Rigid land and labor laws and protectionist trade policies are hindering investment in India even though the government has made strides in improving the ease of doing business, according to the World.
It’s
going to take more than low corporate taxes to lure investors to
India.
Rigid
land and labor laws and protectionist trade policies are hindering
investment in India even though the government has made strides in
improving the ease of doing business, according to the World
Bank.
“What
inhibits are restrictive regulations which affect its land, labor,
logistics and also its policies which affect trade and goods and
services,” said Aaditya Mattoo, an economist with the World Bank
and co-author of the World Development Report 2020 on global value
chains.
That’s
why the production that has relocated from China due to the trade war
“has not gravitated toward India,” he said in New Delhi on
Tuesday.
India
jumped 14 places to 63rd in the World Bank’s latest rankings on
ease of doing business, but logistics costs are still three times
higher in India than in China and two times higher than in
Bangladesh.
With
its 1.3 billion people, India is the biggest consumer
market in Asia after China, yet businesses are overlooking India
in favor of manufacturing powerhouses like Vietnam amid the trade
war.
Companies
operating in India have little flexibility in hiring and firing
workers, while acquiring land is not easy. The labor laws are
something Prime Minister Narendra Modi wants to address in new
legislation as he ramps up reforms to bolster a slowing economy.
Mattoo
said the trade war is weighing on growth prospects, and if increased
global policy uncertainty curbs investment, India’s income and
exports would both decline by about 1 percentage point.
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