IMPROVEMENT IN BUSINESS ENVIRONMENT - ECONOMY

IMPROVEMENT IN BUSINESS ENVIRONMENT - ECONOMY

NEWS: In 2024, India ranks as the third most improving country in terms of business environment according to the Economist Intelligence Unit (EIU).

WHAT.S IN THE NEWS?

India’s Business Environment Improvement

  • Areas of Progress: Key advancements are noted in India's:
    • Foreign Direct Investment (FDI) Policy
    • Foreign Trade Regulations
    • Exchange Controls
    • Taxation Reforms

EIU’s Index Methodology

  • Time Span: The index considers data from the previous five years and forecasts the next five years.
  • Comparison with World Bank’s Former Index: The EIU’s index is more comprehensive than the World Bank's discontinued "Ease of Doing Business" rankings, as it encompasses a broader set of factors beyond regulatory procedures.
  • Country Coverage: The EIU index evaluates 82 countries and territories, scoring each on 91 indicators across 11 categories.

Categories Assessed in the EIU Index

  • Political Environment: Stability, governance, and political risks.
  • Macroeconomic Environment: Economic stability, inflation, fiscal policy.
  • Market Opportunities: Potential for growth in various sectors and markets.
  • Policy Toward Free Enterprise: Regulations around business operations and competition.
  • Policy Toward Foreign Investment: Openness to foreign investments and related incentives.

Leading and Improving Economies

  • Top Performers: Singapore, Denmark, and the United States are the top three economies with the best business environment, characterized by:

·         Advanced Economies: Long-standing stable performers.

·         Stable Growth: Predicted to have slow but stable headline and per capita GDP growth.

·         Singapore: Ranks first with a score of 8.56, highlighting a favorable business climate.

  • Emerging Improvers:

·         India, Greece, and Argentina: Identified as the most improved in terms of business environment.

·         Expectations for Growth: These countries are projected to see major advancements in policy, infrastructure, and market opportunities over the next five years.

 

Impact of Business Environment Improvements

  • Per Capita GDP Growth: Anticipated uptick due to a better business climate.
  • Increase in Investments:
    • Investment Spending: Likely to rise with enhanced business conditions.
    • Foreign Direct Investment (FDI): Improvements are expected to attract higher levels of FDI.

India’s Strategic Advantages

  • Market Scale: India is noted as the only single-country market with potential comparable to China’s scale.
  • Youth Demographics: A youthful population base is seen as a significant advantage, offering:
    • Strong Consumer Demand & Ample Labour Availability.
  • Solid Economic Fundamentals: The Indian economy benefits from strong foundations, including:
    • Digital Infrastructure Growth.
    • Demographic Dividend.
    • Favorable Government Policies.

Economic Diversification and Investment Trends

  • Shifts Away from China: Global investors are increasingly diversifying away from China, with India and Southeast Asia emerging as key beneficiaries.
  • Infrastructure Investments: India is focused on massive infrastructure spending to boost economic growth.
  • Local Manufacturing Push: Government initiatives aim to reduce bureaucratic hurdles and promote domestic production through:
    • Incentives for Local Manufacturing.
    • Investment in Research and Development (R&D).

Government’s Vision and Challenges

  • Long-Term Vision: Prime Minister Narendra Modi aims to transform India into a developed nation within the next 25 years.
  • Policy Priorities:
    • Streamlining Bureaucracy: Efforts to cut red tape.
    • Economic Reforms: The upcoming budget (due February 1) is expected to be pivotal in charting further economic reforms.
  • Job Creation Challenge: Addressing employment needs for India’s large and growing workforce remains a pressing issue.

Scoring System in the EIU Index

    • Scale Range: 1: Very bad for business. 5: Very good for business.
  • Period Considered: Each indicator is scored for both the preceding five years and the projected five years.

Key Takeaways

  • Emerging Market Focus: Countries with mid-tier rankings like India, Greece, and Argentina are seen as high-potential markets for future investment.
  • Strategic Shifts: India’s strategic policy shifts, infrastructure investments, and favorable demographics position it as a key global market.
  • Growth Outlook: The anticipated improvements in India’s business environment are likely to foster economic growth, attract investments, and boost GDP in the coming years.