IMF says Indian business climate tougher than China or Korea
Pakistan Times Business & Commerce Desk

BOMBAY (India): India is ready to take off economically but must make it easier to foreigners to do business in order to secure sustained growth, IMF chief Rodrigo Rato said Thursday.

"India appears to be in the first stages of the sort o take off that several other Asian countries have experienced over recent decades," Rato said in a talk at the central bank to Indian financial experts and business leaders.

India's business environment, he added however, need to be eased to fuel long-term sustainable growth of more than eight percent.

"India lags well behind much of Asia in attracting foreign direct investment," Rato said, pointing to the fact that in 2003 FDI to India totalled just five percent of gross domestic product compared to 31 percent for Thailand and 35 percent for China.

"Yet surveys consistently point to India as being one of the top two or three destinations for FI in the coming years, so opportunity is there for the taking. What is perhaps important is  to make India an easier place to do business," Rato said.

The International Monetary Fund chief said that to start a business in Sourea it takes 22 days and in China 41, "but in India it takes 89 days." "And enforcing a contract takes 425 days in this country, more than five times longer than in Korea and nearly double than in China."

Rato called for "bold" economic steps to keep a growth momentum that would create 100 million jobs in the next 10 years. "India needs to put public finances on a solid footing and reduce government's borrowing needs that would help free resources for private investment, which remains low by regional standards," Rato said.

"The government's ability to finance large deficits domestically with apparent ease may have reduced the sense of urgency to make the difficult choices necessary to turn the fiscal situation around." Large deficits have a major, if almost "silent cost", he added.

India has been struggling to rein in its fiscal deficit over the last few years, with Finance Minister Palaniappan Chidambaram in his budget for the year to March 2006 targeting the deficit at 4.3 percent of GDP.

Rato said despite the reforms over the past decade or so, the Indian economy remains a closed one. "While the economy has been growing robustly in recent years, India still accounts for less than one percent of total global exports while average tariffs are at about 22 percent," he said.

"Lowering of tariff barriers and improvements in the business climate would allow Indian business to achieve scale economies and to fully take part in international production chains," he added.

Rato also urged strong regional trade relations in South Asia. "Much of India's recent export growth has been fuelled by trade with China. Despite geographical proximity and cultural affinity, South Asian countries, barely trade with one another," he said.

Rato hoped that India would undertake the required steps to emerge stronger. "India has moved from being a IMF debtor to being a solid and reliable creditor. It is my fervent hope that India sees even more dramatic progress in the next decade."●