That the Indian economy is facing challenges is not new. The country is facing a mountainous problem in the form of high deficits, weakening currency and failing investor confidence. This has hurt nearly every industry and company in the country. And this has prompted many of them to move beyond the country's borders to try and boost their fortunes. The country's policy framework has not really helped companies. The red tapism and bureaucratic procedures have made doing business next to impossible. The government dillydallying on existing policies has not helped the situation either. At the same time structural roadblocks have kept inflation high. To add to this is the problem of the falling Rupee. All this have forced RBI to keep interest rates high as well. Therefore the only way out for many companies is to move out of the country. Leading business tycoon, Kumar Manglam Birla has already indicated that he prefer to do business outside the country due to lack of transparency in the government policies. As things are worsening many more businesses seem to be opting to either cancel their expansion plans in India or to shift focus to overseas markets. The only way out is for the government to step in and do its job. But is it willing to do so?
Where will businessmen go? Is growth potential all that matters? The answer seems to be no. Some very critical factors that play a decisive role in where businessmen will invest are red tape, corruption, infrastructure, etc. India ranks very poorly on these important parameters. This explains why despite having great untapped growth potential, the Indian economy is struggling. And this is also why economic activity is shifting out of India.
An article in The Economist very aptly articulates this point. Here are some noteworthy instances. Indian airplanes are usually serviced in Dubai, Malaysia and Singapore. Why not in India? The reasons are high penal taxes in India and high customs duties on imported spare parts. Many Indians have headquartered their businesses in Dubai. The reason is simple. Dubai offers a much better logistical base with its ports, air links and immigration rules.
Take Singapore. It is said to be the largest hub for Indian trade. It thrives as an investment banking center owing to stringent regulation of India's banks and debt markets. Indian e-commerce firms too often get their data crunched in Singapore. Similar is the case with legal services. It is worth noting that at least half of all rupee trading takes place outside India.
Then there is Colombo, a very important port in Sri Lanka. Of the containers bound to India, about 30% go via intermediate hubs fed by small vessels. Why so? There are majorly two reasons. Either big shipping lines do not want to deal with India's customs regime or their ships are too big for India's ports.
One can understand economic activity moving out of developed economies owing to high costs. But for a developing country like India, it is a very grave sign. Policymakers ought to wake up before India's growth prospects go down the drain.
Source : Equity Master
Where will businessmen go? Is growth potential all that matters? The answer seems to be no. Some very critical factors that play a decisive role in where businessmen will invest are red tape, corruption, infrastructure, etc. India ranks very poorly on these important parameters. This explains why despite having great untapped growth potential, the Indian economy is struggling. And this is also why economic activity is shifting out of India.
An article in The Economist very aptly articulates this point. Here are some noteworthy instances. Indian airplanes are usually serviced in Dubai, Malaysia and Singapore. Why not in India? The reasons are high penal taxes in India and high customs duties on imported spare parts. Many Indians have headquartered their businesses in Dubai. The reason is simple. Dubai offers a much better logistical base with its ports, air links and immigration rules.
Take Singapore. It is said to be the largest hub for Indian trade. It thrives as an investment banking center owing to stringent regulation of India's banks and debt markets. Indian e-commerce firms too often get their data crunched in Singapore. Similar is the case with legal services. It is worth noting that at least half of all rupee trading takes place outside India.
Then there is Colombo, a very important port in Sri Lanka. Of the containers bound to India, about 30% go via intermediate hubs fed by small vessels. Why so? There are majorly two reasons. Either big shipping lines do not want to deal with India's customs regime or their ships are too big for India's ports.
One can understand economic activity moving out of developed economies owing to high costs. But for a developing country like India, it is a very grave sign. Policymakers ought to wake up before India's growth prospects go down the drain.
Source : Equity Master
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