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A World Bank report has said the main obstacles to investing in India are unreliable and expensive power, regulatory burden, corruption, land and access to finance. Economists and industrialists have questioned this observation.
According to the study on the investment climate in India, compiled in 2004, "If each Indian state can attain best practices in terms of investment, the economy will grow about two percentage points faster." The study had compared states having a better record with seven poor and backward states.
Bibek Debroy, director, Rajiv Gandhi Institute for Contemporary Studies, pointed out that a distinction be made between subjective and objective indicators.
Giving an example, Debroy said according to the study, obtaining a permanent account number was cited as a major reason for delay in starting a business in states. "PAN is not a state government variable. Therefore, one needs to look at which variable to include and exclude," he said.
Similarly, a comparison between Lucknow and Mumbai regarding time taken to settle a business dispute in court was skewed, as a firm located in Lucknow would have to travel to Allahabad to settle a court case as the high court was located there. This would take long for a case to be settled while a firm in Mumbai had the benefit of a high court in the city itself, Debroy said.
Urging for caution in basing a study on responses, Debroy said a conclusion that there was an increase in inflows to Delhi could be misleading as the inflows could actually be to firms located in areas like Gurgaon or Noida in the National Capital Region, which were, technically, parts of Haryana and Uttar Pradesh, respectively.
Indian Cotton Mills Federation chairman V K Ladia, in his observations, said as an industrialist, he regarded restrictive labour laws, lack of infrastructure and power shortage as major constraints.
"The country has no limitation as far as availability of finance is concerned. Today, finance is available to firms at attractive rates," he said adding that there were no procedural delays in starting a business as long as one was aware of "where to apply for what clearance".
Rajiv Kumar, chief economist, Confederation of Indian Industry, said the Planning Commission should create benchmarks for all states to improve the investment climate.
The World Bank report has been critical of India's "poor" ranking in terms of investment climate and said the economy could grow if it improves infrastructure, business regulations, labour and land laws.
"India is among the top 10 reformers in recent years. The effort is there but the level of achievement is not much," International Finance Corporation's chief economist Michael Klien, said in New Delhi on Monday.
World Bank's sector specialist Priya Basu said, "In terms of the ease with which business can be run, India ranks very poorly."
"If the country can improve by 10 per cent the four parameters of investment climate -- cost of power, business regulations, land laws and access to finance, the turnover of companies can go up by 11.3-16 per cent and the overall economy would grow by about 2 per cent faster," she said.
According to the World Bank report 'Doing Business', it takes a company 89 days to clear all the procedures and start a business in India as against the South Asian average of 46 days. It takes a company 41 days to start a business in China, 24 days in Pakistan and just 2 days in Australia.
Cost for setting up a business, measured in terms of percentage of per capita income, is 49.5 in India as against South Asian average of 45.4, Pakistan 36, China 14.5 and nil in Denmark.
While the index measuring the difficulty of hiring is 33, it is 11 for China and nil for Hong Kong, Israel and Kuwait, Malaysia, Australia and the US.