Commonwealth Business Council''s biennial Business Environment Survey 2007 unveils
some very interesting facts and trends in the Commonwealth countries. According
to the report, private sector views on key determinants of a better investment
climate remained consistent with previous views. However, the availability of
free-flowing funds for investment from countries such as India and China means
access to finance is no longer a critical issue for developing countries.
Respondents to the CBC''s Business Environment Survey 2007, highlighted
five indicators, which have improved, compared to the 2005 survey. These include
a better future outlook, corporate governance, human resources, financial architecture
and business friendly tax policies.
expressed sentiments that the business climate has improved due to supportive
policies implemented by the authorities. Clause 49 of the Stock Exchange Listing
Agreement has improved corporate governance by making it difficult to commit fraud.
Friendly tax policies were cited as resulting in better business performance.
The business environment has become more competitive as a result of the open market
Speaking about the findings, CBC director Dr Mohan Kaul said,
"India''s economic reforms are taking place on various fronts, ranging from
privatisation, deepening the financial sector, tax reform and pricing of goods
and commodities. The Rangarajan Committee on Pricing and Taxation of Petroleum
Products proposed eliminating subsidies on petrol and diesel, and in turn the
government reduced customs duty for both commodities from 10 per cent to 7.5 per
is part of an initiative to reduce government spending. Also, more effort is being
put into improving the business environment, also by linking it to education reform
which will see a better educated labour force. At the same time, poverty reduction
will be linked to promotion of agricultural growth for rural populations. These
are excellent moves."
On the whole, respondents acknowledged that
this is an exciting period for businesses that are competitive. They noted remarkable
improvements in telecommunications and the growth in most sectors of industry
as positive developments.
The respondents urged for more openness and
accountability and indicated that with an efficient judiciary, problems of corruption
could be addressed. Many agreed that infrastructure needs including roads, power
and underdevelopment in rural areas needs to be looked into. Problems of counterfeiting
and complex tax laws were also raised.
Highlights of the report:
stability has improved since 2002 and the Congress Party-led UPA government has
made reform of the financial system one of its leading priorities Initiatives
are underway to develop money and government securities markets
monitoring will strengthen regulation of derivatives
in spite of a decade of reform, the regulation of capital markets needs to be
boosted, especially at the interface between the public and private sectors.
June 2007, the country announced its intention to raise $450 billion for infrastructure
over a five-year period
bilateral deals with Japan would result in technological and financial support
for the Delhi - Mumbai and the Delhi - Calcutta freight corridors
ICT sector and telecommunications are the fastest growing in the region.
2005, there were 49.75 million fixed telephone lines in use and 69.193 million
mobile cellular subscribers
subscribers are now being added at the rate of 8 million per month, the fastest
rate in the world
sector is set to improve as India has become a hub for call centres and business
outsourced services, particularly for companies from the US and UK
labour force is divided between a small, highly skilled segment of tertiary-educated
scientists and technicians and a mass of unskilled, largely illiterate workers
The availability of semi-skilled labour is often poor
has seen important increases in FDI inflows since 2000, when they reached $2.32
billion; The value of FDI inflows almost doubled to $4.27 billion in 2002 Growth
has continued at unprecedented levels, from $4.585 billion in 2003 to $5.474 billion
highest levels of FDI were reached in 2005 at $6.598 billion, the result of high
capital inflows into the technology sector and into privatised former parastatals
- FDI outflows
saw a peak of $1.40 billion in 2001, having increased by $888 million on the previous
year, but decreased to $1.3 billion in 2003. In 2004, outflows surged to $2 billion
but dropped to $1.3 billion in 2005. This signals a new boom in which Indian companies
have begun to acquire foreign companies, such as the takeover of Corus by Tata
inward stock increased by $11.88 billion during 1995-2000, and in 2003 reached
investment has been in transport, services and manufacturing of electronic equipment.
economic reforms are taking place on various fronts from privatisation to tax
Indian corporate sector has itself become more externally focused, acquiring foreign
firms themselves. They have been acquiring companies in advanced economies as
a way of gaining access into certain markets and also to pursue technology transfer
- The business
environment in India, with its low leverage, enables companies with high profitability
to easily acquire the finances necessary for buyouts, unlike in East Asia where
leverage is high
favourable factors that make this new boom of overseas acquisitions attainable
are: international efficiency of manufacturing companies and low production costs.
recommendations for India
Action points to attract investment and
provide a favourable environment for business include:
more in poverty alleviation through education and health
infrastructure, particularly rehabilitation of roads and access to energy sources
tax with a view to reducing complexity and ensuring consistent policies; and
privatisation to improve efficiency of services.
In January 2007, a Special Economic Zones (SEZ) initiative
was set up, shifting the acquisition of land from state governments to developers.
The idea is similar to the Chinese tax-free zones designed to promote trade. Each
zone is limited to 5,000 hectares.
Permission will be granted for 83 SEZs with the possibility of a further 162 areas.
It is hoped that this will encourage industrialisation in rural areas and shift
the rural populations from traditional dependence on farming.