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India rising, slowly

20 April 2012 By Jeff Glekin

Don’t say it too loudly, but India may be grasping the nettle on its corruption and bureaucracy. Plans to cut red tape for new businesses, a central bank warning about foreign investment, and a probe into suspect land deals are all steps, however small, in the right direction.

Corruption and bureaucracy are becoming untenable. Many India-watchers complain that Congress politicians don’t seem to have moved on from the pre-reform 1970s. For countries at India’s level of development, graft can sometimes be offset by high growth – China has combined the two for years. But where China’s inefficiencies tend to promote overinvestment, India’s excessive bureaucracy and rent-seeking do the opposite.

Three recent developments give grounds for optimism. First, the central bank last week published an unusually sharp academic critique of New Delhi’s economic mismanagement. It suggested that foreign direct investment into India fell around 35 percent short of potential because of the policy uncertainty. It’s hard to imagine a similar salvo from China’s central bank.

Second, the government’s own auditor continues to unearth scams. The latest scandal to be uncovered is in Mumbai where several top politicians including a former chief minister are accused of securing government land at cheap rates for trusts linked to them and their relatives. Such cases make for depressing reading, but their exposure suggests the system is finally working.

Finally, technology is starting to unblock investment logjams. Jyotiraditya Scindia, a junior commerce minister, has launched website that will allow entrepreneurs to apply for all the 57 clearances needed to start a business through a single website. That kind of nuts and bolts reform is what India needs to unleash productivity. It should build on projects like the unique ID numbers already given to 200 million Indians, which promise to bring government payments direct to the people’s bank accounts rather though multiple layers of central and local government.

There is still far to go. And things could get worse before they get better. Anti-graft moves in particular can slow the investment process down for a while as investors adjust to increased scrutiny. But India is still young, and that means even small moves against corruption and over-regulation can make a big difference.

 

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