India becoming top business environment
The EIU’s Business Environment Ranking (BER) measures the attractiveness of the business environment in 82 countries on a quarterly basis, using a standard analytical framework with 91 indicators.
It predicts the countries that will have the best business environment in the world for the next 5 years. This is the position Singapore has held for the last 15 years.
In a report published last week by the Economist Intelligence Unit (EIU) , Singapore was still at number one spot in a ranking . Canada and Denmark were ranked joint second with US and Switzerland occupying fourth and fifth place places respectively.
India, Vietnam, Thailand, Belgium, Sweden, and Costa Rica made the biggest improvements over the past year in their business environments, whereas China, Bahrain, Chile and Slovakia deteriorated the most.
The model examines 11 categories, such as political and macroeconomic environments, market opportunities, policy towards private enterprise and competition, taxes, financing, and labour market. Each category contains a number of indicators that are assessed by the EIU for the past five years and the next five.
The latest ranking, for Q2 of 2023, shows that North America and Western Europe continue to be the best places in the world to do business. Asia ranks third, ahead of Eastern Europe, while Latin America marginally outperforms the Middle East and Africa (MEA).
The EIU’s BER scores for India show that doing business in the country is becoming steadily easier. India moved up six spots globally and climbed from 14th in the 2018-22 period to 10th in the 2023-27 period among the 17 economies in the Asian region that was in the survey.
The improvement is mostly attributable to gains in its scores for foreign trade and exchange controls, infrastructure, and technological readiness. India’s highest-scoring category is market opportunities, helped by the large and growing domestic market that the country offers.
India has also benefited from global geopolitical trends in particular the tension between the US and China.
The report explained: “Over the last decade, global manufacturing supply chains have been through a period of turbulence. Geopolitical strains between the US and China, the rapid adoption of e-commerce, the covid-19 pandemic and the Russia-Ukraine war have led to a rethinking of strategies for reshoring sourcing, the diversification of supply routes and the localisation of manufacturing.
Many companies have become wary of supply-chain overreliance on China– “the world’s factory” and are implementing or considering “China plus one” strategies aimed at building production across multiple markets.”
China has been losing favour with international investors who are shying away from the middle kingdom due to regulatory changes stemming from the statist direction of economic policy as well as rising local costs weigh. This has resulted in China being labelled as the “biggest loser” in the EIU survey, falling 11 spots in the global rankings compared to a year ago.
In India, a strong, stable economy and access to a large labour supply form the basis of its appeal to investors.
In addition, policy reforms are making it easier to do business in India, and the researchers at the EIU are expecting major improvements in areas such as infrastructure, taxation and trade regulation which will boost investment.
Another factor playing to India’s advantage is its generally youthful demographic which promises good availability of labour.
EIU forecasts India India’s working-age population to expand by almost 100 million in the period to 2030, pushing it comfortably past 1 billion, while that of China will fall by 40 million to under 950 million.
India’s median age of 28.4 years compares favourably with that of 38.4 years in China. The rise in population creates an additional incentive for the government to develop the manufacturing sector to absorb additional workers.
However, the low labour participation rate remains a weakness in India’s labour market environment.
The overall labour participation rate in India consistently falls short of 50 per cent, below peer economies, mainly because female participation in the labour force remains extremely low.
As a result, India’s labour force is smaller than that of China, even though it has a larger working-age population.
Gains in development and education will boost the participation rate, but it will remain a limit on potential. Low levels of literacy and technical skills are a further constraint.
Singapore suffers similar labour market issues despite Singapore’s number one ranking. It remains one of Singapore’s few real weak points. EIU in its report says that it expects the city-state’s score to decrease slightly over the next five years.
Although upskilling has been a main focus area among workers, tighter restrictions on foreign labour will worsen staff shortages already hampering many major sectors.
Singapore had perfect scores in the areas of policy towards foreign investment and foreign trade and exchange controls.
It was also the highest-scoring country in terms of technological readiness, an indication of successful government policies to develop technology infrastructure and the start-up ecosystem.
