India as a nation for investment and business

India has been ranked 64th in a global list of best countries to do business in, dropping from 51st place last year. While India has dropped 13 places, China is down two notches to No 79.

In the new Forbes study that compared business climate from various angles in 121 countries, Denmark tops the list, having displaced the US, last year’s leader. Ireland and Finland follow at No 2 and No 3 spots. US are at No 4 now, followed by UK.

The India and China’s fall in rankings this year is ascribed to demonstrated resistance to increasing personal freedoms. Higher inflation from food and other commodity costs, as well as increased burdens on entrepreneurs also held the world’s most populous nations back as business destinations.

Pointing out that the Indian government has reduced controls on foreign trade and investment, tariff spikes in sensitive categories, including agriculture, and incremental progress on economic reforms still hinder foreign access to India’s vast and growing market.

Privatisation of government owned industries remains stalled and continues to generate political debate; populist pressure from within the UPA government and from its Left Front allies continues to restrain needed initiatives.

Strong growth combined with easy consumer credit and a real estate boom fuelled inflation concerns in 2006 and 2007. This had led to a series of central bank interest rate hikes that have slowed credit growth and eased inflation concerns.

To find the best countries to do business in the research agency analyzed business climates in each of more than 120 national economies, focusing on degrees of personal freedoms, like the right to participate in free and fair elections, or freedom of expression and organisation.

Investor protection examines the recourse held by minority shareholders in cases of corporate misdeeds, while corruption looks at the number and frequency of similar misuse of corporate assets for personal gain. Together with economic policies supportive of free trade and low inflation, these key points form a snapshot of countries’ suitability for capital investment.

In developed nations like Germany (No. 21, down nine) and France (No. 25, down nine), scandals in the banking sector and tougher barriers for entrepreneurs led to decline.

One of the biggest declines, the magazine said, came from Japan (No. 24, down 21), where a Council on Economic and Fiscal Policy spelled out problems with the world’s second-largest economy earlier this year. Among others, the committee’s report cites the nation’s 40 percent corporate tax rate as uncompetitive compared with regional rivals like Hong Kong at 17.5 percent and South Korea at 25 percent.
A recent survey conducted by the Japan Bank for International Cooperation (JBIC) shows that India has become the most-favored destination for long-term Japanese investment.
While nearly 70% of Japanese manufacturers regard India as the most attractive country to do business over the next 10 years, around 67% preferred China. Russia came third with a 37% rating, followed by Vietnam at 28%.
During 2007, which was ascribed as the Indo-Japan friendship year, Anchor Electricals was sold out to Osaka-based Matsushita and Lumax industries was acquired by Japan’s Stanley Electric world leader in illumination products.
In 2006, the Poonawala Group sold its stake in Eagle Seals and Systems to Japan’s Eagle Industry. And 2005 witnessed two acquisitions, one was the stake purchase in International Tractors by the Yanmar group and the other was the acquisition of Chennai’s SRP Tools by Mitsubishi Heavy Industries.
The automobile sector has been the area where the Japanese presence is the most noticeable. But their interest has now spread to various sectors like machine tools, electronics and IT. According to India Brand Equity Foundation, Japan ranks fifth in terms of cumulative FDI equity inflow into India. Japan’s FDI in India is projected to be around $5.5 billion over 5 years from 2006 to 2010.

India is a growing economy, hence a lot of Japanese companies want to invest here. However, because of less work experience in this part, in terms of not only size but language as well as culture, acquisition is one of the better alternatives to enter Indian market.

Many sectors in the developed Japanese economy, which have a negligible growth rate, do not have much scope to grow. In view of this, Japanese companies need a presence in emerging markets to grow. Till some time ago, for Japanese companies it was mainly China, Thailand and other south east countries. But now India has become so attractive that it can’t be ignored.

Moreover, there is no dearth of funds as Japanese banks are ready to loosen their purse strings to fund the acquisition plans of their corporates. Traditionally Japanese have found automobiles, IT and now pharmaceuticals in India to be attractive. But now even other sectors are also being looked at. With India’s growth forecast to slow down, a final decision on entering India has not been made.

Finance seems to be one of the attractive sectors being explored by Japanese companies. While Shinsei Bank has set up its investment arm in India, Nomura Holdings, Japan’s largest securities firm, has already expressed its intent to venture into Indian markets. It is open to acquiring outfits involved in broking business and investment banking among others.