India slips to 40th slot in World Economic Forum's financial development index

NEW DELHI: India has slipped four places in a raking of 62 leading financial systems and capital markets, because of weak institutional and business environment, the World Economic Forum said in a report released on Wednesday.

India is ranked at 40th place in the fifth edition of the World Economic Forum's Financial Development Report 2012, down four spots from last year.

"Weak results in the institutional and business environment pillars continue to be driven by an inability to enforce contracts, a low degree of financial sector liberalisation, inadequate infrastructure, and a high cost of doing business" were largely responsible for the decline in India's ranking in the Index, the report said.

“India’s financial development remains at risk from the country’s continued inability to create the institutional framework and business environment to support growth,” warned WEF in a release issued on Wednesday. The ranking is topped by Hong Kong again and there is no change in the first six places from the last year.

"Globally, the Report found that a general stagnation in financial development, posing serious challenges to a global economic recovery," WEF said. The US retained its second position while UK was placed second.

Singapore, Australia and Canada were placed at 4th, 5th and 6th place respectively. India’s overall score has been pulled down by low scores on financial sector liberalization (56), contract enforcement (60), infrastructure (58), and cost of doing business (56).

Though the report does not mention it, the low ranking on contract enforcement may have something to do with the cancellation of telecom licences.

The spread of non-banking finance companies and their role in financial intermediation was recognized by the report. The report has ranked India 9th on non-banking financial services within the overall financial intermediation profile of the country.

Securitisation by the finance companies has fetched the country a high fifth rank. However, banks were placed a lowly 45th on the financial intermediation parameter.

The Netherlands fell two spots to 9th because of weakness in equity market development and banking system efficiency, whereas Sweden climbed into top 10 because of an improvement in retail access to capital.