24 September 2015 12:04:19 IST

India has more millionaires. Is it doing better?

Yes, and no. Two studies on the economy present divergent views on wealth creation and the business environment

This week two reports were released that had some interesting things to say about the Indian economy and its entrepreneurs. The first, the World Wealth Report 2015, said India had 1.98 lakh dollar millionaires in 2014. The report, released by Capgemini and RBC Wealth Management, added that India recorded the highest growth (26 per cent) in the number of these HNIs over a year, and had the 11th largest population of millionaires in the world. The list was led by the US (4.3 million millionaires), Japan (2.4 million) and Germany (1.14 million).

The second report, a study by Grant Thornton, ranked India 34th among 60 countries in business growth environment. The countries are ranked on the Grant Thornton Global Dynamism Index, and India gained 14 places from the last ranking in 2013. In last year’s report, India had slipped by six places, one of the worst performers.

No direct link

It is tempting to link the two studies. An improved business environment has led to an unprecedented increase in the country’s elite group of Richie Rich. It is simple and straight.

But then, there is a catch.

The GDI Index ranks the country 53rd out of 60 in the business operating environment. A PTI news report on the study adds: “A poorer regulatory environment and a lack of investment in science and technology dragged down India’s overall ranking.”

The story quotes Harish HV from Grant Thornton India LLP Partner India Leadership team as saying: “India scores high on economic situation and growth (overall ranking 2) and availability of labour and human capital (15) and very poorly on financing environment (36), science and technology (41) and is lowest on business operating environment (53).”

Therefore, there is nothing new in the factors that rank India high — its talent pool, cheap labour and the scope for higher growth. Probably, the victory of Narendra Modi in the 2014 General Elections and his promise of reforms made these factors even more promising. There were hopes that the financing and regulatory environment would become more business-friendly, as it is in a high-performing economy such as Singapore.

But if India fared poorly in the business operating environment (ranked at the bottom), from where did all these HNIs, most of whom are would be entrepreneurs, come from?

The Election of Modi seems to have played a role here too. “The election of a popular, reform-minded prime minister helped to boost investor... Lower oil prices helped reduce country’s budget deficit and retail inflation fell considerably. All these events helped India move up to the third place fwwor HNWI wealth across the Asia-Pacific, displacing Australia, which suffered from a significant 7.6 per cent decline in equity markets,” says a report in Business Standard quoting the World Wealth Report 2015 study.

It ' s the Sensex

There is one more factor. The Sensex.

When Narendra Modi emerged victorious on May 16, 2014, the Sensex touched a life-high of 25,375. A Reuters report says that the index rose 8 per cent in May, its best monthly performance since October 2013. By the end of 2014, the Sensex had risen by over 20 per cent from the start of the year. So it is not surprising that entrepreneurs, investors and others who make up the 1.98 lakh HNIs saw their wealth going up. And the markets were making hay not because there was sunshine, but because there was a promise of sunny days.

A quick glance at most of the studies that come out with lists of richest people and rank the top billionaires will show that the sensitive index is the king maker. At the same time, it would be unfair to the country’s entrepreneurial class to give the Sensex all the credit for making them rich.

Indian businessmen have found ways to work around the regulatory and bureaucratic web that always surrounds them. That might explain why some entrepreneurs do better than others from the same sector; or, when a few businessmen are able to buck the overall trend of economic slowdown. For instance, Rahul Bhatia of IndiGo excelled even when others in the aviation sector struggled to make profits.

One can already make an educated guess on how the country will fare when these two reports come out next year. While the Sensex has nosedived till August this year, the business environment hasn’t improved much.