When a country is considered to be good for business, more companies will be interested in setting shop. This also helps attract foreign investments.
As per the recent report, India's competitiveness has improved. It is now easier to do business in India. This is why, its overall rank improved by 16 places to the 55th position from 71 last year.
Let's look at the key reasons why:
"This dramatic reversal is largely attributable to the momentum initiated by the election of Narendra Modi, whose pro-business, pro-growth, and anti-corruption stance has improved the business community's sentiment toward the government," the WEF report stated. It helps to have a stable government at the helm. This helps the government undertake important reforms which can improve the business environment. After the sub-5% growth, BJP's Narendra Modi won the elections, riding a pro-growth wave. Since elections, his focus has been on getting the economy on track, attracting foreign investment and encouraging businesses in India.
Companies need a positive environment to flourish. This depends on the overall state of the economy too, especially inflation. India has had double-digit inflation for many years. This led to a high-interest rate regime. At the same time, consumer demand took a hit. All this affected consumer profitability. This situation, however, has improved. "Thanks to lower commodity prices, inflation eased to 6% in 2014, down from near double-digit levels the previous year," the report said. India's macroeconomic stability is now ranked 10 places higher at 91.
The government has spent more than it earned for years together. This led to a really high budget (fiscal) deficit. A high deficit can be inflationary and cause economic slowdown. "The government budget deficit has gradually dropped since its 2008 peak, although it still amounted to 7% of GDP in 2014, one of the world's highest," the report said. This focus on reducing unwanted expenditure and improving its finances is good for the economy.
Imagine if a company manufactured goods but had no means available to transport these to consumers? The company would not be able to make profits. This is why infrastructure is the backbone of a developing economy. India, however, has poor infrastructure. This is a key reason behind the slowdown. "Infrastructure has improved but remains a major growth bottleneck-electricity in particular," the WEF report said. India's rank on this count climbed six places higher to the 81st position.
There have been many improvements-and in the key areas too. This bodes well for the future, the WEF report said.
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