India has considerable room to improve biz scenario: IMF

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March 9, 2012

There is a considerable room to improve the business environment in India and boost the corporate investments through measures like lowering of costs and better financial access, an IMF Working Paper has said.

March 9, 2012

There is a considerable room to improve the business environment in India and boost the corporate investments through measures like lowering of costs and better financial access, an IMF Working Paper has said.

Noting that the corporate investments have slumped to 10% of the national economy, from 14% prior to the global financial crisis, the IMF Paper has said that the corporate profitability could also be given a boost through measures like economic reforms and lowering of business costs.

"Cutting various costs of doing business and improving financial access" can help in providing the boost to corporate investments and the the country has considerable room to improve its business environment, it noted.

The views expressed in an IMF Working paper do not necessarily represent those of the multilateral lender.

"Before the global financial crisis, strong corporate investment was behind the increase in investment… Since 2009, however, corporate investment has slowed sharply to 10% of GDP from 14% before the crisis," it said.

Last year, India was placed at the 132nd position among 183 countries in terms of ease of doing business. Even though the ranking was better than in 2010 (139th spot), it reflected relatively high costs of doing business.

'… India could enhance corporate sector profitability by reducing doing business costs, reforming regulation, improving institutions and developing infrastructure,' the paper noted.

As per the report, high and volatile inflation and heightened global uncertainty might have dampened corporate investment.

'While monetary easing since the global financial crisis provided important support for corporate investment, the monetary tightening since early 2010 may have started hurting corporate investment at the margin.

'The main policy implication of these results is that lowering and stabilising inflation is critical for sustained investment growth,' it added.

Indian economy expanded just 6.1% in the 2011 December quarter, the slowest growth in more than two years, mainly on account of high interest rates and global demand slowdown.

The Reserve Bank of India has hiked interest rates 13 times since March 2010 to October 2011 to tame inflation.


Source: PTI

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