. Availability of skilled labour*
2
2.9
2
3.1
3. Quality of workforce
3
3.2
3
3.2
4. Quality of local managers
5
3.7
5
3.6
5. Language skills
5
3.8
5
3.7
6. Health of the workforce*
2
3.4
3
3.7
7. Level of technical skills
4
3.4
4
3.5
8. Cost of living*
4
2.9
2
2.4
9. Incidence of strikes**
3
3.6
3
3.6
10. Restrictiveness of labour laws
2
3.2
2
3.3
11. Extent of wage regulation
4
3.9
4
3.8
12. Hiring of foreign nationals
3
3.0
3
3.4
The labour market
a
Out of 17 countries: Australia, Bangladesh, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand,
Pakistan, Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand and Vietnam.
Note. A single asterisk (*) denotes scores based on quantitative indicators. Indicators with a double asterisk (**) are partly
based on data. All other indicators are qualitative in nature.
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010
India: Indicator scores in the business rankings model
2005-09
Regional
a
2010-14
Regional
a
India
average
India
average
1. Telephone density*
2
3.1
2
3.5
2. Reliability of telecoms network**
2
3.2
2
3.6
3. Telecoms costs*
4
3.5
4
3.9
4. Mobiles*
1
3.4
3
4.2
5. Stock of personal computers*
2
3.5
3
3.9
6. Internet use*
1
3.4
2
3.8
7. Broadband penetration*
2
3.5
3
3.8
8. R&D expenditure as % of GDP*
3
3.1
3
3.1
9. Research infrastructure
4
3.4
4
3.5
10. The infrastructure for retail and wholesale distribution**
2
2.9
3
3.4
11. Extent and quality of the road network**
2
3.3
2
3.4
12. Extent and quality of the rail network**
2
2.7
2
2.8
13. Quality of ports infrastructure
2
3.5
3
3.8
14. Quality of air transport
3
3.6
3
3.8
15. Production of electricity per head*
1
2.8
2
3.1
16. Rents of office space*
2
2.8
1
2.7
Infrastructure
a
Out of 17 countries: Australia, Bangladesh, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand,
Pakistan, Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand and Vietnam.
Country Forecast August 2010
© The Economist Intelligence Unit Limited 2010