To do or not to do business in India

Doing business has been a major concern for international businesses interested in setting up shop in India. Though India as a market is attractive to international investors, the fact that it is not a business-friendly place makes its decision to open offices very difficult.

In the latest Doing Business report for 2015 published by the World Bank, India ranks a lowly 142 out of 189 nations, a drop of eight ranks from a year ago. For a nation touted to be a co-leader of economic growth in the world, this is not a good sign. Hence, this was another important concern the India growth outlook panel voiced.

In this report, Delhi was included for the first time along with Mumbai. The report highlighted three areas where reforms made doing business easier:

1. Starting a business: Starting a business in India became easier due to a considerable reduction in registration fees. However, introduction of a requirement to file a declaration before the commencement of business made this aspect slightly harder than before.
2. Protecting minority investors: Minority investor protection was enhanced as India began warranting greater disclosure of conflicts of interest by board members. It also increased the available options in case of disadvantageous related-party transactions and introduced additional safeguards for shareholders of privately held companies.
3. Getting electricity: Electricity became cheaper as the power distribution utility in Mumbai reduced the security deposit charges for a new connection.

Except “protecting minority investors”, where India improved by 14 ranks from 2014 to the seventh rank, India slid in all other aspects. India fell by six ranks each in registering property and getting credit. The worst aspect among the 10 remains “enforcing contracts”, closely followed by “dealing with construction permits.”

Though the government has made the right choices, the business community is adopting a wait-and-watch stance. Though we haven’t seen a direct impact on India-focused investments like the WisdomTree India Earnings Fund (EPI), the PowerShares India Portfolio (PIN), the iShares S&P India Nifty 50 Index Fund (INDY), the iShares MSCI India ETF (INDA), and the iPath MSCI India Index ETN (INP), an improvement in this facet by a Prime Minister with a business-friendly image is not only expected but warranted.

Infrastructure has been the Achilles’ heel for India. The next article will give you a flavor of India’s infrastructure and the reason for its present state.