By Our Representative
At a time when India’s rulers are basking in happiness that international consultants, Ernst and Young, have pointed to how India has
overtaken China in foreign direct investment (FDI), considering this an indicator of the new business climate under the Modi government, a World Bank
report has found that the country utterly lacks in dynamism in entrepreneurial activity.
The just-released World Bank report, “World Development Indicators 2016”, has found India’s business entry density, which calculates the number of newly registered limited liability corporations per 1,000 people in the age group 15–64, is one of the lowest in the world.
At just about 0.12 per 1000 people in the age group 15-59, the calculation shows that the world average of business entry density is 4.01. By way of comparison, the density in the United Kingdom is 12.90, in South Africa it is 6.54, in Russia it is 4.20, and in Brazil it is 2.88.
Of course, there is some consolation, as the neighbouring Pakistan’s business entry density is worse than India’s, at just 0.04, and Bangladesh’s 0.09, yet in Sri Lanka it is higher, at 0.51, in Nepal it is 0.69, and in Afghanistan it is 0.15.
A measurement which shows the rate at which new businesses are added to an economy, suggesting dynamism and entrepreneurial activity, the data on business entry density are from the World Bank’s 2015 Entrepreneurship Database, which includes indicators for more than 150 countries.
“Survey data are used to analyze firm creation, its relationship to economic growth and poverty reduction, and the impact of regulatory and institutional reforms”, the World Bank report points out.
Another World Bank source says that the new business entry density would show the number of newly registered firms, in which ownership liability is limited to its investment, per calendar year, normalized by population.
“This is a valuable indicator which quantifies the impact of regulatory, political, and macroeconomic institutional changes on new business registration, a vital component of a dynamic private sector”, it adds.
Data on India’s poor business entry density, significantly, has been revealed at a time when the manufacturing value added as a share of gross domestic product (GDP), claimed to capture the role of manufacturing in an economy, has been nearly stagnant in India.
While worldwide, the World Bank report shows, it is 16 percent, in East Asia and Pacific it is 22 percent, in China it is 32 percent, and in Thailand 28 percent. It says, “In South Asia the share has remained fairly constant since 1990; it was about 17 percent in 2014. Between 1990 and 2014 the share increased slightly, from 16 percent to 17 percent, in India, while Bangladesh registered a larger increase, from 13 percent to 17 percent.”
Coming to yet another measure, of innovation is the intensity of research and development, measured as expenditure on research and development as a percentage of GDP, the report says, “Worldwide, it increased slightly from 1.6 percent in 2007 to 1.7 percent in 2013, despite the period’s global financial crisis.”
It adds, “Asia was the first to recover; in particular China’s research and development intensity grew from 1.4 percent in 2007 to 2.0 percent in 2013. In other emerging economies the rise was slower — from 1.1 percent in 2007 to 1.2 percent in 2012 in Brazil — or stagnant — around 0.8 percent in 2007 and 2011 in India.”
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