India’s Risk Grows for Investors, as Political Risks Rise Across South Asia

India, Pakistan, Afghanistan, Bangladesh and Sri Lanka have all fallen in the rankings of a new political risk index released by Maplecroft, a firm that assesses global risks for business.

The Dynamic Political Risk Index (DPRI) forms part of Maplecroft’s Political Risk Atlas 2010 and rates 196 countries across the political risk issues most commonly found on corporate risk registers. These include: conflict and terrorism, regime stability, the rule of law, corruption, expropriation, and the business and macroeconomic environments.

Of the south Asian nations, India (27) has seen the biggest fall in the rankings, down nine places from last year. The country is rated as high risk in the DPRI, but extreme risk in the categories of conflict and political violence, terrorism, and business integrity and corruption.

Afghanistan (5) and Pakistan (11), both rated at extreme risk, have dropped one place in the ranking, while Bangladesh (23) has moved down four places and Sri Lanka (29) has fallen one place; both are deemed high risk countries.

“In part, India’s new ranking in the DPRI reflects the persistent risk of terrorism and conflict across the country, including potential violence from separatist movements,” said Eva Molyneux, a political analyst at Maplecroft. “India recently formed the separate state of Telangana, to forestall violence in Andhra Pradesh, a move that may provide fresh impetus to separatist groups in Assam and elsewhere. The conflict in Kashmir is still ongoing and India remains vulnerable to al-Qaeda style Islamist terrorism and Maoist terrorism. These factors can present significant security challenges for organisations with operations, supply chains and distribution networks in the country, unless they are managed correctly.”

Somalia (1), Democratic Republic of Congo (2) and Iraq (3), are rated most at risk in the DPRI, while Zimbabwe (9), Nigeria (10) and Russia (15) also feature as extreme risk nations. On the other end of the scale, Norway, Luxembourg, Finland, Denmark and New Zealand are rated as the nations least at risk.

The Political Risk Atlas 2010 also includes the Structural Political Risk Index (SPRI), an aggregation of 19 indices assessing the long-term trends and deeply ingrained features of 196 countries. These include human rights, resource security, infrastructure and vulnerability to climate change and natural hazards.

India (40) does score better than its regional neighbours for structural risk, with Afghanistan (5), Pakistan (11) and Bangladesh (17) all considered extreme risk and Sri Lanka (39), rated high risk. However, India is considered most at risk out of the emerging powers, primarily because of its poor human rights record, high vulnerability to climate change and infectious disease, plus high levels of poverty, water and food insecurity. China (45) is also considered high risk, while the SPRI rates both Russia (75) and Brazil (89) as medium risk.

In spite of this, Alyson Warhurst, executive chair of Maplecroft and a professor at the Warwick Business School, said the outlook is not all bad: “Structural and dynamic risks are very interlinked in most countries, but not however for the world’s fastest growing economies, the BRICs – Brazil, Russia, India and China, where the long term structural risk forecast is very encouraging. This will create an attractive growth environment for investors so long as they proficiently navigate short term dynamic risks.”


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