What a rally today! Based on Qe3, ECB policy, Diesel price hike (yes that is a reform in India), markets rallied. Despite inflation again playing spoilsport (thanks to sharp electricity tariff revision), markets sustained their rally. Inflation again dampened hopes for rate cuts in upcoming Sep-12 review, but still..Markets are markets…Rally till it lasts..
Anyways, here is an interesting paper on probable economic reforms in any country. It is based on Doing Business rankings.
Improving the investment climate is among the top priorities in development. The World Bank Group’s Doing Business reports have become an important guide and benchmark to inform regulatory reforms aimed at unleashing the potential of the private sector. This paper discusses the potential role of the Doing Business Indicators in the reform process. Generally, the Doing Business studies are constrained in their prescriptive power for policy making.
However, governments that nonetheless choose to use the Doing Business reports for guidance in the reform process can aim to improve their Doing Business ranking to enhance the visibility of their general reform efforts; or they can aim at maximizing the impact of reform on economic growth. In this case, the evidence suggests that focusing on indicators relating to credit and the enforcement of contracts is the most important. Indicators related to cost have the largest potential for fostering growth.
Credit delivery and enforcement of contracts..is what the paper says.
In credit delivery India ranks around 40 out of 183 (declined from 37). In contract enforcement it is 182..
Based on this research on contract enforcement and even living in India tells you that contract is basically contact (minus the r). But to be ranked 182 is like abysmal. Infact, contracts are so central to functioning of an economy one actually wonders how does India manage to get so much attention and forex flows etc in the economy. People have always questioned DB data but that is always an issue with most global comparisons..
Actually, one could apply the methodology used in the paper to figure what matters for Indian economy..