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Improve investment climate: WB urges India

BS Bureau in Mumbai | November 25, 2004 11:01 IST

India's record in attracting private investment has not been impressive and has a lot of catching up to do in order to make it more investor friendly, senior World Bank officials said on Wednesday.

Foreign direct investments to India stood at $5 billion per annum compared with China's $40 billion per annum.

Praful Patel, vice-president, South Asia region, World Bank, said inadequate infrastructure, bureaucracy, restrictions in hiring and firing in the labour market and improper access to finance for the small scale sector were the major impediments in India's growth story.

The World Bank released its "India Investment Climate Assessment 2004" which has done an indepth study on investing in India.

The report 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.

One of its main recommendations is that the government should reduce entry and exit barriers for manufacturing sector and remove infrastructure bottlenecks. "The industrial policy also stands in the way of doing business," said Patel.

The bureaucracy makes everything time consuming so much so that the average time to start a business in India is 89 days compared to a mere two days in Australia.

Patel also expressed concern over the power outage average of17 per cent in the country and the fact that 61 per cent of the firms need to have their own generator sets, which increases the cost of power.

"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.

The regulations should be adequately modified to remove the impediments to the smooth functioning of labour, land and product markets, and for streamlining of regulation of business startups 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.

The WB said that the gap between India's rich and poor regions is a lot wider than the competitiveness gap between India and China.

According to statistics issued by the Bank the per capita income in the state of Maharashtra is three times more than that in Uttar Pradesh. The eight per cent annual growth rates in the GDP 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.

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