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China’s Tense Business Climate Could Benefit India

Frustration of Foreign Companies in China Might Be a Boon for India–But Only If India is Ready
1 April 2010

by Daniel Michaeli

Integrated auto manufacturing facility near Chennai, India*

From the Indian perspective, the recent downtown in China’s business friendliness to foreign companies is good news. Some companies are beginning to question whether they have too many eggs in the China basket.

Right next door to China is another vibrant economy, with relatively stronger domestic spending, a younger population, and–within just 15 years–what is expected to become the world’s largest population, larger than China’s.

But so much depends on whether the Indian government has what it takes to make difficult decisions. India is number 133 of 183 on the World Bank’s 2010 rankings on ease of doing business, lower than countries like Yemen and Nigeria–and China. Indian infrastructure is notoriously poor in areas like roads, railroads, ports, and power. The court systems get bogged down for years in land and commercial disputes.

Rumors swirled briefly last week that Michael Dell was considering moving some of Dell’s $25bn of production from China to India (seeking a “safer” environment, according to India’s prime minister). But nearly at the same time, I noticed that ArcelorMittal–the world’s largest steel company–was forced to give up on plans for a steel plant in Jharkhand, India, after two years’ of planning, local protests, and regulatory hurdles. The company plans to build a plant elsewhere in Jharkhand, but the same political and social obstacles are still in play.

The problem is that what should be a dream team of reformists in New Delhi isn’t focused on reforms–particularly reforms that are priorities for domestic or foreign private enterprises. An op-ed in today’s Financial Times by an Infosys executive notes that “despite the hype in the media about India’s global integration, economic reforms have been halted.”

A possible exception would be taxation, where Singh has moved forward on significant reforms, particularly a nationwide goods and services tax. Yet in areas including education,land acquisition, foreign investment limits, corruption, and the labor market, reforms are stalled.

This is a tremendous opportunity for India. But is India ready to take advantage of it?

*Photo Courtesy of Ford Asia Pacific and Africa

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