Is India's anger towards World Bank justified? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

Is India's anger towards World Bank justified? 

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In this issue:
» Why are big Chinese banks hoarding gold...
» With Soros turning bearish should you cash out of equities?
» Take-away from PM Modi's Japan visit
» Will central banks across the world raise rates soon?
» ...and more!

Getting ranked 134th out of 189 possible positions is a matter of shame. But it would make anyone fume especially if the rating is on flimsy grounds and full of anomalies. This is exactly what India's reaction has been to the latest World Bank's 'Doing Business' report where it has been ranked poorly at 134th place. It has rebutted the report and questioned its authenticity.

First let us see why the World Bank ranking matters and then we will analyze some of the discrepancies in the report. Obviously, higher ranking gives global investors a confidence in the country. It also indicates lower bureaucratic interference and less paper work. This attracts investments into the country. Thus, the ranking is of utmost importance when it comes to attracting foreign money.

Now, coming to why India chose to disregard the report. According to the report, the number of mandatory documents required to export and import from India stand at 9 & 11 respectively. However, government argues that the figure is 5 for exports and 7 for imports. Higher documentation naturally creates a hurdle in doing business resulting in a lower rank. As an example, one government official said if the true number of mandatory documents is taken into consideration, the ranking could jump by 30 places.

Also, the report states that the average cost of exporting from India is double than that of the neighbouring Asian countries. India has also questioned this finding and termed it discriminating.

While we agree that some factual anomalies could have resulted in a lower ranking, we cannot deny the fact that India is mired with red tape. For the sake of simplicity, let's assume that there is indeed an anomaly in the report and India jumps by 30 places. Even then it would land at 104! And that by no means is a respected position considering India is a hot investment destination.

Lack of willingness from the government and 'babu' culture in India is primarily responsible for such a poor ranking. Hence, there is an urgent need to revamp it. With the new government assuming power at the centre, there are expectations that red tapism could come down dramatically. And an era of more red carpets would begin. As a testament to this, PM Modi has already secured a US$35 bn investment into India from his recent Japan visit.

And we hope this is just a beginning of a long journey. Just imagine the kind of opportunity that would be in the making once we get into say top 50. At 134, we attracted Rs 789 bn of net FII investment year to date. A rank in top 50 can certainly spur foreign investments. And benefit the economy as a whole. Seems if the Government shows true intent, Achhe Din could well be ahead of us.

Do you believe a higher rank in ease of doing business can attract more investment into India? Let us know your your comments.

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01:50  Chart of the day
India has taken rapid strides in the fields of business and technology. But the country lags behind in global competitiveness due to lack of inclusive growth. In the latest survey on global competitiveness by World Economic Forum, India has slipped down further to the 71st ranking in FY15 from the 60th ranking in FY14. Switzerland tops the list as can be seen in today's chart. Also, it is interesting to note that the ease of doing business in India is the least among BRICS nations comprising of Brazil, Russia, India, China and South Africa. The main factors acting as stumbling blocks for doing business in India are long bureaucratic processes to start business, poor infrastructure, high inflation and tax rates and low primary health and education resulting in rigid and inefficient labour markets. However, the redeeming factor is that the country still ranks favourably on business sophistication and innovation. Therefore, if India were to attract global investments and achieve export competitiveness, then these structural issues need to be urgently resolved.

India figures nowhere in global competitiveness

When one of the world's best investors is making a significant investment, you better sit up and take notice. We aren't referring to Warren Buffett here but someone who's perhaps at the opposite end of the spectrum in terms of investment philosophy. A certain gentleman who answers to the name of George Soros. In fact, we are not even sure whether we can call him an investor. Perhaps the word trader suits him better. Nevertheless, what cannot be argued about are his investment skills. And therefore, when he takes huge position in an asset, it certainly is worth paying attention to. As per his latest filings, he has increased his bearish position by a whopping 605%! In other words, he seems to be betting on some kind of a sharp correction in the markets. This is not all. He has added plenty of gold related assets too in his portfolio over the last one quarter.

Well, our own view is not very different from that of Soros. We have been writing about stock valuations going up for quite some time now. And also about how repeated central bank interventions in the economies is making the case stronger and stronger for the yellow metal gold. Of course, we cannot time these events to perfection and the only way to guard against them is to be adequately prepared. Therefore, it won't be a bad idea to go lighter on stocks that are close to their intrinsic values and also make gold a small percentage of the portfolio.

