Can India’s ‘Dance of Democracy’ Deliver a Business Friendly Result?

April 4, 2014 Posted by India Briefing Reading Time: 5 minutes

Op-Ed Commentary: Mark Hannant

As a foreigner living in India I’m not entitled to vote in the imminent Lok Sabha election. So in some ways the ballot, billed as the largest in history, is not my concern.

But as an investor in India who has brought foreign capital to the country it concerns me greatly. I’m keenly interested in the election result, what it means for the economy and whether it makes doing business in India any easier. The country scores low on the World Bank’s annual ‘ease of doing business’ ranking: overall it’s 134th out of 189 countries in the 2014 list – down three places from last year. The final position is made up of a set of specific measures. When it comes to enforcing contracts Indian is placed 186th. That puts it just three places above bottom placed East Timor – the war-torn tip of an archipelago that spent decades fighting off its Indonesian colonisers and was, until 2002, administered by the UN. India has had 67 post-colonial years to get its house in order yet remains anchored at the bottom.

The World Bank analysis does offer comparisons with previous rankings and it says that when it comes to construction permits India has introduced reforms, which are easing that measure. So now India ranks 182nd up one place. No surprise that the construction and infrastructure sectors are riddled with corruption. And while some observers may see these as areas with exciting potential there are others who would caution against foreign investment into sectors where there is significant state and central government participation.

It’s not all doom and gloom. India scores much better on other measures.

It gets double digit rather than triple digit scores on protection of investors (34th) and the availability of credit (28th). In reality even the latter’s relatively impressive position belies the everyday reality that to get an Indian bank to lend you money you need to show them precisely (in triplicate with a no objection certificate signed by your granny) why you don’t need the money.

Doing business in India is tough. It’s not for the faint hearted. And that’s not to do with being a foreigner. The BBC interviewed me last week for a story on the challenges facing foreign entrepreneurs in India and I made the point that the impediments are not to do with the colour of my skin. In some instances that gives me an advantage. Soft infrastructure, the eco-systems of reliable market data, banking and credit facilities, transparent and predictable regulations, educational and legal institutions, the things that help entrepreneurs and investors make informed business decisions are largely absent.

Navigating these ‘institutional voids’ becomes the hidden cost of doing business in India. So I’m interested to see what the prospective candidates have to say about trade and foreign investment, of which all parties claim they are in favour.

The Congress Party, which holds the majority in the incumbent UPA coalition, has made an oddly worded manifesto pledge of “zero aversion to foreign investment”. Given that Congress has been in power for more than 50 of the 67 years since India’s independence it clearly has to shoulder a large chunk of the blame for the fact that India is currently in many ways ‘closed for business’. But at least the Congress Party has gotten as far as publishing a manifesto. The BJP, main challenger to Congress and positioned as the party of business, has postponed publication of its manifesto. Interested voters will get a chance to see it on the day voting begins. The third way Aam Aadmi party, rooted in the recent youthful anti-corruption movement was, at the time of writing, a mere four days before the poll begins “proofreading” its document according to media reports.

So as with much in India it’s difficult to make an informed comparison.

While I can’t cast a vote next week I will be watching carefully.

India has immense potential given its demographics. It is home to 1.2billion people. More than one in six people on the planet lives in India.

India’s population grew by 180 million people in the ten years between the census of 2001 and 2011. That’s the equivalent of three times the UK population added in a decade. This scale of change gives a sense of both the opportunity and the challenge that India presents.

It’s not just the number that’s significant but also the make-up of the population. A large proportion of Indians are young. 66 percent are under 35 and that’s a major contributor to India’s demographic dividend – a bulge in the number of working age people and a decline in the proportion of dependents over the next couple of decades.

Consultants Deloitte suggest that by 2020 India will have the third largest middle class consumer market – behind China and the U.S. By 2030 it will, says Deloitte, have surpassed both the U.S. and China and have an aggregated consumer spending of nearly US$13 trillion. Such numbers assume that investment will flow and that requires a government that can deliver reform and provide an environment of predictability and transparency capable of winning the battle for foreign investment.

Mark Hannant is an entrepreneur and business communicator, assisting International and Indian companies develop their communications strategies in India.

He lives in Mumbai and can be contacted at mark@teammagenta.com

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