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Private sector feels India is a ‘difficult place’ for business: World Bank

'Private sector strongly feels that India is difficult place to do business in due to many regulations...'

Washington | Published: April 10, 2014 4:31:20 pm

The private sector strongly feels that India is a difficult place to do business in due to many regulations, World Bank President Jim Young Kim said today, calling for necessary reform to create a better environment and spur growth.

“The private sector has the strong sense that India is a difficult place to do business in because of so many regulations and government regulations that are a bit unpredictable,” the World Bank President told journalists at a round table with media representatives from eight countries.

The media representatives from India, China, Mexico, Brazil, Indonesia, Bangladesh, South Africa and Tunisia took part in the round table.

“This is the direct impression that many private sector players have and we know very well that the Indian government, especially the leadership knows this very well and they’re moving in a direction to try to improve that,” Kim said during the media round table, held on the sidelines of the annual Spring Meeting of the International Monetary Fund and the World Bank.

Kim was highly appreciative of the top Indian leadership including Prime Minister Manmohan Singh and Finance Minister P Chidambaram.

He was also appreciative of Reserve Bank Governor Raghuram Rajan. Kim said all of them were well aware of the difficulties and what needs to be done to address such challenges.

“The Central Bank (RBI) Governor Mr Rajan has already announced some financial sector reforms that I think (they) are very promising. The thing that strikes me is that when I speak with for example Finance Minister Chidambaram and, you know, Prime Minister Singh, they know exactly what needs to be done,” he said.

“We know that for example there has to be reform in terms of government regulations so that the private sector can really take off,” World Bank President said in response to a question.

Noting that India is very focused on improving its educational system, he said, one of the things “we know now” is that investing in human beings, improving health outcomes and investing in education, is extremely important for economic growth.

India understands that and is trying to move in that direction, he said.

Kim said he is working with the Indian government on ideas to improve their healthcare system.

“They know they need to make progress in those areas. But I think that there is a lot that India can do to improve its business environment,” the World Bank President asserted.

Observing that there is a lot of relatively idle capital sitting around in the world, trillions of dollars earning very low interest rates, he said India needs to tap on these resources through necessary policy changes.

“We know that those investors, whether they’re from sovereign wealth funds, pension funds, and even private capital, they really want to invest in places like India and Africa but they’re just worried that the business environment might not be really what they would expect or what they would hope for. And they’re not sure whether an investment will be protected over time,” Kim said.

“So this is what many, many middle income countries have to do, they have to make government regulations clearer and more amenable to the kind of private sector growth that every country in the world needs,” he said.

He suggested that the middle income countries need to make those government regulations more predictable and they need to think about how to strategically make investments in infrastructure so as to attract investment.

“So there are two major things. The first is you have to grow your economy. So over the past 20 years about 75 per cent of the success in ending extreme poverty has been through growth. And about 25 to 30 per cent, something like that, has been through redistributive mechanisms. So spurring growth is critical,” he said.

“That is why those things I’ve talked about making sure that the private sector can grow in a predictable environment, that’s really, really critical. But then the other part is redistribution. And in this case it’s directly investing in human beings, health, education, social protection programmes,” he noted.

Kim praised India for its record in improving the quality of healthcare services and improving quality of education.

“You know, many countries are benefitting from the so called demographic dividend, lots of young people. But you’re not going to reap that dividend unless you really invest in those young people and education is difficult,” Kim said.


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