Miles to go

What is one to make of the radically different ratings India received on economic attractiveness in surveys done by two different agencies? While the A T Kearney listing of the world’s top investment destinations in 2004 shows India at No 3, just behind the US, the World Economic Forum’s (WEF’s) indices put the country in far humbler company.

On most parameters, the WEF ranks India somewhere in the middle of a field of 100. India figures at No 55 on the Growth Competitive Index that deals with macro-fundamentals and at No 30 on the Business Competitiveness Index (BCI) that deals with micro-issues concerning the day-to-day environment in which businesses have to operate.

While it feels good to be ahead of China on the BCI (China is ranked 45th), this does not quite square with the reality that China gets 13 times as much investment as India does.

On the other hand, the apparent divergence between the A T Kearney and WEF rankings may be illusory since the two surveys may be measuring different things.

While the former tracks investor confidence among global executives and their geographical preferences, the WEF survey seems to give substantial weightage to the macro-economic environment and the state of public institutions—neither of which is shining too brightly in India right now.

So the difference can, probably, be explained by the fact that one survey may be weighting potential more than problems and vice versa.

What the WEF survey does bring out well is what the country needs to work on if it is to attract serious investment of the kind China has been for years.

While there is, obviously, the issue of inadequate infrastructure (a fourth of those surveyed listed this as a problem), a much-needed reminder comes in the form of India’s poor rankings on the technology index.

After the software boom, one has heard talk that India’s strength may be complex manufacturing that requires local R&D abilities and so on. The WEF ranks India 63rd on the technology sub-index, one rung behind China.

And when it comes to the ICT index, India is ranked 79th as compared to China’s 62nd. Since China’s better performance here has to do with its higher usage of computers, the Internet and mobile telephony, it’s a clear pointer to the need for reforms in telecom FDI and policies favouring higher PC penetration.

While the lack of flexible labour policies shows up as an important roadblock in the WEF survey, the World Bank’s World Development Report, released some weeks ago, suggests that too much is made of this and other constraints commonly listed by foreign investors.

This was also the conclusion of a study done by consulting firm McKinsey and Company a few years ago. As for corruption, it features as a major issue in the WEF study, with 16 per cent of those surveyed listing this as a problem area for doing business in India.

What’s ironic, though, is that India is seen as less corrupt than China (in terms of the Corruption Sub-Index). Even so, corruption in China is cited as a problem by a lesser number of people. The lesson, perhaps, is that China delivers despite corruption; India doesn’t.

India fares better than China in areas like educated workforce, work ethic and policy stability, but clearly these are not large enough advantages right now to get investors to tip in India’s favour.