Published: 20th Apr, 2023
Context
In a report published by the Economist Intelligence Unit (EIU), India seems to have inched ahead in terms of ease of doing business.
Key-highlights of the Report
- Singapore has retained its number one rank among all. Canada and Denmark were ranked joint second with the US and Switzerland occupying fourth and fifth place respectively.
- India has moved up six spots since the last report. From the 14th rank for the period between 2018-22, India now stands at 10th rank in terms of business environment for the period 2023-27.
- India, Vietnam, Thailand, Belgium, Sweden, and Costa Rica made the biggest improvements over the past year in their business environments, whereas China, Bahrain, Chile and Slovakia deteriorated the most.
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The EIU’s Business Environment Ranking (BER) measures the attractiveness of the business environment in 82 countries on a quarterly basis, using a standard analytical framework with 91 indicators. |
What led to the improvement?
- Foreign trade: The improvement is mostly attributable to gains in its scores for foreign trade and exchange controls, infrastructure, and technological readiness
- Profitable market: India’s highest-scoring category is market opportunities, helped by the large and growing domestic market that the country offers.
- Beneficial geopolitical trends: India has also benefited from global geopolitical trends, in particular the tension between the US and China.
- Stability and labour supply: In India, a strong, stable economy and access to a large labour supply form the basis of its appeal to investors.
- Easier policy reforms: In addition, policy reforms are making it easier to do business in India, and the researchers at the EIU are expecting major improvements in areas such as infrastructure, taxation and trade regulation which will boost investment.
- Demography: Another factor playing to India’s advantage is its generally youthful demographic which promises good availability of labour.
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India’s Demography EIU forecasts India's working-age population to expand by almost 100 million in the period to 2030, pushing it comfortably past 1 billion, while that of China will fall by 40 million to under 950 million. India’s median age of 28.4 years compares favourably with that of 38.4 years in China. The rise in population creates an additional incentive for the government to develop the manufacturing sector to absorb additional workers. |
Challenges
- Low labour participation rate: The low labour participation rate remains a weakness in India’s labour market environment.
- The overall labour participation rate in India consistently falls short of 50 per cent, below peer economies, mainly because female participation in the labour force remains extremely low.
- As a result, India’s labour force is smaller than that of China, even though it has a larger working-age population.
- Low levels of literacy and technical skills are a further constraint.
Why is China losing?
- China has been losing favour with international investors who are shying away from the middle kingdom due to regulatory changes stemming from the statist direction of economic policy as well as rising local costs weigh.
- This has resulted in China being labelled as the “biggest loser” in the EIU survey, falling 11 spots in the global rankings compared to a year ago.
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