Strong leap in rankings, but still miles to go

The jump in India’s ranking, to 100 from 130 (out of 190), is indeed something to feel good about. But we have miles to go before we sleep.

Considering 95 as the half-way mark, in only three of the 10 criteria on which the ranking is based, does India manage to get its chin over it. The best rank is in protecting investors (4), followed by Getting Electricity and Getting Credit, both 29.

What India needs to now concentrate on is improving on the seven categories in which the country is in the bottom half. In three of these, India is in the bottom 20 per cent, which is shameful for a country aspiring to be a global leader. These are Dealing with Construction Permits (181/190), Enforcing Contracts (164), and Starting a Business (156). All three of these need approvals at the State level; in other words, whilst the Centre may have cleaned up its processes, at the State level there is still a lot of subjectivity (read, corruption).

Let’s go back to Protecting Investors (4). In evaluating this criteria, the World Bank does not, apparently, take into consideration the judicial delays which result in non-protection of investors. Ask any victim of Ponzi schemes such as NSEL, Rose Valley, PACL, etc. — the judiciary is lenient in its grant of adjournments, which benefits the fraudster and harms the victim.

Or take the common man, both consumer and investor. In 1947, the Indian rupee was ₹3.31 to the dollar. It is now at ₹64.6, a depreciation in purchasing power of 20 times over 70 years. This can hardly be termed protection of investors. These are the consequences of poor governance over the last 70 years. The improvement in ranking by 30 places is the consequence of better governance recently. But we have miles to go before we sleep.

There are two external events that investors need to keep an eye on. One is the hike in US interest rates, which is expected in December. Any interest rate hike will improve the attractiveness of the debt market vis-a-vis the equity market (already very high) and encourage a flow of funds from the latter to the former.

The other is the rise of the petro yuan. It is the tradition of pricing petro products in dollars that has created the petro-dollar, the resultant demand for which has enabled the US to print currency and easily borrow money. If China is able to get more countries to sell their petro products in yuan, it would be a wake-up call for America.

In the midst of such global turmoil, if India is to become even more attractive in doing business, then the government needs to strengthen the judiciary, truly protect minority investors and come down as hard on those who cheat the public as it does on those who cheat PSU banks. It cannot be blasé about the former and tough on the latter.

(The writer is India Head — Finance Asia/Haymarket. The views are personal.)