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World Bank's tips on wooing FDI

November 24, 2004 16:52 IST

The government should reduce entry and exit barriers for the manufacturing sector and remove infrastructure bottlenecks for improving investment climate, the World Bank has said.

It also said the country must raise its investment rate from 23 per cent to 30 per cent in order to sustain a growth rate of eight per cent over the long term.

"At least two interrelated sets of regulatory and institutional reforms are needed in order to improve India's investment climate," World Bank said in its report 'India Investment climate Assessment 2004' released in Mumbai on Wednesday.

Firstly, there was a need for reducing entry and exit barriers that manufacturing industries face, for removing impediments to the smooth functioning of labour, land and product markets, and for streamlining of regulation of business start ups and bankruptcy procedures, it said.

The second reform set should address physical infrastructure bottlenecks and weaknesses in the financial and other business services, it said.

The corporate sector's investment to GDP must increase steeply, particularly in the industrial sector, which has the greatest potential to provide high-wage employment for the 70 per cent of the labour force now working in agriculture, it added.

World Bank said the gap between India's rich and poor regions is a lot wider than the competitiveness gap between India and China.The per capita income in Maharashtra is three times more than that in Uttar Pradesh. The eight per cent annual growth rates in gross state domestic products of Gujarat and

Maharashtra are in contrast with the four per cent growth rate in Orissa and Bihar, it said. The World Bank, however, said there has been substantial improvement in India between 2000 and 2003.

The overstaffing in Indian companies has decreased to 10.9 per cent from 16.8 per cent indicating more flexible labour markets while the number of inspections per year declined to 7.4 in 2003 from 11.7 per cent earlier.

Senior management time spent on business regulations and inspectors fell to 14.2 per cent from 16 per cent and the average number of days to clear customs fell to 7.3 per cent from 10.3 per cent.

It said bottlenecks faced by the Indian firms include frequent power outages and high energy prices.

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