Paradoxical India

India is a study in stark contradictions.  And as two new reports nicely illustrate, perhaps nowhere is this truer than in the country’s effort to achieve great power status.

One of the foundations of India’s growing stature on the world stage is its dynamic, internationally-competitive private sector – an area where India shines in contrast to China’s reliance on state-owned enterprises.  Indian entrepreneurs and business leaders are admired worldwide, and the country’s rising “soft power” appeal rests in important measure on its reputation for corporate prowess.  Indeed, the Indian approach to frugal innovation (“jugaad”) has become the latest buzzword in Western business circles (– see, for example, The India Way, a new book published by Harvard Business School).  And the country’s technology titans – Infosys, Tata Consulting Services and Wipro – have quickly become global icons that are poised to challenge the world-wide dominance of such U.S. services providers as IBM, Accenture and EDS.

A new report by Ernst & Young shines additional light on this aspect of Indian power.  It finds that the country’s companies are developing new frontiers in Europe.  Indian investors are now the second-ranked providers – just behind the Americans – of foreign direct investment in Europe in the business services, software and financial sectors.  The report also predicts that China and India will emerge as the most attractive destinations for global FDI flows over the next three years.

But as a second just-released report highlights, India still has far to travel before it can truly claim to play in China’s economic league.  According to a survey (see media reports here and here) of some 1,400 expatriate business executives in Asia, conducted by the respected Hong Kong-based firm, Political and Economic Risk Consultancy, India holds the dubious distinction of possessing Asia’s most inefficient bureaucracy.  The Indian penchant for copious amounts of red tape, the report argues, is holding the country back from matching China’s world-beating growth rates, not to mention deterring additional foreign investment.

The survey’s findings mirror the results of several other studies: 

• The World Bank’s 2010 survey on the ease of doing business ranks India 133^rd out of 183 countries (right behind Tanzania and Malawi).  By comparison, China places 89^th.
• The 2009-2010 Global Competitiveness Index, issued by the World Economic Forum, scores India 95^th out of 133 countries in terms of the burden of government regulation (China ranks 21^st).
• The 2010 Index of Economic Freedom put out by the Heritage Foundation (a Washington DC-based think tank) and the Wall Street Journal ranks India 124^th (right behind Cote d’Ivoire).  In the area of business freedom, India scores well below global standards and significantly lower than in China.  As the Index notes, “India’s overly restrictive regulatory environment does not facilitate entrepreneurship or realization of the economy’s full potential.”

India’s ascent up the great-power ladder is one of the signal developments of the 21^st century.  Yet as these new reports make plain, the country is making the climb with its hands restrained.