Will they or won't they? Raise interest rates that is. This is the big question that is being asked of the US Fed as well as the central banks in England and Europe. Lately, talks have been rife that the US Fed would attempt to hike rates. It must be noted that these rates have been close to zero since late 2008 when the global crisis deepened. Since last year, the Fed has been trimming its bond purchases, so there is speculation that a rate hike is on the cards? But is this as easy as it seems? And more importantly, even if rates are raised, how long will they remain at elevated levels before the Fed chooses to lower them again. History at least does not support the US. Indeed, as per an article on Business Insider, countries such as Sweden, Norway, Australia among others attempted to raise rates following the Great Recession, only to have to lower them once again.

The other thing is the massive debt that the developed world has amassed since the crisis fuelled by loose monetary policies. Raising rates would make servicing this debt very difficult. What more, the US economy and much of the Eurozone has hardly displayed a significant recovery. So even if the interest rates are raised, we will not be surprised if poor growth numbers once again compel these banks to lower the rates.

When it comes to global commodities, no discussion is complete without China. Given its sheer appetite for commodities, it tends to be a decisive factor impacting the demand-supply dynamics therein. In recent years, China has emerged as a big consumer of gold. And hence, gold investors cannot ignore the dragon in the room.

Here is an interesting piece of news that we came across in Money News... At the end of the June 2014 quarter, the four biggest Chinese lenders held precious metals worth US$ 62 bn. This is 66% higher than the value of the precious metals that they held a year ago. What is causing Chinese banks to increase their gold holdings? Here is why... China has been trying to tighten credit supply by increasing borrowing costs and suspending credit supply to risky sectors. This move comes against the backdrop of a property slump and rising defaults. This has made it difficult for banks to lend funds. And this is where gold leasing comes in the picture. For newbies, gold leasing can be likened to lending or borrowing of fiat currencies. For banks, this business is lucrative because there are no loan caps and it is considered off-balance sheet lending. For companies, it works because it helps them get cheaper credit since the lending fee is lower than the interest rate on a loan.

With Prime Minister Narendra Modi returning from Japan today, he has brought along with him the promise of $35 bn in funding for development projects here in India. This will be a big boost for infrastructure building over the next five years. More so considering that private investors here in India, hurt by the slowdown, have been shying from big ticket infra investments. Public spending too will be under pressure as the government has been under constant pressure to narrow the fiscal deficit.

In such a scenario, external funding is set to be a very important source of infrastructure building in the country over the next few years. This is a point that also came up in one of our recent conversations with the management of one of India's largest engineering companies - L&T. Indeed, it is a refreshing change to see an enthusiastic and vocal Prime Minister canvassing the cause of India's infrastructure development on a global stage in such an aggressive manner.

The Indian stock market continued its upward momentum in the noon trading session. At the time of writing, the BSE-Sensex was trading up by 174 points (0.7%). All the sectoral indices, barring FMCG, were trading in the green. Technology, telecom and capital goods stocks were the major gainers today. Most of the Asian stock markets were trading firm with Hong Kong and Japan being the major gainers. Even European markets have opened the day on a strong note.

04:50  Today's investing mantra
"The business schools reward difficult complex behavior more than simple behaviour, but simple behavior is more effective". - Warren Buffett

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6 Responses to "Is India's anger towards World Bank justified?"


Sep 5, 2014

yes I really think IMF is very much favouring western world and is always against India.Modi's step by forming BRICS is a right step in right direction


c n srikanth

Sep 4, 2014

Right from the days of heavy borrowing from World Bank and IMF, these institutions have been oscilklating from bad to somewhat better positions regarding India.


satish k rathore

Sep 4, 2014

Dear Sir,
As per current position, the corruption and red tap-ism are major factors of slow government working.
If every government position is made impermanent( not permanent so in order to create fear among govt. officials) then the working dedication and money invested on facilitation and payment of these officials will gain its real importance. The working would be faster as they will have targets to achieve in their work and will help to decrease pending work significantly.
normally we hear common people say that if you go to any govt. office you would have to either offer bribe to officials or else your work would not be done(or may be done but will take so long time that you will get frustrated and tired). If the positions of govt. officials are made impermanent( every year increment on performance and demotion or suspension on being faulty) their will be significant growth in working and development of India. then only we will be able to say one of the powerful nations of the world. Because in future if Indian economy gets destabilized the whole world economy should get destabilized. likewise what happens with united states of america and china.



Sep 3, 2014




Sep 3, 2014

A higher ranking will help India 100% there is no doubt in that. Of course we demand innumerable documents/attestations/certificates etc. etc for everything but still a higher ranking will make life easy. It will boost the exports. High export price is due to labor cost, access to ports/air ports, transportation costs etc but to achieve more export targets the govt. of India gives subsidy and whatever benefits/grants etc given.


Dattatraya Vaidya

Sep 3, 2014

Absolutely true. Ease of doing business is must. In Singapore, the laws are stricter than India. They do not have nuisance value. In spite of stricter laws, it is extremely easy to do any business in Singapore.

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