‘Expedite reforms if you want to beat China’

Sudarshana Banerjee

NEW DELHI: In a startling revelation, Dr Nicholas Stern, senior vice president and chief economist of the World Bank informed that for an foreign enterprise to set up office in India, it takes almost 95 days to clear basic formalities and other paper work. While it takes just two days for a business start up in Canada and 72 days in China.

Stern was in the city to deliver a lecture entitled ‘Making Trade Work for Poor People,’ in the National Council of Applied Economic Research (NCAER). Speaking to CNS, Dr Stern said that India should workout its power sector reforms, and clean up the bureaucracy situation if it wanted to tap the foreign investments that are currently going to China.

"India has the analytical capability to do it," he added. "The cost of start-ups is 50 percent of the GDP in India, while in China it is just 13 percent. Exit clauses in China are also far more flexible than in India. Compared to other countries, India took as much as thrice the time taken to clear the customs. The cost of shipping a consignment to the US from India was 35 times more than the cost of shipping the same from China to the US. All these are reasons why in terms of trade velocity China will be among the biggest trading nations of the world, if not the biggest, and why India will not figure in the picture," Stern explained.

Speaking on the software sector of India, which has been a major export earner, Stern suggested that India should discard import substituting electronic policy of the early 1980s and allowing easy access to imported computers and a more liberal use of satellites and leased telecommunication lines.

"The main impetus provided by the government was the creation of the software technology parks, allowing exporters duty-and-tax free access to import inputs, principally computer and communication hardware. This was accompanied by reduction in tariffs with the added benefit of reducing incentives for equipment to leak into the domestic economy," Stern said.

He however added that the software sector could do better if the country removed some of the restrictions on the temporary movement of natural persons supplying services, where developing countries have an edge over others. There should also be handholding from the government for software companies to travel abroad and network or explore the potential markets in developed countries. Dr Stern dubbed restrictions like these as ‘non-tariff barriers’ to trade.

Talking about India and the WTO, he said that India stands to gain significantly from lowering tariffs. "An average tariff of 35 percent is simply too high. India’s economic size suggests that trade could and should be $150 billion higher than it is today, with concomitant benefits in terms of higher incomes and employment in productive activities and positive spillover on economic activity in neighboring countries," he said.

"Both past and future liberalization is in danger of being eroded by other forms of protection such as anti-dumping action. India has become the second largest user of anti-dumping in the world. Disciplining the use of ‘substitute’ instruments of protection is urgent," Dr Stern explained.

"While China has accepted WTO as a means of emerging the leader and as a phase of growth, India has to be careful about its stance and figure out whether it wants to implement WTO tariff structure because it would help the economy and even help in getting more loans," he summed up.