It’s about the 'ease of doing business' in India

In the latest edition of the World Bank’s Ease of Doing Business Rankings, India has made significant progress and jumped 30 ranks from the previous year to be placed at 100 among 190 countries. The feat has been a result of multiple interventions and policy changes initiated by the government in the past, which has been unanimously applauded by business and industry leaders alike. Let us take a closer look at how India has achieved this ranking through initiatives, and what it means for businesses in general. 

The World Bank’s Ease of Doing Business Report 2018 mentions India as one of the ten countries that have improved their ranks by the widest margins since the last year. With its foray into the Top 100 for the first time, India is now only second to Bhutan (Rank: 75) in the South Asian region. Of the 10 parameters that constitute the index, India improved in six this year and implemented reforms in eight. The 30-rank surge this year is remarkable, because last year, India had managed to improve its ranking by a single position only, reaching 130, from 131 in 2016. The report mentions that the improvement is a result of the positive impacts of ‘sustained business reforms’ that have been carried out over the last few years.

It is important to note that the new ranking does not take into account two big-bang changes that the Indian economy witnessed in the last year. While the introduction of GST did not fall in the time frame (reforms until June 1 were eligible for review) and will be incorporated next year; demonetization, being a one-off and unique event in India was also not considered, as being an incomparable factor. In the light of these facts, it becomes important to identify the factors that led to the dramatic rise of India’s rank.

Providing protection to minority investors by making securities regulations stricter (rising from No.13 to No.4), improving tax payment mechanisms (rising from No. 172 to No. 119), increasing ease of availing credit (rising from No.44 to No. 29), simplifying resolving insolvency (rising from No.136 to No.103) and recapitalizing the public sector banks with an infusion of $32 billion are some of the important initiatives that helped India accelerate on the overall ranking. 

Introducing online portals to issue work permits, and paying taxes in the recent times have contributed to improving in performance. Furthermore, the Bankruptcy and Insolvency Act, 2017, once implemented is set to enable the exit or revival of businesses and is likely to ameliorate the nonperforming assets (NPAs) predicament for the financial services sector. This will in turn enable financial institutions and banks to deal with NPAs arising from failed corporate ventures. The Department of Industrial Policy and Promotion (DIPP) in partnership with the World Bank, also calculated the state-wise rankings, with a similar set of indicators, to fully understand the diverse set of conditions existing in the country. 

Despite the upward movement across several indicators, India fell from 155 to 156 in ‘Starting a Business’, from 26 to 29 in ‘Getting Electricity’, from 138 to 154 in ‘Registering a Property’, and from 143 to 146 in ‘Trading across Borders’. These, along with ‘Dealing in Construction Permits’ (Current Rank: 181) and ‘Enforcing Contracts’ (Current Rank: 164) are a few areas where India ranks on the lower spectrum, despite showing marginal improvement in a few. For instance, the time taken to enforce a contract is longer today, at 1,445 days – longer than 1,420 days from 15 years ago. Despite bringing down the time needed to register a new business from 127 days (15 years ago) to 30 days (today), India still ranks behind 155 of 190 countries on the index.

However, since the ranking index includes data only from Delhi and Mumbai, it becomes difficult to comment on whether such measurements are universally applicable throughout the country. Furthermore, a lot of business-related functions are directly under the control of state governments, and a unique set of laws and policies might completely reverse the business environments in different states. What’s more, the government of Maharashtra is said to have engaged with the World Bank to comprehensively understand the yardsticks of measurement and also present the reforms that have already been implemented. 

Despite the criticism accompanying the methodology of the rankings, leaders from various industries hailed the rapid rise of India in the Index. Many, including various leaders of global institutions have already put their weight behind Prime Minister Narender Modi, and praised the changes he has brought about in the last few years. Annette Dixon, Vice President, South Asia region, World Bank has been quoted saying, “The significant jump this year is a result of the Indian government’s consistent efforts over the past few years…India’s efforts have been instrumental in helping to close the gap towards international best practice. Not only India has moved in its relative ranking to other countries, it’s also moving up in its absolute ranking in terms of distance to frontier metric.”

While a rise in the ranking might not necessarily translate into rapid economic growth or an immediate surge in private investments, the same can be expected to boost the slacking sentiment in the market and eventually help businesses prosper. Dixon elaborates, “We see a very strong correlation from Doing Business between performance in Doing Business and role of performing economies who do create jobs. In India, we would like to see the SMEs growing to be larger. SMEs in India tend to be smaller than in other countries… India has over a million new job seekers joining the labor market every month and so seeking growth in SMEs is going to be very important for creating jobs at the rate that India needs.”

India is expected to rise further in the index in the coming years, as the upward momentum has been on the focus since 2014 when the Prime Minister is said to have made a resolve to reach within the top 50, increasing transparency in government functioning. When the full impact of GST starts becoming visible, one can expect India to continue its progressive journey in the index. 

References: 
http://www.doingbusiness.org
http://indianexpress.com/article/business/business-others/world-bank-doing-business-report-2018-new-insolvency-rules-tax-norms-lift-india-30-ranks-to-top-100-in-ease-of-business-rank-4916477/